A guide about payroll: what it is, local laws and regulations

What is payroll?

Payroll simply means ‘the process to pay your employees’, which includes from gross salary, to deductions, employer contributions and finally the net pay. In more detail:

• Gross salary is the base salary before tax including allowances such as overtime pay, potential bonuses and travel expenses.
• Deductions mainly means income tax and employee contributions, usually health and pension.
• Employer contributions refer to social security, health insurance if any, pension and possibly workplace accident supplements, which are all paid on top of the gross salary.
• And finally, net pay is the final amount the employee receives in their bank account after all deductions.

Payroll in Luxembourg

Luxembourg is considered a hub in Europe when it comes to jobs, high wages, and a dynamic labor market which leads to innovative labor laws. The luxembourgish payroll system though can be intimidating to newcomers due to its complicated social security rules and the required multilingual documentation.

For a company to successfully navigate the Luxembourgish payroll system in 2025, it means a deep understanding of all administrative processes and of course being compliant to all rules, laws and regulations regarding hiring and paying employees. In this article, we will see what are the options of setting up and managing payroll in Luxembourg.

Key payroll details for Luxembourg in 2025

The peculiarities of the Luxembourgish payroll system

Luxembourg has quite a challenging payroll system and some of the reasons are:

• Strict labor laws and compliance regulations.
• Multilingualism (French, German, Luxembourgish and even English sometimes).
• Big fines in case of non-compliance with wage updates. These regulations are in place to avoid inflation.

Quick step-by-step guide to set up payroll in Luxembourg

When you have your company up and running and registered with RCS (Registry of Commerce and Companies), CCSS (Social security), VAT and tax authorities, you can start setting up the payroll process by following those simple steps:

1️⃣ New company bank account specifically for paying employees

2️⃣ Employee data registration

That means, not only personal data (such as name, address, date of birth, national ID or passport number, tax situation and social security number) but also contract type (full-time or part-time, permanent or temporary etc), attendance, overtime, leaves and other allowances.

3️⃣ Gross salary to net salary calculation

Starting from the gross salary + allowances/bonuses you deduct income tax (up to 42%) and employee security. The latter varies depending on what is agreed and the percentage, but generally it would mean pension around 8% and health contribution between 2.8 and 3.5%. The employer contributions include, besides pension and health insurance, also accident at work at a 0.68 to 1.13% and other health related contributions.

4️⃣ Payment

In Luxembourg, employees are paid typically monthly, usually the last working day of the month. The payslips include gross pay, all deductions and contributions and net pay. At the end of the year, there is usually a 13th month salary or half-month bonus. Weekly payments are not the norm, but they can happen as well.

5️⃣ Reporting

As an employer you need to keep payroll archives. That means:

• Submit monthly social and tax contributions to CCSS and the local tax authorities.
• File annual tax declarations by the end of March for the previous fiscal year.
• Keep payroll records for at least 5 years to be GDPR compliant and in case of auditing.

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Payroll options in Luxembourg

Companies have various options to choose from when they want to conduct payroll in Luxembourg, depending on company size and capital. Let’s briefly see what they are:

• 1. Company payroll

  That would mean that the in-house HR, or specifically payroll, team takes care of paying the company employees. It is usually larger companies who choose this option as they have better control this way, especially when it comes to compliance.

• 2. Outsourcing payroll

  Companies can hire external collaborators as contractors, meaning HR experts, accountants or fiduciaries, to take over their payroll needs. This way, a company can still be legal and compliant without all the time consuming administrative tasks included.

• 3. Employer of Record, otherwise called ‘EoR’

  An employer of record can hire and pay employees on behalf of the company. The employer of record usually deals with contracts, payroll, benefits and legal and compliance matters.

EasyBiz services: Payroll made easy

EasyBiz, literally meaning ‘Easy Business’ was founded in 2024 with main scope to help companies establish themselves in Luxembourg, and it is collaborating with multilingual experts to assist with:

• Choosing the right company type depending on the business.
• Launching a new company, see more here. 
• Managing payroll, meaning processing salaries, calculating deductions and issuing payslips, just with a small monthly fee, see more here.
• Accounting and bookkeeping meaning everything from VAT registrations to invoice management, see more here.
• Legal and tax compliance through GDPR-compliant systems.

So why choose EasyBiz?

Business Intelligence Luxembourg recently praised EasyBiz’s work by underlining their ‘seamless onboarding’ and ‘paper-free process’. Well, it’s true!

EasyBiz is a new, dynamic company which can help you succeed in yours! We are efficient by automating processes such as payroll, we collaborate with local experts for legal and compliance issues, we offer multilingual assistance and support.

We also always keep you informed on the latest trends via our blog and guides about companies, hiring employees, accounting, and other legal and tax matters. And of course, we are transparent and fast!

Conclusion

Payroll in Luxembourg is nearly flawless but can also be challenging, that is why it requires special care, precision, specialization and expertise. If you are new in Luxembourg and thinking of launching or just launched your company, EasyBiz is here to help you every step of the way, with accounting and payroll so you don’t have to deal with never ending, time consuming administrative tasks. Feel free to contact us for any questions and let’s bring your company to the top together!