Employer of Record (EOR) Lithuania

Employment Contracts in Lithuania

In Lithuania, employment contracts are governed by strict regulations aimed at ensuring fair terms, legal compliance, and clear communication between employers and employees. Article 42 of the Labor Code provides a comprehensive framework for the conclusion and commencement of employment contracts, establishing responsibilities for both parties.

Conclusion of an Employment Contract

• An employment contract in Lithuania is officially considered concluded once both parties agree on essential conditions, as defined in the Labor Code (Article 34). These terms typically include job role, salary, and working hours, among others.

Mandatory Notification

• Employers are required to notify the State Social Insurance Fund Boardat least one working day before the employee’s scheduled start date. This notice ensures that the contract is in alignment with national social insurance regulations.
• Exceptions apply if:
  • The employee’s work location is outside Lithuania, or
  • EU social security regulations or international treaties exempt the employee from Lithuanian social insurance laws.

Contract Effectiveness and Compensation

• The contract formally takes effect when the employee begins work.
• If, through no fault of the employee, the contract cannot take effect, the employer must provide compensation equivalent to at least the agreed-upon salary for up to one month.
• In cases where the employee fails to start work due to personal fault, and does not provide three working days’ noticeto the employer, the employee must compensate the employer for damages, with the amount not exceeding two weeks’ salary.

Workplace Familiarization Requirements

• Before the employee begins work, the employer is obligated to familiarize them with:
  • The working conditions as outlined in the contract,
  • Labor laws and workplace policies relevant to the position,
  • Health and safety requirements to ensure a secure working environment.

These provisions, effective from January 1, 2025, highlight Lithuania’s commitment to protecting worker rights and setting clear, fair standards for both employers and employees, ensuring a transparent and compliant employment framework.

Working Hours

The average working time, including overtime, is capped at 48 hours per week; however, the maximum allowable working time, including overtime and additional work, is limited to 12 hours per day and 60 hours per week.

The maximum overtime is set at eight hours per week, or up to 12 hours per week if the employee consents; the annual cap on overtime is 180 hours.

Probation Period

The probationary period in Lithuania is limited to a maximum of three months. However, in specific circumstances outlined by law, this duration can be extended. During this period, employee absences are not taken into account.

13th Month Salary

While Lithuanian law does not require a 13th-month salary, it is common practice for employers to provide performance-related bonuses.

Termination, Severance Pay, and Notice Period

Termination of a fixed-term employment contract can only occur for legitimate reasons as defined by law, and the employer must adhere to established notice procedures. The typical notice period is two months, but this extends to four months for particular groups, including individuals with disabilities and those responsible for caring for children under 14. Employers may dismiss employees without fault if no suitable alternative position is available with the employee’s consent.

Severance Payments

When an employment contract ends, an employee who is let go without any fault of their own is entitled to severance pay equal to their average monthly salary. This amount is based on how long they have worked continuously for the organization. The severance pay is organized in the following manner:

• Less than 12 months of service: One month’s average wage
• 12 to 36 months of service: Two months’ average wage
• 36 to 60 months of service: Three months’ average wage
• 60 to 120 months of service: Four months’ average wage
• 120 to 240 months of service: Five months’ average wage
• Over 240 months of service: Six months’ average wage

In other cases of termination without fault on the part of the employee, severance pay will amount to two months’ average wage, unless otherwise specified by law or a collective agreement.

Employees vs Independent Contractors vs Agency Workers

• Employees: Establishing an employment relationship grants employers the ability to safeguard confidential company information and intellectual property during and after an employee’s tenure, as long as these responsibilities are clearly defined in relevant agreements. Additionally, such arrangements can prevent former employees from launching competing enterprises or soliciting other team members, provided that a specific non-compete agreement is signed and the employer offers the necessary financial compensation.
• Independent Contractors or Consultants: In Lithuania, employers often engage independent contractors and consultants. This approach allows them to circumvent the intricate employment termination processes and the array of protections and benefits typically afforded to employees. Furthermore, utilizing independent contractors can lead to cost reductions, as employers are not obligated to contribute to social insurance for these individuals. However, these agreements may be scrutinized by regulatory authorities, making it crucial for the contracts to accurately represent the working relationship.
• Agency Workers: Agency workers in Lithuania possess a distinct status. They are entitled to equal treatment concerning pay and working conditions when compared to employees directly hired by the end-user client of the agency. Moreover, the end-user client is responsible for ensuring the workplace health and safety of agency workers.

