Payroll & Employment Guide Lithuania

Employment contracts in Lithuania must be documented in writing and outline key employment terms, such as wages, working hours, benefits, termination policies, and similar.

Notice periods: From 1 to 3 months.

Termination of employment: Mutual agreement, employee-initiated, or employer-initiated termination.

Employers in Lithuania are required to provide mandatory employment benefits in accordance with the country’s labour law. Many of them also offer extra perks to stay competitive in the job market. Understanding both of them is essential to attracting and retaining talent.

• Mandatory benefits: Health, pension, and unemployment insurance.
• Common perks: Meal vouchers, transport reimbursements.
• Leave policies: Paid annual leave, sick leave, maternity/paternity leave.
• Social insurance contributions: Both employees and employers must contribute to social insurance, which covers health insurance, pensions, and other social benefits.
• Health insurance: Employees are required to have health insurance coverage, which is usually included in the social insurance contributions.
• Sick leave compensation: Employees may receive allowances during sick leave, which is partially compensated through social insurance.
• Parental leave: There are provisions for parental leave, with allowances typically provided for a certain period.
• Vacation pay: Employees are entitled to annual paid leave, and employers must account for this in payroll.
• Minimum wage: Employers must comply with the national minimum wage regulations.
• Voluntary contributions: Individuals can voluntarily contribute to private pension funds to enhance their retirement savings.
• Types of Pension Funds:

1. Mandatory accumulation funds: For employees under 40, participation is mandatory, with both employee and employer contributions.
2. Supplementary pension funds: These are voluntary and can be set up by individuals or employers.

In Lithuania, employees typically must fill out reimbursement forms to claim expenses incurred during work-related activities. Expenses are paid to the employees in net.

Lithuania has a structured tax system where employers are responsible for withholding personal income tax and social security contributions from their employees’ salaries. Additional tax regulations may apply to self-employment, royalty income, and VAT.

Personal income tax rate: 20% or 32%, depending on the amount of income.

VAT: 21%

New employees must also adhere to these tax obligations from the outset of their employment. At the end of the tax year, employees are required to file an annual income tax declaration to report total earnings, claim any deductions, and determine their final tax liability.

Tax allowances: The Lithuanian tax system allows for various deductions that can reduce taxable income, such as those for dependent family members or allowable expenses like education and medical costs.

The State Tax Inspectorate oversees the collection and administration of income taxes, ensuring compliance with local laws. Employers are also responsible for registering new employees with the relevant tax authorities and maintaining accurate records of employee earnings and contributions for audit purposes.

Tax benefits: Voluntary pension contributions made before January 1, 2025, are tax-deductible up to €1,500 per year, not exceeding 25% of annual taxable income. Pension fund earnings are tax-deferred until withdrawal.

Withdrawal options: Upon reaching retirement age, individuals can choose to withdraw their savings as a lump sum, receive regular payments, or convert their savings into an annuity.

Regulation and oversight: The system is regulated by the Bank of Lithuania, ensuring the security and performance of pension funds.

Portability: Individuals can transfer their pension savings between funds, allowing for flexibility and better investment options.

Employers in Lithuania must submit salary payments as agreed upon in employment contracts, in accordance with the minimum wage requirements set by labour laws. Salaries are typically paid on a monthly basis, unless otherwise specified in the contract.

Monthly payroll declarations must be submitted to the State Tax Inspectorate, detailing total salaries paid, taxes withheld, and social insurance contributions.

Salary payment deadline: By the end of the month.

Taxes and contributions payment deadline: By the 15th of the following month.

Annual payroll declaration deadline: By the end of February of the following year.

Monthly payroll declarations deadline: By the 15th of the following month.

Payroll currency: EUR

Lithuania’s labour laws are governed by the country’s Labour Code, which outlines all the aspects of employment, including contract types, minimum wages, working hours, probation periods, termination rules, and employer obligations. Employers must understand and comply with all these regulations to remain compliant.

Total employment cost:

• Employer's social insurance contributions: 1.77%
• Employee’s social insurance contributions: 19.5% (6.9% above the wage limit of €126,532)
• Employee’s health insurance costs: 6.98%

Minimum wage: EUR 1038 per month

Probation period: Up to 3 months

Foreign citizens seeking to work in Lithuania must obtain the necessary work permits and visas. The process, permit type, and costs are different depending on the applicant’s nationality, job role, and length of stay.

Types of permits: EU Blue card

Process length: Around 1 month

Process cost: 1200€

Using EOR services in Lithuania, you can legally employ individuals from the country without setting up legal entities there. The EOR will take over all the legal responsibilities as an official employer, including:

• Legal employment and contracts
• Payroll processing
• Tax withholding
• Benefits administration
• Onboarding/offboarding employees

PEO services provide HR and administrative support, while you remain the legal employer for your team in Lithuania. PEO services can be of benefit for employers who already have legal entities in Lithuania but need support to manage their workforce operations, including:

• HR and workforce administration
• Payroll and benefits management
• Compliance and local labour law guidance
• Employment contracts assistance

Native Teams provides a payroll calculator adapted to Lithuania’s labour laws. Using our calculator, you can easily estimate net/gross salaries, employer/employee contributions, and other mandatory deductions in the country.