How to run payroll in Luxembourg

Payroll in Luxembourg runs on a monthly cycle. Payment is usually due by the last working day of each month.

Most Luxembourg employers pay salaries monthly, though some companies opt for bi-weekly payments for hourly workers. The standard practice is to process payments on the last working day of the month, giving payroll teams until the 30th or 31st to complete all calculations and transfers.

Payment frequency requirements

Luxembourg labor law doesn't mandate specific payment frequencies, but monthly payments are the established norm for salaried employees. Companies must maintain consistent payment schedules once established in employment contracts.

For hourly or temporary workers, bi-weekly payments are acceptable and sometimes preferred. The key requirement is that employees receive their full compensation within 30 days of the work period ending.

13th month payment

Luxembourg doesn't legally require 13th month payments, but they're common practice in many sectors. About 60% of Luxembourg employers provide this additional payment, typically in December.

When offered, the 13th month payment equals one month's base salary. It's subject to the same tax and social security contributions as regular salary. Some collective bargaining agreements mandate 13th month payments in specific industries like banking and insurance.

Holiday and vacation pay

Vacation pay in Luxembourg equals the employee's normal salary during leave periods. The standard entitlement is 25 working days annually, paid at 100% of regular salary.

Vacation pay is calculated using the employee's average daily wage over the three months preceding the vacation. For variable income workers, this ensures fair compensation during leave periods.

Unused vacation days must be paid out when employment ends, calculated at the same rate. Employees can't waive their right to vacation pay, even voluntarily.

Payment methods and requirements

Bank transfers are the standard payment method in Luxembourg. Employers must transfer salaries directly to employees' bank accounts - cash payments aren't permitted for regular salaries exceeding €1,500 monthly.

International companies can pay in euros through SEPA transfers. All payments must clear by the agreed pay date, so factor in processing time when initiating transfers.

Payslip requirements

Luxembourg employers must provide detailed payslips with each payment. Payslips can be delivered electronically if employees consent, otherwise paper copies are required.

Payslips must be in French, German, or Luxembourgish. For international employees, English translations are helpful but not legally required.

Required payslip elements:

• Employee name and address
• Employer details and registration numbers
• Pay period dates
• Gross salary breakdown
• All deductions itemized
• Net pay amount
• Cumulative year-to-date figures
• Social security and tax withholdings

The payslip must show social security contributions separately from income tax withholdings. This transparency helps employees understand their total compensation costs and verify correct deductions.

Tax withholding reports in Luxembourg are due by the 15th of each month following the pay period. Late filing means penalties starting at €250 for the first offense.

How much income tax do employees pay?

Luxembourg uses a progressive tax system with rates ranging from 0% to 45.78% for 2026. The system includes both income tax and solidarity surcharge.

The solidarity surcharge adds 7% to 9% on top of income tax, bringing the maximum combined rate to 45.78% for high earners.

Municipal tax adds complexity

Every Luxembourg municipality charges additional tax ranging from 6% to 12% of income tax liability. Luxembourg City charges 7.5% for 2026, while smaller communes may charge up to 12%.

You'll calculate municipal tax as a percentage of the employee's income tax amount, not their gross salary.

What withholding requirements apply?

Employers must register for payroll tax withholding before processing the first payroll. The process takes 2-3 weeks through the Centre Commun de la Sécurité Sociale (CCSS).

Monthly withholding reports are due by the 15th of the following month. You'll file electronically through the MyGuichet.lu platform using the employer's LU tax number.

Annual reconciliation happens by March 31st of the following year. This compares actual tax liability with amounts withheld throughout the year.

How do you register for tax withholding?

New employers need three registrations before starting payroll:

• VAT registration with the Registration and Domains Administration
• Payroll tax registration with the Direct Tax Administration
• Social security registration with CCSS

The payroll tax registration requires your company's commercial registration, anticipated employee count, and estimated annual payroll amounts.

Processing takes 10-15 business days. You'll receive a tax withholding number that goes on all monthly filings.

What about non-resident employees?

Non-resident employees face the same withholding rates but different annual filing requirements. They must file Luxembourg tax returns by March 31st if they earn more than €36,000 annually or work fewer than 9 months in Luxembourg.

Tax treaties with neighboring countries create special rules. Belgian and German residents working in Luxembourg may qualify for reduced withholding under certain conditions.