Social Security in Lithuania

Social security in Lithuania is primarily structured through a comprehensive system of social insurance contributions, aimed at providing various benefits to individuals engaged in labor relations or similar employment-like situations. Here’s a breakdown of the key aspects of social security in Lithuania, including the types of contributors, the types of insurance, and the contribution rates.

Social Insurance Contributions

Eligibility for Social Insurance

Social insurance is available to several groups of individuals, including:

• Employees: Individuals employed under employment contracts within Lithuania or posted to the country for over one year are eligible. This also includes those working for Lithuanian insurers outside the country, unless specified otherwise by international treaties or EU regulations.
• Self-Employed Persons: Permanent residents receiving income from copyright contracts with Lithuanian entities are covered under certain conditions, as are individuals engaged in creative or performance activities.
• Farmers and Business Owners: Farmers, members of households, and owners of individual enterprises are included in the social insurance system for pensions, sickness, maternity, and unemployment, provided they receive the requisite income.
• Special Cases: Various groups, such as politicians, military personnel, and individuals in public service, are also covered under specific laws governing their employment.

Types of Insurance:

Social insurance contributions cover various areas, including:

• Pensions
• Sickness
• Maternity
• Unemployment
• Accidents at Work and Occupational Diseases

Contribution Rates

For the year 2024, the rates of social insurance contributions are set as follows:

• Total Contribution Rate for Insured Persons: 19.5%
  • Pension Insurance: 8.72%
  • Sickness Insurance: 1.99%
  • Maternity Insurance: 1.81%
  • Health Insurance: 6.98%
• Employer Contribution Rates:
  • Unemployment Insurance: 1.31% (2.03% for fixed-term contracts)
  • Accidents at Work and Occupational Diseases: 0.16% (varies by risk category)

The contributions are calculated based on the employee’s income but are subject to a ceiling of 60% of the country’s average wage. If an individual has multiple employments, contributions are aggregated across employers for calculation purposes.

Special Provisions

• Self-Employed Persons: Individuals engaged in individual activities on a business certificate pay social insurance contributions primarily for pension and health insurance, with specific exemptions outlined in the Law on State Social Insurance.
• Spouses of Delegated Persons: Spouses of civil servants or military personnel working abroad may also receive social insurance coverage at the state’s expense, depending on the contributions made by the employed partner.
• Social Status Considerations: Individuals with special statuses, such as those providing care for children or disabled persons, as well as military personnel in service, receive state-covered social insurance.

Payroll in Lithuania

Minimum Wage

Starting January 1, 2024, Lithuania’s minimum monthly wage is established at €924, which translates to an hourly rate of €5.65.

Payroll Cycle

Employers are mandated to pay salaries at least twice a month. However, employees can opt to receive their salary on a monthly basis instead. Payments must be made within 10 working days following the end of the month. If employers fail to comply with this deadline, they are subject to late fees as set by the Minister of Social Security and Labour.

Overtime Pay

Employees who work on their designated rest days that fall outside their scheduled shifts, as well as those who work on holidays, are entitled to at least double their usual hourly wage.

For night shifts and any overtime, employees should receive a minimum of 1.5 times their standard pay rate.

If overtime is performed on a rest day not part of the regular schedule or during night shifts, employees must be compensated at least double their normal rate. Additionally, if overtime occurs on a holiday, the pay increases to a minimum of 2.5 times the employee’s regular wage.

Upon request, employees have the option to add hours worked on rest days or holidays, or overtime calculated at rates of 1.5, 2.0, or 2.5 times their standard pay, to their annual leave entitlement.

Mercans’ payroll capabilities

• Payroll Cycle: In Lithuania, payroll typically operates on a monthly schedule, which involves systematic steps including the initial setup, salary processing, and compliance reporting. Mercans’ Employer of Record (EOR) services expertly navigate these stages to ensure timely and accurate payroll management.
• Pay Employees and Contractors in the Local Currency: Mercans facilitates salary payments in euros, ensuring that employees and contractors are compensated in the local currency. This enhances convenience and ensures compliance with local payment practices.
• Payroll Setup, Payroll Processing, and Payroll Administration: Mercans’ EOR services efficiently manage all aspects of payroll in Lithuania. This includes the configuration of payroll systems, processing salaries, and administering employee benefits and leave entitlements, all with a focus on accuracy and efficiency.
• Statutory Filings and Payments: Adherence to local regulations is essential in Lithuania. Mercans ensures full compliance with Lithuanian laws, providing support for statutory filings and facilitating timely payments to avoid any potential penalties.

