Lithuania Payroll and Benefits Guide

What global businesses need to know about payroll in Lithuania

According to the World Bank’s most recent “Ease of Doing Business” report, Lithuania is the 11th-easiest place to run a business in the world, and second only to Georgia among post-communist states. Given that it was also the first country to declare independence from the Soviet Union in March 1990, there’s a clear forward-thinking drive within this small country of 2.9 million people on the shores of the Baltic sea.

Lithuania is increasingly competing with much more established economic players in Western Europe. It’s a member of the European Union and the eurozone, has a highly service-driven economy (68% of GDP), and has been relatively unaffected by recent conflict as only 6% of its exports normally go to neighboring Russia.

Setting up business in Lithuania also gives you access to one of the best-educated and qualified workforces anywhere in the world (especially in IT), and relatively low wages by European standards. Read on to discover all you need to know about running payroll in Lithuania, and getting your organization up to speed.

Getting Started

Lithuania has made a real effort to make the company set-up process as easy as possible, to the extent that most of it can be done online and remotely.

The first step is to prepare articles of association and other founding documents, then reserve a company name and open an in-country bank account. Opening an account shouldn’t take more than a couple of days, although you will need capital of at least €2500 (approx. £2150; $2700). Then you can get your documents notarized and register the company in the Register of Legal Entities. If setting up online, you will then need to get your electronic signature officially verified and confirmed.

Make sure your documentation is always close to hand. Companies may be asked to show the partnership or incorporation agreement, the deed of incorporation, or the articles of association as a means of legitimizing the business.

Employment Considerations

There is almost no collective bargaining in Lithuania. It is allowed at an organizational or company-wide level, but this rarely occurs. Terms of employment will be worked out on an individual basis. Employee contracts are required, and must be in writing. They may not stipulate anything outside the basic labor laws of the country. 

Lithuania’s standard working week is in line with most of the rest of Eastern Europe: 40 hours, across five eight-hour shifts. Work beyond this is classed as overtime, which is normally limited to eight hours in any seven-day period, but can be extended to 12 hours with employee consent. Overtime should be paid at 150% of salary, rising to 200% for work between 10 pm and 6 am, on a rest day or on a public holiday.

There is no mandatory requirement for probationary periods in Lithuania, but it is common to specify three months of probation in employment contracts. Notice periods are two weeks for employees with less than a year of service, rising to 30 days thereafter. These periods double for employees less than five years from state pension age (currently 64 years and eight months for men, and 64 years and four months for women).

Compensation, Bonuses & Severance

The national minimum wage rate in Lithuania has more than doubled in the last five years. As of the start of 2024, it now stands at €924 a month (approx. £790; $1000). Further increases are likely in the years to come, and it’s also reasonable to expect demands for substantial wage hikes from employees who have skills that are in demand.

The payment of a 13th-month bonus is not legally required in Lithuania. However, the awarding of discretionary bonuses as a reward for good performance is common.

Severance pay starts at half a month’s salary for employees with less than a year’s service, rising to two months’ salary thereafter. Employees with at least 20 years of service are entitled to six months’ salary.

Tax and Social Security

Lithuania has a simple, two-band income tax system. The first €114,152 (approx. £97,600; $123,400) earned per year is taxed at 20%, and anything over this is taxed at 32%.

The standard rate of corporation tax is 15%, although credit institutions are currently subject to a temporary increased rate of 20%. Small businesses and agricultural companies are, in certain circumstances, eligible for 0% and 5% rates. VAT is 21%, reduced to 9% in a number of areas, including accommodation services and catering, and 5% in areas including drugs and medical aids.

The social insurance system in Lithuania is also relatively simple. Earnings across the lower tax band (i.e. up to €114,152) are subject to a 19.5% payment by employees, while earnings at the higher band are subject to a 6.98% payment. Employers contribute between 1.45% and 2.71%, but must also make 0.16% contributions to both the Guarantee Fund and the Long-Term Employment Fund.

Holidays and Leave

The standard entitlement to paid leave in Lithuania is 20 working days per year. This increases to 23 days after ten years of service, and then by one further day for every five years of service after that. At least ten days must be taken as one block (usually for the summer holidays). 

Lithuania has 16 public holidays per year, which is high by European standards. Holidays that fall on weekends aren’t usually replaced by days off in lieu, but on weekdays immediately before public holidays, employees normally get the last hour of the day as paid time off.

Maternity leave entitlement is 18 weeks (20 for multiple births, or those with complications). Paternity leave is 30 days and can be split into two blocks within the first three months post-birth. Social security covers both types of leave at 77.58% of salary. 

Additionally, parents can take a two-month period of parental leave, also covered by social security. If taken within the first year post-birth, social security covers this at 77.58% of salary. If spread over the first two years, pay is at 54.31% during the first year and 31.02% during the second. There are also further days off and reductions in hours available to parents with children under the age of 12.

Employers cover pay for the first two days of sick leave. The minimum entitlement is 62.06% of salary, but employers can offer more than this – up to 100% – if they so wish. After this, social security covers sick pay at 62.06%. Employees also receive three days of unpaid leave in the event of a family bereavement.

In Summary

This guide demonstrates what a straightforward and rewarding place Lithuania can be for incoming foreign businesses. However, the major revisions to the minimum wage rates in recent years mean you’ll need to keep a close eye on your payroll to keep costs under control. This is where the expertise and advice of a global payroll partner can help you stay in the black, and maintain compliance with all relevant rules and regulations.

This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.

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