French residents working in Luxembourg are fully taxable in Luxembourg with no withholding reductions available.

What tax mistakes cost companies the most?

Wrong municipal tax rates account for 40% of Luxembourg payroll corrections. Each employee's residence determines their municipal rate, not your company's location.

The penalty is 10% of understated tax plus interest at 6% annually.

Incorrect tax class usage creates overpayments that employees must reclaim through annual filings. While not penalized, this creates administrative burden and employee complaints.

Late monthly filings trigger automatic penalties starting at €250. The penalty doubles for each subsequent late filing in the same calendar year, reaching €2,000 for chronic late filers.

Missing annual reconciliation by March 31st results in €500 penalties plus estimated tax assessments that typically exceed actual liability by 25-30%.

Think your home country has high employer taxes? Luxembourg's contributions total 14.2% on top of every salary.

Contribution breakdown

What you'll actually pay

For a €60,000 annual salary:

• Base salary: €60,000
• Social security: €4,800
• Health insurance: €1,680
• Pension fund: €1,830
• Dependency insurance: €210
• Total employer cost: €68,520

Your true cost is 14.2% higher than the base salary. Budget accordingly.

Contribution caps matter for high earners

Only social security has an annual cap at €147,600 in 2026. Once an employee's salary exceeds this threshold, you stop paying the 8% social security contribution on the excess.

For a €200,000 salary, you'd pay social security on only €147,600, saving €4,192 annually compared to no cap.

Health insurance, pension, and dependency contributions have no caps. You pay the full rate regardless of salary level.

Registration requirements

Register with these agencies before your first payroll:

• CCSS (Centre Commun de la Sécurité Sociale) - All social contributions
• CNAP (Caisse Nationale d'Assurance Pension) - Pension contributions
• CNS (Caisse Nationale de Santé) - Health insurance

Registration takes 2-3 weeks. Submit applications at least one month before hiring your first employee.

You'll need your business registration certificate, VAT number, and signed employment contracts.

Payment deadlines you can't miss

All contributions are due by the 10th of the following month. Pay January contributions by February 10th.

Late payments incur a 0.6% monthly penalty plus 6% annual interest. Miss three consecutive months and face immediate audit.

The CCSS accepts bank transfers and direct debits. Set up automatic payments to avoid penalties - even one day late triggers fees.

Sick leave in Luxembourg is paid at 100% for the first 77 days by the employer. That's over 15 weeks of full salary you'll need to budget for each employee who falls ill.

Annual leave

Every employee gets 26 working days of paid annual leave. You'll calculate vacation pay at their normal daily rate - no reductions allowed.

Employees can carry over unused days to March 31st of the following year. After that, unused days expire unless the employee was unable to take leave due to sickness or business needs you can document.

When someone leaves, you must pay out all unused vacation days at their current salary rate. This includes any carried-over days from the previous year that haven't expired.

Sick leave

Your payroll burden is significant here. You pay 100% of salary for the first 77 days of sick leave. After day 77, the National Health Fund (CNS) takes over.

Employees need a medical certificate from day 4 onwards, submitted within three working days. For the first three days, their written declaration is enough.

The CNS reimburses you for sick leave payments, but only after the 77-day employer period ends. Plan your cash flow accordingly.

Parental leave

Maternity leave

Mothers get 20 weeks of maternity leave at full pay. You're responsible for the first 20 weeks of salary, then claim reimbursement from the Maternity Fund.

The leave typically splits as 8 weeks before birth and 12 weeks after, but employees can adjust this with medical approval.

Paternity leave

Fathers get 10 days of paternity leave at full pay, taken within 2 months of birth. You pay the salary and get reimbursed by the state.

Both parents can also take additional parental leave (4 or 6 months) paid by the state, not affecting your payroll directly.

Public holidays 2026

Work on public holidays requires 100% overtime premium on top of regular pay. Most employees get the day off with full pay.

Mandatory benefits affecting payroll

13th month salary

You must pay a 13th month bonus equal to one month's salary. Most employers split this into monthly portions (8.33% extra each month) to smooth payroll costs.

Meal vouchers

While not legally required, 95% of employers provide meal vouchers worth €10.80 per working day. You pay €5.95, employees contribute €4.85 through payroll deduction.