Personal Income Tax in Lithuania

Overview of Personal Income Tax (PIT)

In Lithuania, personal income tax applies to the worldwide income of tax residents. For non-residents, only specific types of income sourced from Lithuania are subject to PIT, including:

• Employment-related Income: This includes wages and salaries from employment or similar relations.
• Profit Distributions: Income derived from distributed profits and payments to members of the Board or Supervisory Board.
• Interest Income: This generally includes all interest income except for that received from government non-equity securities.
• Royalties: Income from intellectual property rights and related payments.
• Income from Sports Activities: This encompasses earnings directly or indirectly related to sports activities, whether paid to the athlete or a third party.
• Performing Activities: Similar to sports, this includes earnings from performances, regardless of the payment structure.
• Rental Income: Income generated from leasing immovable property located within Lithuania.
• Sale of Property: Income from the sale or transfer of movable property registered in Lithuania or the sale of immovable property located in the country.
• Individual Activities: Earnings derived from individual activities carried out through a fixed base in Lithuania, including income attributed to that base from foreign sources.
• Compensation for Copyright Infringement: Earnings received as compensation for infringement of copyright rights.

Personal Income Tax Rates

As of 2024, personal income tax rates in Lithuania are structured as follows:

• 20% Rate: This rate applies to income not exceeding EUR 114,162 within a calendar year for:
  • Employment-related income
  • Payments to members of the Board or Supervisory Board
  • Income derived from copyright agreements when received from the employer
  • Income under civil agreements for managers of small partnerships not affiliated with the partnership.
• 32% Rate: This rate applies to any income exceeding EUR 114,162.
• Dividends: Income from profit distributions, such as dividends, is subject to a flat PIT rate of 15%.
• Individual Activity Income: This income is taxed based on the total amount received. A flat 15% PIT rate applies, which can be reduced using a PIT credit calculated through specific formulas. The effective tax rate may vary between 5% and 15%.
• Other Income: For income not specifically listed, a 15% PIT rate is applicable for amounts up to EUR 228,324 per year. Any income exceeding this threshold is taxed at 20%.

Lithuania Employee Hiring Cost

Let’s suppose the salary of an employee in Lithuania is €100,000 per year. To understand the total cost of hiring this employee, we break down the calculations to include both the gross salary and the additional employer costs, such as social security contributions. The gross annual salary for the employee is €100,000.00. In addition to this, the annual employer costs, which include mandatory social security contributions, amount to €1,770.00. Therefore, the total annual cost of employing this individual comes to €101,770.00, which is the sum of the gross salary and the employer costs. This total represents the complete financial obligation on the part of the employer when hiring this employee, encompassing both the salary paid to the employee and the necessary contributions required by law.

Calculation Breakdown

Employee Benefits in Lithuania

Mandatory Employee Benefits

Lithuania’s pension system was established in 2004 and allows residents to build their retirement savings through a combination of state and private contributions. The structure consists of three distinct pillars, each designed to facilitate different aspects of pension accumulation.

Pillar I

This pillar is the foundation of the state social security system, where individuals either contribute or are covered for a social insurance pension. This is a mandatory requirement for all employees.

Pillar II

Introduced in 2019, this pillar features additional financing sources, including a personal contribution of 3% of gross wages and a state contribution amounting to 1.5% of the national average wage. Once an individual enrolls in a pension fund, they cannot access these funds until they reach retirement age. Eligibility for the Pillar II scheme includes all employed individuals under 40 and current participants, with an option to opt out. Pension fund managers are required to offer age-appropriate investment strategies to maximize returns for younger participants while safeguarding their assets as they near retirement.

Pillar III

This pillar consists of voluntary contributions to private pension funds or life insurance policies. Participation is open to everyone, including individuals who do not contribute to the mandatory social insurance scheme.

