Personnel dilemmas: How much does it cost to hire staff?

Corporate executives are fond of proclaiming that “people are our greatest asset”, but often they are also their greatest expense. As entrepreneurs and HR managers understand all too well, the cost of hiring staff extends far beyond their salary to insurance and pension contributions and includes ‘well-being’ requirements such as health and safety rules, maternity or paternity leave and other employee benefits.

Salaries in Luxembourg are the highest of any member state in the Organisation for Economic Co-operation, the OECD says, so business owners can expect to pay a lot to hire the right people in the first place.

In 2017, a skilled adult employee in Luxembourg was entitled to a minimum salary of €2,398 a month for a 40-hour week – but it can be considerably more. The highest earnings are in the financial services sector, where the average salary was already € 89,732 a year in 2014, according to government statistics agency Statec.

Salary is only part of the cost stemming from employment. Companies are also required to make pension contributions on behalf of their staff at a rate of 8% of the employee’s remuneration. They must also deduct and pay the matching 8% pension contribution due from employees, along with other social security levies.

As of 2017, health insurance contributions were levied at a rate of 3.05% of the employee’s salary, plus 2.8% on any bonuses or benefits, and are paid by both the company and employee. The employer must also pay a 0.11% occupational health contribution and is additionally liable for accident insurance at a rate of 1% of each employee’s remuneration.

All employers must also be registered with the employers' mutual insurance scheme (Mutualité des Employeurs) covering the cost of salaries to employees unable to work due to illness or other cause. The rate varies between 0.46% and 2.93% of the employee’s remuneration; companies are divided into four categories of contributions depending on their absenteeism rate over the preceding year.

Are there alternatives to salaried employees?

The use of freelance contractors is not subject to the same requirements as the hiring of full-time employees and plenty of start-ups and other small businesses draw on a trusted pool of temporary or occasional staff while they get established. As long as these individuals are deemed to be self-employed, they are not subject to the Labour Code, although they are covered by the general provisions of the Civil Code and the Commercial Code, which requires companies to provide a safe working environment and stipulates other protection for people who work for them, whatever their employment status.

The downside of using freelancers or temporary staff is that they may not feel the same commitment to the business as do full-time employees. Parts of the workforce that are less in demand from mainstream recruiters can be an option, since the government provides incentives to companies to hire older and disabled people, as well as to recruit young people (under 30) and apprentices.

The benefits can be substantial, reaching 40% of the individual’s salary or even more, according to state employment agency Administration de l’Emploi. This can be an option for a small business looking to keep costs lower as it gets established, and can also provide them with older employees’ greater experience. In the longer term, they may be in a position to increase salaries for younger people as the business expands.

In a country like Luxembourg, where salaries are mostly higher than elsewhere and additional employment charges increase the cost, taking on staff is a decision that small businesses do not take lightly.

However, the cost may be worth it, given the deep pool of skilled resources in the country or just across its borders – and whose skills and input can help small businesses grow larger. 

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