Updated on
15/12/2025
Lump-sum allowance (ADEM)
What is a lump-sum allowance? — A lump-sum allowance (indemnité forfaitaire) is a statutory severance payment that employers in Luxembourg must pay to employees when the Joint Committee (Commission mixte) decides on external professional redeployment. This compensation is mandated under Article L.326-9 (6) of the Luxembourg Labour Code and serves as financial support for employees who, due to health reasons, cannot continue in their current position and must be redeployed externally to the job market.
When is the lump-sum allowance required? — The allowance is required when the Joint Committee determines that an employee cannot be redeployed internally within the company and must seek employment elsewhere. This typically occurs when an employee is declared medically unfit for their current position but not fully disabled. The decision depends on company size and specific circumstances:
- Companies with fewer than 25 employees: The allowance is automatically required when external redeployment is decided
- Companies with 25 or more employees: The allowance is required if the company is exempted from internal redeployment by proving that internal redeployment would cause serious harm to the business
How is the lump-sum allowance calculated? — The amount varies based on the employee's length of service, assessed on the date of the external redeployment decision notification:
- 5 years or more of service: 1 month's salary
- 10 years or more of service: 2 months' salary
- 15 years or more of service: 3 months' salary
- 20 years or more of service: 4 months' salary
The calculation is based on the gross salaries actually paid to the employee during the 12 months immediately preceding the notification date. This includes cash sickness benefits, regular premiums, and supplements, but excludes overtime pay, gratuities, and reimbursements for incidental expenses.
Can employers get reimbursed for the lump-sum allowance? — Yes, employers with fewer than 25 employees can request reimbursement from the Employment Fund (Fonds pour l'emploi) managed by the ADEM. The reimbursement request must be submitted in writing with supporting documents within 6 months of the external redeployment decision notification. Employers with 25 or more employees are generally not eligible for reimbursement unless they meet specific quota exemptions.
What is the tax treatment of the lump-sum allowance? — The lump-sum allowance is taxable income but is not subject to social security contributions. This means the payment is included in the employee's taxable income for the year but does not incur pension or health insurance contributions.
What happens after receiving the lump-sum allowance? — Once an employee receives external redeployment status and the lump-sum allowance, they are automatically registered as a jobseeker with ADEM. The employee then becomes eligible for unemployment benefits for up to 12 months (with possible extensions). If the employee finds new employment through ADEM at a lower salary than their previous position, they may also qualify for a compensatory allowance to cover the income difference.
What is the difference between the lump-sum allowance and other redeployment benefits? — The lump-sum allowance is distinct from other financial support available during external redeployment:
- Lump-sum allowance: A one-time severance payment based on length of service, paid by the employer at the time of external redeployment
- Unemployment benefits: Monthly payments from ADEM for up to 12 months while seeking employment
- Compensatory allowance: Ongoing payments to cover salary differences when re-employed at a lower wage
- Professional waiting allowance: Benefits available after unemployment benefits expire if no suitable employment has been found
Synonyms: Redeployment compensation, fixed compensation, external redeployment allowance