Do I Need a Local Entity to Hire in Luxembourg?

In Luxembourg, a "local entity" typically refers to a recognized business presence, such as a subsidiary or branch office, that allows you to employ staff directly. This setup is essential for fulfilling local payroll and employment obligations, ensuring compliance with Luxembourg's labor laws.

Without a local entity, you won't be able to register as an employer, manage mandatory social security contributions, or issue compliant employment contracts. An alternative to establishing a local entity is to engage an Employer of Record (EOR), which can handle these responsibilities on your behalf.

What is Required to Employ Someone in Luxembourg?

• Local employing entity required to directly employ? Yes (you need to register with the Luxembourg Business Register)
• Payroll registration required? Yes (mandatory registration with the Administration de l'Enregistrement et des Domaines)
• Withholding/tax remittance required? Yes (employers must withhold income tax and social security contributions)
• Social contributions required? Yes (employers are responsible for social security contributions)
• Local employment agreement required? Yes (written contracts are mandatory under Luxembourg law)
• Mandatory benefits to budget? Yes (includes paid leave, health insurance, and pension contributions)
• Works council/collective agreements considerations? Often (many sectors have collective agreements impacting employment terms)

Best Options If You're Hiring in Luxembourg

Can I Hire Contractors Instead of Setting Up an Entity?

Yes, but you should be cautious about misclassification risks.

While hiring contractors in Luxembourg allows you to bypass the need for a local entity, it's crucial to ensure that the contractor's role is genuinely independent. Misclassification can lead to significant legal and financial consequences, especially if the contractor is deemed to be functioning as an employee.

• Ensure the contractor has multiple clients and operates independently.
• Avoid controlling their work hours or methods excessively.
• Be wary if the contractor's work is integral to your business operations.

How Long Does Entity Setup Take And What Does It Cost?

Typical entity setup timeline: It often takes 4–8 weeks to set up an entity in Luxembourg, depending on the required registrations and notary involvement.

Ongoing cost categories (entity route):

• Accounting, bookkeeping, and statutory filings: Estimated €300–€600 per month ($320–$640)
• Payroll provider: Estimated €20–€50 per employee per month ($21–$53)
• Employer registrations and recurring compliance: Estimated €1,000–€2,000 per year ($1,070–$2,140)
• Corporate tax filings and annual reporting: Estimated €1,500–€3,000 per year ($1,600–$3,200)

EOR cost components (no-entity route):

• A per-employee EOR service fee (from $399 per month with Playroll)
• Pass-through statutory costs (e.g., employer social security contributions, which are approximately 12.45% of gross salary)
• Any optional benefits you choose to provide beyond statutory minimums

How an Employer of Record Can Help You Hire in Luxembourg

Hiring in Luxembourg can be complex, but it doesn’t have to require setting up a local entity or taking on long-term overhead. With an Employer of Record like Playroll, you get a simple, predictable way to hire compliantly while keeping costs transparent and under control. We help you:

• Hire employees in Luxembourg quickly without establishing a local entity, eliminating incorporation costs, ongoing administration, and exit complexity.
• Stay fully compliant with local payroll, tax, and employment regulations with Playroll’s managed payroll services.
• Control your total employment costs, with a clear monthly EOR service fee (from $399 per employee).
• Focus on growing your business, while we manage contracts, payroll, compliance, and labor law obligations end to end.
• Scale up or exit the market easily, without the financial or legal burden of closing a local entity.