Employment – Transient Workers

Are you seeing a shift in employee/ workforce expectations in your jurisdiction, when it comes to flexibility, length of contract, remote working, hours of work, etc.? How can clients both reflect this and protect their business interests in employment contracts?

As of the pandemic, most Luxembourg employers are facing an increased demand for flexibility from employees in the execution of their employment agreement.

Matters regarding the workforce in Luxembourg should always be apprehended taking into account the small size of the territory, which implies the existence of a high ratio (45%) of daily cross-border workers (from France, Germany, Belgium), but also an important number of international employees.

Pursuant to Luxembourg law, an employee is not allowed to work for a Luxembourg employer solely remotely from his country of residence, as the “main place of work” where the employee usually performs his/her work must be located on Luxembourg’s territory.

As of 2020, most employees, to the extent possible, performed their working contract from their domicile (whether in Luxembourg, but also abroad), which called in specific consequences on social security affiliation and taxation.

Should an employee perform more than 25% of the activity outside of Luxembourg’s territory, he/she could be liable for double contributions, which would generate high costs for the employer who would have to register in another country. There is also a risk of double taxation (or taxation in both countries) in case of exercise of the activities both in Luxembourg and abroad.

Amendments to the existing double tax treaties have been negotiated with neighbouring countries, setting up a maximum number of working days per year that can be performed outside Luxembourg’s territory without incurring adverse tax consequences.

Therefore, both employers and employees must always take into account these thresholds when dealing with questions relating to remote working, place and hours of work, etc.

The employer has no legal obligation to comply with an employee’s request to work remotely. To correctly apprehend the current shift in workforce expectations with regard to flexibility, employers are advised to set up clear and detailed working policies that constitute an integral part of the working agreement, bearing in mind the aforementioned thresholds.

The implementation of remote working and the hours of work must be specifically agreed between the parties involved and employee’s representatives must be consulted beforehand. In companies with 150 or more employees, their agreement is compulsory.

What is the biggest benefit, and the biggest risk, to businesses facilitating a more transient workforce?

Luxembourg employers need to rely on foreign and temporary employees, which is often a transient workforce.

One of the biggest benefits for an employer in relying on this type of workforce is the cost-effectiveness and prompt access to specific skills compared to traditional recruitment.

Hiring a permanent employee is a significant financial commitment for the employer (with costs such as job advertisement, onboarding, training, salary and benefits), whereas by using flexible recruitment such as interim and short-term employees, the employer can manage his budget in a cost-efficient way by ensuring they only pay for the skills and services which are needed.

Flexible workers are a valuable source of skills for the company. This type of workforce can be particularly important in case of short-term needs, needs of particular skills to complete a one-time project or specific tasks, or the need of additional staff to meet a seasonal peak in demand.

In such situations, employers may use the services of temporary-work agencies or short-time employment agreements.

However, it should be noted that the rules applicable to temporary employment and interim workforce, as well as fixed-terms employment agreements, are very strict under Luxembourg law because they are considered as a precarious type of employment. For example, an assignment contract must specify that the employer may permanently hire the employee at the end of the assignment.

Indeed, one of the inherent risks in a transient and temporary workforce is the lack of control and integration into the workforce, meaning that there is no certainty that the employee will fit into the company’s culture and working practices.

An employer must also be aware of potential discrimination between transient workers that might not be considered permanent members of the organisation and permanent employees.

Finally, Luxembourg employers need to adapt to changing talent acquisition trends, as well as workforce expectations, and be prepared to change the way employees are recruited by being flexible but bearing in mind specific legal provisions applicable for each employment regime.

How are you helping your clients to manage legislative and taxation issues around their transient workforce? For example, are there bi-lateral agreements with other jurisdictions or tax provisions to be aware of?

Employment of transient workforce and flexible working conditions, in terms of place and hours of work, necessarily calls for matters relating to specific legislative and taxation issues, particularly according to international double taxation agreements between Luxembourg and neighbouring countries.

In order to help businesses to correctly apprehend the consequences of employing a transient workforce, it is important to keep clients updated in terms of changing legal provisions.

Employers must bear in mind that in terms of taxation, an employee’s income will be taxed in the State where the professional activity is carried out and taxation is 100% maintained in Luxembourg if the following thresholds are not exceeded:

  • Belgium: 34 working days per year outside Luxembourg
  • France: 29 (34 as of 1st January 2023) working days per year outside Luxembourg
  • Germany: 19 working days per year outside Luxembourg

Should these thresholds be exceeded, by adding days of remote working or in the event of any other activity carried out in another country, then the salary related to all the days worked outside Luxembourg is subject to taxation in the country of the actual activity.

Also, Luxembourg companies face an increasing need to supplement their workforces with qualified workers with in-depth knowledge in specific sectors. It is therefore also important to inform companies that are looking for specific highly skilled workers of the existence of incentive tax regimes, whereby costs of highly qualified workers incurred by the employer may be declared as deductible operating expenses. A highly qualified worker who is hired or seconded to a company located in Luxembourg may, under certain circumstances and for a limited period of time, benefit from a total or partial tax exemption for expenses in kind or in cash directly related to the move to Luxembourg.

“Luxembourg companies face an increasing need to supplement their workforces with qualified workers with in-depth knowledge in specific sectors”