Reduced requirements for posting of employees in Luxembourg set to alleviate the burden of compliance

Navigating rules and requirements related to posted workers can be a challenging task, considering differences in local application. The law of 23 December 2022 in Luxembourg seeks to reduce some of the complexities in the steps towards compliance.

In the context of the changing world of work, increased flexibility and hybrid working arrangements, organizations the world over are having to reevaluate their approach to business travel. Specifically, they are having to unpack this topic as it relates to cross-border tax and legal rules and requirements. Employers are often in the position of responsibility, having to make certain that their posted workers and clients are in check with the rules yet are not tied down by red tape. Both companies and regulatory bodies are taking steps to streamline processes for posted workers, finding ways to digitalize the tax and legal compliance elements, ensuring each step can be tracked and monitored. 

It was in this vein that a new law regarding posting of employees was adopted on 23 December 2022 in Luxembourg. This law aims to transpose obligations regarding posting for the road transport sector and to alleviate declarative obligations for other sectors. The law seeks to resolve remarks from the European Commission that Luxembourg’s imposed regulations stretched beyond the requirements of European texts, such as the Posted Workers Directive. The new law is a marked step in the right direction of making compliance for posted workers that much simpler and faster.

What is a posted worker?

A posted worker is an employee sent by their employer to a Member State of the European Union to carry out a service temporarily, without being completely incorporated into that country’s labor market. To illustrate, a company may enter into a contract for the provision of a service in another country, and employees are then sent to this country to execute the contract. 

What is the Posted Workers Directive?

To govern the above arrangement, the Posted Workers Directive (PWD) set out by the European Commission, adopted and then revised in 1996 and 2018 respectively, sets out requirements and conditions for employers sending out posted workers. Originally, the aim of the Directive was to create an even playing field, ensuring equal employment and social conditions are met and to avoid the practice of “social dumping”, whereby businesses employ cheaper labour than what is on offer in their country. The Directive evolves regularly, with the publication of guidelines that countries can then interpret and adopt locally. The PWD impacts multiple parties, including service providers, service recipients and employees, and spans all postings for organizations from all sectors. Since we have emerged from the health crisis where travel was so constrained, more and more organizations have now resumed international work and as such, there has been increased attention towards posted workers and compliance with the Directive.  

What is the current process for posted worker compliance across the EU?

While local application differs across the EU, generally speaking each jurisdiction has to assess whether the activity being performed by their employees will trigger a need to notify the authorities in the host country. In addition to this notification, proof of the posting often needs to be supplied and records must be kept (e.g., contacts, timesheets and pay slips).

Application in Luxembourg burdened by declarative obligations in the past

Following feedback from the European Commission that Luxembourg was imposing obligations going beyond the requirements of European texts – unpacked above – a new law was adopted on 23 December 2022, allowing a reduction in the number of documents required for a foreign company to post workers in Luxembourg. This law aims to transpose obligations regarding posting for the road transport sector and to alleviate declarative obligations for other sectors.  

As a reminder, any company based in the EU can post employees in Luxembourg in the framework of (i) an intra-group provision of services or (ii) a provision of services for a Luxembourg client. However, foreign companies must comply with the local laws deriving from the European rules (such as the PWD) regarding the posting of employees. These companies are required to gather a certain number of documents related to the provision of services and posted employees, which must be provided in case of assessment by the Labor inspectorate, the Inspection du travail et des Mines, commonly referred to as the “ITM”. In the case of Luxembourg, the Luxembourg Labor Code extends these obligations to any foreign company posting employees in Luxembourg. 

Prior to the law of 23 December 2022, the number of documents that the foreign company needed to gather was extensive. Collection of such documentation was also a difficult task notably because some documents – the hiring medical certificates as an example – did not exist in some other European countries. Despite these challenges, the ITM’s electronic platform, wherein all required documents can be uploaded, has helped to digitize the process. This platform creates a “social badge”, in the form of a QR code for each posted employee, facilitating the controls of the ITM. 

Reduction in documentation – a time-saver for firms

The new law of 23 December 2022 thus alleviates companies’ obligations regarding the posting of workers in Luxembourg, by reducing the list of required documents and by accepting paper or electronic versions. That said, it is still recommended that the electronic platform is used for practical reasons. As from now on, only documents regarding the employment relationship between the posting company and the posted employee are required. In most cases, this means the required documents are narrowed down to: the service provision contract justifying the posting between the sending and receiving company, the initial employment contract, the A1 social security certificate, monthly pay slips and proofs of payment. It is no longer necessary to add documents regarding the foreign company’s obligations related to VAT and business license. 

However, it must be noted that obligations for foreign companies doing business in Luxembourg on a temporary and accessory basis, as defined by the law of 2 September 2011 on the right of establishment in Luxembourg (and subsequent modifications), remain under the supervision of the Ministry of Economy. As a consequence, foreign companies either located in the European Union or in a third country must perform an analysis of the provision of services planned in Luxembourg, beforehand. This analysis will determine whether or not it is necessary to engage in preliminary steps with the Ministry of Economy – i.e., in the form of a notification of services on a temporary basis for EU companies, or business license for non-EU companies – to be able to provide the planned services, in addition to above-mentioned formalities to be done for posted workers. Similarly, an assessment shall be conducted regarding VAT to determine possible obligations towards the Luxembourg tax authorities. 

This new law is a clear win for employers sending staff to Luxembourg for temporary work and should prove to be a substantial time-saver when it comes to administration. That said, posted worker documentation is one aspect of being able to provide services in the country on a temporary basis. Navigating rules and requirements related to posted workers can be a challenging task, considering divergences and nuances in local application. Connecting with legal and tax experts who understand the different moving parts and jurisdictional specificities can be a real game-changer when it comes to compliance. By doing so, employers can rest assured that they are tackling compliance in the most time-saving and efficient way possible, while at the same time ticking all the necessary boxes.