New scheme for employing domestic workers, Luxembourg
In 1998, a simplified administrative procedure applying to all domestic workers was introduced, to help reduce the administrative burden for employers and encourage them to employ workers legally. New legislation effective from January 2009 subsequently introduced a single status of white-collar employee for all private sector workers. Under this system, the employer must cover the first 13 weeks of illness for workers. As this entails a substantial cost for the employers of private domestic workers if their staff become ill, an exception has been allowed whereby the simplified procedure for the declaration of staff employed in private households is to be maintained, in order to prevent a proliferation of undeclared work in this sector once again.
The Law of 19 June 1998 introducing ‘dependence insurance’ – that is, insurance covering services to people with a significant regular need for the assistance of a third person for necessary everyday activities – introduced a simplified administrative procedure applying to all domestic staff, with effect from 1 January 1999.
Previously, Article 330 of the Social Insurance Code obliged all employers to declare gross remuneration every month. This was quite a complex operation for the layperson, involving administrative procedures such as:
- determining the gross salary;
- calculating social security contributions;
- calculating tax deductions;
- submitting tax forms;
- declaring hours worked and salaries every month.
Since 1 January 1999, the simplified administrative procedure has been obligatory for all paid work done on behalf of a physical person, exclusively in the context of private services and including: household work, childcare and the provision of assistance and care needed due to a person’s dependent state.
The main actors involved in implementing this initiative are the Common Centre for Social Security (Centre commun de la sécurité sociale, CCSS) and the employers – in this case, individuals or private households.
The objective of this measure is to simplify and reduce the administrative burden for the employer in order to encourage them to employ the worker legally. The administrative simplification allows the employer to pay the net salary directly to the worker. The operations of calculating and collecting the social security contribution and withheld tax are performed entirely by the government (see below).
The householder (employer) fills in a single declaration of the salary paid and sends it to the CCSS. The CCSS takes care of everything else, such as the affiliation and collection of social security contributions and tax deductions. On the basis of the data appearing in the declaration, it registers the people employed in the household for social security and tax.
The centre converts the reported net salary into a gross salary. To calculate the gross salary, it applies the rates for health insurance, pension insurance, dependence insurance and a flat tax rate of 6%. However, the tax is not paid by the person employed in the household: it is the employer who is responsible for paying the 6% tax. In this case, the simplified procedure makes the administrative work easier. The CCSS automatically collects this tax on a monthly basis from the employer and takes care of declaring it and paying it to the Direct Contributions Administration (L’administration des contributions directes). At the end of each six-month period, the CCSS transmits to the employer and the employees a document showing the number of hours worked each week and the hourly net salary. The monthly gross salary and the monthly contributions are displayed on the back of the document so that the data can be checked by both the employer and employee. The declared salary is automatically adjusted by the CCSS in line with changes in the weighted cost of living index. The CCSS calculates the contributions payable by the employer and collects them, along with the tax, every month.
Evaluation and outcome
Obstacles and problems
The Law of 13 May 2008 introducing a single status for private-sector employees abolishes the distinction between blue-collar and white-collar workers in the private sector.
Previously, domestic staff fell within the scope of the blue-collar workers’ status. Unlike white-collar workers, blue-collar workers did not benefit from the pay guarantee by their employer in the event of illness. For such employees, the relevant health insurance fund had to cover the remuneration right from the first day of illness.
As of 1 January 2009, with the introduction of the single status, the system of continued remuneration has been made generally applicable. The convergence of the systems for sickness cover is, from now on, based on the model used for private sector white-collar workers. The new scheme obliges the employer, in the event of work incapacity on grounds of illness, to guarantee the payment of the remuneration during the first 13 weeks of illness. The health insurance fund intervenes when the duration of the illness exceeds this period. The new regulation would have entailed a substantial cost for the employers of private household services staff should their workers fall ill.
It has therefore been decided to introduce an exception to the new common law which allows for the simplified procedure for the declaration of staff employed in private households to be maintained. This exception has been granted in order to prevent undeclared work from proliferating in this sector once again. However, the flat rate in tax will be raised from 6% to 10% to compensate for the decrease in sickness insurance income due to the reduction of the applicable contribution rate.
|Number of jobs||Wage total subject to contributions||Compensation for first 13 weeks (apart from employer’s contribution) – estimated cost of social security||Compensation after 13th weeks (apart from employer’s contribution) – estimated cost of social security|
Source: CCSS, 2005
The additional estimated tax revenue generated from the increase in the flat-rate tax is approximately €1.43 million.
Main organisation responsible:
Common Centre for Social Security, Website: http://www.ccss.lu/
Information guide: Du Personnel engagé dans votre ménage?, Common Centre for Social Security, available online at: http://www.ccss.lu/menage/.
Law of 19 June 1998 introducing dependence insurance, available online at: http://www.legilux.public.lu/leg/a/archives/1998/0048/index.html
Law of 13 May 2008 introducing a single status for private sector employees, available online at: http://www.legilux.public.lu/leg/a/archives/2008/0060/index.html
Odette Wlodarski, Prevent