To qualify for a pension from the state social insurance fund (SoDra), individuals must be at retirement age, which is gradually increasing to 65, and have at least 15 years of social insurance contributions. The requirement for the full pension is set to rise to 35 years by 2027.

Maternity and Paternity Benefits

Expecting mothers are entitled to maternity benefits if they have a minimum social insurance record of 12 months within the last two years before childbirth. The maternity benefit is calculated at 78% of the recipient’s wages based on their insurable income over the previous year, with a minimum monthly benefit not falling below €368. Maternity benefits are provided for 126 days after at least 30 weeks of pregnancy, with additional time allocated for complicated births.

Paternity benefits mirror the maternity benefits, also set at 78% of the compensated recipient’s wages, covering a period of 30 days and applicable until the child is three months old. Parents can also take childcare leave for one or two years, with varying benefit levels depending on the duration of the leave.

Employment Insurance

Lithuania’s employment insurance system offers financial assistance to individuals experiencing income loss due to various circumstances such as illness, disability, and parental leave. For the initial two days of illness, employers are responsible for compensating employees with a minimum of 62.06% of their wages. From the third day onward, this percentage is provided by the National Social Insurance Fund. Additionally, disability allowances are available for those who cannot work due to prolonged incapacitation, calculated based on the individual’s insured income.

In terms of parental benefits, maternity leave ensures financial support for new mothers during their time off work, with compensation typically based on their earnings prior to leave. Furthermore, the pension system in Lithuania is designed to provide long-term financial security for employees upon retirement, contributing to their overall economic stability.

Additional Employee Benefits

• Healthcare: In Lithuania, one of the most sought-after supplementary benefits is voluntary health insurance. These plans often include complimentary annual health check-ups, dental services, and vision care, enhancing overall employee well-being.
• Retirement: For retirement benefits, please refer to Pillar III outlined in the mandatory benefits section related to pensions.
• Education: Organizations have the option to support employee development through training and education, typically covering all associated costs. This investment in learning helps employees advance their skills and careers.
• Flexible Benefits: In recent years, there has been a notable trend towards offering flexible benefits as a strategy to enhance employee retention, uplift morale, decrease absenteeism, and foster higher productivity levels. Younger employees, in particular, value flexible options and prefer employers who prioritize their health and overall well-being.
• Fitness Facilities: Larger local employers and multinational corporations often provide on-site gym facilities for their employees. In contrast, smaller businesses might offer subsidies for gym memberships. It’s important to note that fitness-related benefits are classified as taxable services, and additional taxes may apply when reimbursing these services through health insurance—a common practice in Lithuania.

Work Permit in Lithuania

Lithuania is an attractive destination for foreign professionals seeking employment opportunities, thanks to its robust economy and appealing lifestyle. The country, as a member of the European Union, offers unique immigration regulations that facilitate the hiring of both EU and non-EU citizens. While EU nationals can work in Lithuania without a visa or work permit, non-EU citizens must navigate a structured process to obtain a work permit and a national visa (D) for residency.

Types of Work Permits

Lithuania offers various types of work permits tailored to different employment needs:

• EU Blue Card: Designed for highly skilled workers, this permit allows non-EU nationals to work and live in Lithuania while offering a pathway to permanent residency.
• Intra-Company Transfer Visa: This permit is for employees who are transferred within a multinational company to a branch or subsidiary in Lithuania.
• General Work Permit: A standard work permit for non-EU nationals seeking employment in various sectors.
• Seasonal Work Visa: Specifically for individuals looking to engage in seasonal employment, often in agriculture or tourism.

Application Process for a Work Permit

To work in Lithuania, non-EU citizens must follow these steps to secure a work permit:

• Employer Application: The process begins with the Lithuanian employer applying for a work permit on behalf of the employee through the Labour Exchange in Lithuania. The employer must provide details about the job offer and the employee’s qualifications.
• Submission of Required Documents: The employee must supply necessary documentation, including:
  • A valid passport.
  • A completed application form.
  • A mediation (invitation) letter from the employer.
  • Proof of qualifications and professional accreditation.
  • Evidence of sufficient financial means (e.g., bank statements).
  • Health insurance coverage.
• Work Permit Issuance: Once the Labour Exchange approves the application, a work permit will be issued.
• National Visa Application: After obtaining the work permit, the employee must apply for a national visa (D) at the nearest Lithuanian embassy or consulate, which allows for entry and residency in Lithuania.
• Processing Time: The entire application process for a work visa typically takes around two weeks, but applicants can start the process up to six months in advance of their intended travel date.

