Minimum wage, payment of social security contributions, withholding tax. As an employer, what are your duties when it comes to pay? myLIFE takes a look.
Your company is growing fast and you’ve decided to hire new staff to help develop your business. Before recruiting, you’ll have to complete a number of formalities, such as declaring a vacancy, preparing an employment contract and registering with the Luxembourg Joint Social Security Centre (Centre Commun de la Sécurité Sociale – CCSS). Full details can be found at: What steps are involved in hiring a new employee?
Once you’ve found the right person, you’ll have to comply with the Luxembourg Labour Code, particularly with regard to working hours, holiday entitlement, workplace safety and pay. We’ll now try to answer any questions you may have on this last point.
Luxembourg is renowned for its high wages. In 2022, it even recorded the highest average hourly labour cost among EU member states.1 Despite this, you’re still free to determine pay in conjunction with your employees. However, you must respect the current minimum wage. In Luxembourg, the amount of the minimum wage is set by law and is based on the employee’s age and professional qualifications. For employees aged 18 years and over, there are two types of minimum wage (as of 1 September 2023):
- the unskilled minimum wage: gross monthly salary of €2,570.93
- the skilled minimum wage: gross monthly salary of €3,085.11
If you hire a full-time employee (40 hours a week), you can’t pay them less than these amounts. There’s also a minimum wage for minors under the age of 18. For those aged 15 to 17, the gross minimum wage is €1,928.20, while for those aged 17 to 18 the amount is €2,056.74.
NB: if your company has a collective bargaining agreement (banking, insurance, construction, etc.), the salary you offer can’t be below that indicated in the pay scale or pay tables set out in the agreement. Make sure to inform yourself in advance!
Skilled or unskilled employee?
To qualify for the skilled minimum wage, your employee must work in a profession that requires an officially certified professional qualification. This qualification must be recognised by the Luxembourg government and be at least equivalent to a Luxembourg certificate of vocational and professional ability (certificat d’aptitude technique et professionnelle – CATP) or a Luxembourg vocational aptitude diploma (diplôme d’aptitude professionnelle – DAP) earned through technical secondary education.
However, there are exceptions for workers with several years’ experience. Full details can be found at the ITM website.
Useful info: It’s your choice whether or not to pay employees bonuses, gratuities or 13th month salary payments. There’s no obligation to do so under employment law (unless these pay supplements are provided for in the employment contract or collective agreement or result from established practice). Furthermore, companies in Luxembourg frequently offer their employees benefits in kind. These may take the form of meal vouchers, pension plans, transport costs, and so on. Here again, you decide whether or not to offer your employees such benefits.
One of the special features of Luxembourg’s economy is wage indexation. This means that wages, salaries and pensions are automatically adjusted to reflect changes in the cost of living. The aim is to protect the purchasing power of workers against inflation.
Each month, Statec, Luxembourg’s national institute of statistics and economic studies, draws up the consumer price index based on changes in the value of more than 8,000 products in the Grand Duchy. In simple terms, an index-linked wage adjustment of +2.5% is triggered when the average price rises above the threshold value.
As an employer, you’re obliged to make this adjustment to your employees’ pay, regardless of the field of activity or size of your business.
As an employer, you’re obliged to make this adjustment to your employees’ pay, regardless of the field of activity or size of your business. If you fail to do so, you risk being fined by up to €25,000.
Gender pay equality
Although this may seem obvious, make sure to pay men and women equally in your business. In your company, employees who do identical work or work of equal value should be paid the same, regardless of their gender.
Since 2016, the law has made unequal treatment of men and women an offence under the Labour Code. Failure to comply can result in a fine of between €251 and €25,000.
Payroll and payslips
You’re responsible for paying your employees’ wages each month, and at the latest by the last day of the month. You must provide each employee with a detailed monthly payslip. In particular, it must state the period worked, gross and net amounts, the number of hours worked (for an hourly wage) or time worked over the month, paid overtime, hours worked at night, on Sundays and on public holidays, as well as any other benefits in kind or in cash.
This statement may be sent by post or e-mail or given to employees in person.
Useful info: you must pay your employee in full. However, in addition to wage attachments, you can withhold part of an employee’s pay in certain specific circumstances provided for by law: to cover fines incurred by the employee, cash advances you have made to them, compensation for damage they have caused, or damage to or loss of tools, instruments or materials.
The gross remuneration paid to your employees and the exact number of hours worked must be reported to the CCSS each month.
Social security contributions
The gross remuneration paid to your employees and the exact number of hours worked must be reported to the CCSS each month. This declaration must be made either electronically via SECUline or using the payroll sent each month by the CCSS. You must check this list, correct it where necessary, and return it to the CCSS within 10 days.
Based on this information, the CCSS will send you a monthly account statement showing the total social security contributions you must pay, including both employee contributions (deducted directly from your employees’ wages) and employer contributions. You’re then responsible for paying the total contributions to the CCSS. Failure to do so may result in a fine. For more information, visit the CCSS website.
Useful info: your employees’ periods of incapacity for work must be declared to the CCSS on a monthly basis at the same time as the declaration of remuneration. In some situations, you may be entitled to a full or partial reimbursement (80%) of the salary you’ve paid, subject to certain conditions. Periods of incapacity for work include sick or accident leave, leave for family reasons, maternity leave, exemption from work for pregnant or breast-feeding women, adoption leave and leave to care for a dying relative.
As well as making social security contributions, you’re also responsible for deducting tax at source from your employees’ wages and paying it to the Luxembourg tax authorities (Administration des Contributions Directes – ACD).
Consult your employees’ withholding tax cards to determine the amount of tax to be deducted from their wages. These cards are available in your certified business eSpace on MyGuichet.lu.
Useful info: although employees no longer have to provide you with their tax cards each year, they should still ensure that the tax card has been prepared by the ACD. Otherwise, you’ll have to deduct tax of at least 33%.
The amount deducted must be declared to the ACD (using form 950 “Déclaration de retenue d’impôt sur les rémunérations et des crédits d’impôt bonifiés”, which is available on the ACD website, or via MyGuichet.lu) then paid to the relevant tax authorities.
The periods for reporting and payment to the ACD (monthly, quarterly or annually) depend on the amounts deducted from the current month’s wages. Late declarations or payments may result in financial penalties.
Filing of salary account statements
Before 1 March each year, you must submit the salary account statements (annual certificates of remuneration) to the ACD via MyGuichet.lu and also provide them to the employees. These statements list all the remuneration you’ve paid to your employees during the tax year.
If you fail to meet the deadline, you may have to pay a penalty or additional tax for late filing or failure to file.
Remember: you must keep a register of your employees’ paid holiday leave entitlements (ordinary, extraordinary and special leave), as well as a record of overtime and hours worked at night, on Sundays and on public holidays.
You now have a clearer idea of your main obligations as an employer when it comes to pay. For further assistance, get in touch with an accountancy firm or fiduciary. You can delegate some of your tasks to them. Good luck!
1Source: Statec – Regards 07/23 – The hour worked remains expensive in Luxembourg.