Transportation allowance

You can provide up to €440 monthly tax-free for public transport or €0.25 per km for car travel (up to €2,574 annually). These don't require payroll deductions but affect your budget planning.

Miss the 15th monthly filing deadline in Luxembourg and penalties start at €250 per day, escalating to 0.6% of the tax due for each month of delay.

Luxembourg's compliance requirements center around the Centre Commun de la Sécurité Sociale (CCSS) and Administration des Contributions Directes (ACD). Both agencies actively monitor payroll compliance and conduct regular audits.

Monthly filing requirements

You'll submit your déclaration de salaires (salary declaration) to CCSS by the 15th of each month for the previous month's payroll. This covers all social security contributions and includes every employee on your payroll.

The declaration goes through CCSS's online portal at www.ccss.lu. You'll need your employer identification number and detailed payroll data for each employee. That includes gross salary, overtime, bonuses, and any benefits in kind.

Late filing penalties start immediately after the 15th. You'll pay €250 for the first day, then 0.6% of the total contributions due for each additional month of delay.

Monthly tax withholdings get reported separately to ACD through their MyGuichet.lu portal. This declaration is also due by the 15th and covers income tax withheld from all employees.

Annual reporting

Your annual tax reconciliation is due by March 31st, 2027 for the 2026 tax year. This detailed report reconciles all monthly withholdings against actual tax liability for each employee.

Employee tax certificates must be distributed by February 28th, 2027. These certificates show total earnings, tax withheld, and social contributions for the year. Employees need these for their personal tax returns.

The annual social security reconciliation happens automatically through CCSS based on your monthly declarations. However, you must verify and confirm the annual totals by January 31st, 2027.

Employee documentation

Employment contracts must be in writing and include specific mandatory elements: job description, salary details, working hours, probation period, and applicable collective bargaining agreement. Contracts can be in French, German, or Luxembourgish.

Payslips require detailed breakdowns showing gross salary, all deductions, net pay, and year-to-date totals. You must include the employer's identification numbers and the pay period dates.

Keep all payroll records for 10 years minimum. This includes employment contracts, payslips, time records, tax certificates, and correspondence with authorities. Digital storage is acceptable if properly backed up.

Penalties and violations

Interest charges apply to all late payments at 0.6% per month. The tax authorities can also impose administrative fines up to €25,000 for serious compliance failures.

Regulatory oversight

Centre Commun de la Sécurité Sociale (CCSS) handles all social security matters. Contact them at +352 40 141-1 or through their online portal at www.ccss.lu for contribution questions.

Administration des Contributions Directes (ACD) manages income tax compliance. Reach them at +352 40 800-2000 or via MyGuichet.lu for tax-related inquiries.

Both agencies conduct random audits and targeted reviews based on risk assessment. They typically examine the most recent three years of records but can go back further if they find discrepancies.

Effective January 1, 2026, all employers in Luxembourg must apply the new minimum wage rate of €2,570.93 per month for qualified workers, marking a 3.2% increase from 2025's €2,490.81.

Minimum wage adjustment - Effective January 1, 2026

• Qualified workers: €2,570.93/month (up from €2,490.81)
• Non-qualified workers: €2,056.74/month (up from €1,992.65)
• Youth rates (15-17): €1,542.56/month (up from €1,494.49)

The adjustment affects automatic salary indexation calculations for all employees earning above minimum wage.

Tax bracket thresholds updated - Effective January 1, 2026

• Class 1 tax-free allowance increased to €13,284 (from €12,972 in 2025)
• Top bracket threshold raised to €220,788 (from €215,430)
• Withholding tables must be updated in payroll systems immediately

Social security contribution ceiling raised - Effective January 1, 2026

• New annual ceiling: €140,004 (up from €136,652 in 2025)
• Affects pension and health insurance contributions for high earners
• Monthly ceiling now €11,667 (from €11,388)

Digital payslip mandate extended - Effective July 1, 2026

• All companies with 50+ employees must offer digital payslips
• Employee consent still required for electronic delivery
• Paper alternatives must remain available upon request

Action required: Update payroll systems with new minimum wage rates, tax brackets, and social security ceilings before processing January 2026 payroll. Companies approaching 50 employees should prepare digital payslip capabilities for mid-year compliance.