Duration and Extensions

• Initial Validity: The work permit is usually granted for a maximum duration of one year.
• Renewal Process: Employers must apply for a renewal of the work permit at least one month before it expires. If the employment extends beyond one year, the employee may need to apply for a temporary residence permit.

Family Reunification

Holders of a valid work permit and temporary residence permit in Lithuania can invite their family members to join them. Family members must apply for a family reunification visa, allowing them to reside in Lithuania for the duration of the employee’s permit.

EOR Solutions in Lithuania

• EOR for Prospective Employees: Mercans provides comprehensive Employer of Record (EOR) solutions for businesses looking to hire their ideal candidates in Lithuania. Our services cover all aspects of the employee lifecycle, ensuring full compliance with Lithuanian labor laws and regulations.
• EOR + Recruitment: For companies in need of talent acquisition support, our combined EOR and recruitment services offer a complete solution. Leveraging our extensive network and expertise, we assist you in finding, onboarding, and retaining top talent, simplifying your entry into the Lithuanian market.
• Visa Sponsorship and Global Mobility: Our visa sponsorship and global mobility services streamline the process of expatriate employment. We help facilitate the relocation of your international workforce while ensuring adherence to Lithuanian immigration and employment laws.
• AOR for Contractor Payments: If your business faces challenges with contractor payments, our Assistance on Record (AOR) services can help. We manage the complexities of contractor payments, ensuring accuracy and compliance throughout the process.
• Converting Freelancers to Employees: Mercans specializes in assisting companies with the transition from independent contractors to full-time employees in Lithuania. Our expertise guarantees smooth conversions while meeting all legal requirements.
• HCM Integration: Seamlessly integrate Mercans’ EOR services with your Human Capital Management (HCM) system in Lithuania for real-time data exchange, enhanced compliance, and improved cost efficiency. Rely on our expertise for a cohesive, compliant, and effective approach to workforce management and payroll operations.

Best Employer of Record Lithuania

Mercans is the best Employer of Record in Lithuania for several reasons:

• Compliant with Local Regulations: Mercans strictly adheres to all regulatory requirements established by Lithuanian authorities, ensuring compliance with labor laws and regulations. This includes full compliance with the Ministry of Social Security and Labour (SADM/MoSSL) and the State Labour Inspectorate.
• Independent Entity: Operating as a standalone entity, Mercans provides reliable and customized employment services tailored to the unique needs of businesses in Lithuania.
• Diverse Employment Support: Mercans effectively manages various employment types, including full-time employees, freelancers, contractors, and expatriates, offering flexible solutions that cater to diverse workforce needs.
• Enterprise-Level Solutions: Designed to meet the demands of large enterprises, Mercans delivers scalable and sophisticated services that accommodate complex organizational structures.
• Multi-Currency Payroll Management: Mercans manages payroll in multiple currencies, facilitating smooth financial operations for both global and multinational businesses operating in Lithuania.
• Global Presence with Multi-Country Payroll Capabilities: With a broad global network, Mercans excels at handling multi-country payroll, ensuring seamless international operations for businesses expanding into Lithuania.
• Data Protection Compliance: Mercans adheres to rigorous data protection and security standards, including GDPR certification and compliance with SOC 1 and SOC 2 frameworks, ensuring the safety of sensitive information.
• ISO Certifications: With ISO 20000 and ISO 27001 certifications, Mercans demonstrates a commitment to high-quality IT service management and robust information security practices.
• Security Standards Compliance: Mercans meets the OWASP ASVS 3.0 standards, ensuring strong security practices are upheld in application development and management.
• HRBlizz: Mercans HR Blizz is a proprietary global payroll and talent management software suite that streamlines payroll processes while ensuring compliance with local regulations. With a team of over 1,000 in-country specialists, it provides expert knowledge of Lithuanian labor laws and business protocols.
• G2N Nova:G2N Nova offers global gross-to-net payroll processing in over 100 countries, positioning it as one of the most advanced native payroll engines available. Offered as a SaaS or service delivery platform, it can function independently or integrate seamlessly with major Human Capital Management and Workforce Management systems.