US Fund Managers - What to know before hiring staff in Luxembourg

Blog

05-09-2025

US fund managers (USFMs) increasingly view Luxembourg as a key hub for EU capital raising and structuring EU-based transactions. While establishing such a hub does not necessarily require “boots on the ground”, USFMs often hire staff in Luxembourg to meet operational and regulatory demands.

Typically, local staff initially handle corporate housekeeping and administrative duties related to Luxembourg special purpose vehicles. In more mature and regulated operations, the (expanded) staff also handle fund management and investor relation tasks. When hiring Luxembourg staff, awareness of the employment law rules is critical, especially for USFMs since the rules differ substantially from the US rules.

US nationals must obtain a work permit, which usually takes 2 to 4 months to obtain as from submission of the application. EU, EEA and Swiss nationals do not need a work permit.

Written permanent employment contracts are the default. Fixed-term contracts are tightly regulated and only permitted in specific scenarios (e.g., maternity leave cover) with a maximum duration of 24 months.

Trial periods in permanent employment contracts are common. The trial period cannot exceed 12 months. During the trial period, the employee can be terminated at any time without needing a reason.

For employment contracts without a trial period or after the end of the trial period, employers must:

provide justified grounds for dismissal, distinguishing between (i) dismissal with notice, for personal (e.g., performance) or economic reasons and (ii) immediate dismissal, reserved for serious misconduct (e.g., theft, violence); and
potentially pay severance pay in case of employment of at least 5 years, ranging from 1 to 12 months’ pay.

In practice, many employers negotiate a settlement with employees dismissed with notice. Typical settlement amounts range from 2 – 6 months’ salary.

Luxembourg employees are entitled to 26 days of paid vacation plus 11 paid public holidays. Employees are also entitled to paid leave for various personal events (e.g., paternity) and to sick leave (with protection from dismissal for up to 26 weeks of continuous absence due to sickness). Working hours limits: 8 hours/day and 40 hours/week, with overtime allowed only in specific cases. Senior-level employees may exceed these limits and are not entitled to overtime pay. Maternity leave (20 weeks) and parental leave (6 months) are paid by the social security authorities. Luxembourg law imposes mandatory salary indexation if the consumer price index has risen by at least 2.5%.

Why it matters

USFMs setting up a Luxembourg office must be aware of the above rules. Missteps, especially around termination, can lead to legal exposure and reputational risk.