Understanding the complexities of payroll laws is essential for employers and employees alike to ensure compliance and foster a productive work environment. This guide provides an in-depth look into the key employment and payroll regulations and taxation in Lithuania.

BASIC REQUIREMENTS FOR EMPLOYMENT CONTRACT

An employment contract must be concluded in writing between the employer and the employee. The contract shall be prepared in two copies, one for each party. Each employment contract must specify and mutually agree upon the essential terms and conditions, including:

Workplace (enterprise, agency, organization, structural subdivision, etc.);
Working functions (work of a certain profession, specialty, qualification or specific duties);
Wage;
Rights;
Responsibilities;
Duties;
Other.

TYPES OF EMPLOYMENT CONTRACT

Taking into account the nature of the work and the method of its performance, the following types of employment contracts may be concluded:

Open-ended Employment Contract;
Fixed-term Employment Contract;
Temporary Work Employment Contract;
Apprenticeships Employment Contract;
Contract on Project Work;
Workplace Sharing Employment Contract;
Employment Contract for Multiple Employers;
Seasonal Employment Contract.

DURATION OF THE PROBATION PERIOD

The Lithuanian Labour Code provides the option to establish a probation period of up to 3 months for a new employee. For short and fixed-term employment contracts, the probation period must be set proportionally to the total length of employment. The duration and conditions of the probation period must be clearly specified in the employment contract.

WORKING TIME:

Standard working time: 8 hours per day and 40 hours per week;
Shorter working time regime is obligatory for:
- Persons under 18 years of age;
- Employees performing work that involves higher mental or emotional strain. The procedure for establishing shorter working hours is outlined in the resolutions of the Government of the Republic of Lithuania.
- Part-time work (e.g., 1 hour per day).

The maximum working time, including overtime, must not exceed 48 hours per week. The total working time, including overtime and additional work, must not exceed 60 hours over a 7-day period or 12 hours per day. For employees working under a summary recording of working time system, the maximum weekly working time is 52 hours.

MINIMUM REMUNERATION from 1 JANUARY 2025

The minimum hourly wage in Lithuania is EUR 6.35, and the minimum monthly salary is EUR 1 038.

RULES FOR OVERTIME

Overtime is permitted only in the cases specified in the Lithuanian Labour Code. Overtime work for each employee shall not exceed 8 hours in one week and 180 hours per year. With the written consent of the employee, overtime can be extended to up to 12 hours per week.

The pay for overtime shall be at least one and a half times the employee’s regular hourly rate. Overtime pay may be higher if the work is performed during public holidays, nighttime, or other special circumstances.

ANNUAL LEAVE

Employees are entitled to use part of their annual leave as soon as they accrue the right to at least one day of leave. For the second and subsequent working years, annual leave may be granted at any time during the working year according to the schedule of annual leave.

The minimum annual leave entitlement is:

20 working days per year for employees working five days per week.
24 working days per year for employees working six days per week.

If the workweek consists of fewer than five days or a different schedule, the employee is entitled to four weeks of annual leave.

Employees must be paid their average salary during annual leave. The rules for calculating the average salary are established by the Government of the Republic of Lithuania.

TYPES OF OTHER LEAVE

Leave Entitlement	Remuneration from an employer
	Time	Amount	Percentage
Medical leave granted for illness of an employee	Sickness benefit for the first two days of sickness coinciding with work schedule	Average salary	62.06-100%
Maternity Leave	70 calendar days upon childbirth and 56 calendar days after the childbirth	–	–
Paternity Leave	30 days after childbirth	–	–
Parental Leave	Up to child’s age of three years	–	–

Other:

Educational leave;
Sabbatical leave;
Leave for performance of official or public duties;
Unpaid leave.

TERMINATION OF THE EMPLOYMENT CONTRACT

The employment contract may be terminated for the following reasons:

During the probation period by either party;
By agreement between the parties;
Upon the employment contract’s expiry;
Upon the notice of an employee;
On the initiative of an employer without any fault on the part of an employee;
Without notice (If the employee performs their duties negligently, violates workplace rules, or commits other significant breaches of labor discipline);
On the employer’s will.

In cases of dismissal, the employee is entitled to severance pay, which ranges from one to six average monthly salaries, depending on the grounds and circumstances of termination.

PUBLIC HOLIDAYS IN LITHUANIA

1 January – New Year’s Day;
16 February – Day of Re-establishment of the State of Lithuania;
11 March – Day of Re-establishment of Lithuania’s Independence;
(Western Church) Easter and Easter Monday;
1 May – the International Labour Day;
1st Sunday in May – Mother’s Day;
1st Sunday in June – Father‘s Day‘;
24 June – Midsummer and St. John’s Day
6 July – Day of the State (Coronation of King Mindaugas);
15 August – Assumption Day;
1 November – All Saints’ Day;
2 November – All Souls’ Day;
24 December – Christmas Eve Day;
25 and 26 December – Christmas days

THE TAXES APPLIED ON EMPLOYMENT INCOME

Payroll Taxes	Percentage
Employee’s part
Personal Income Tax (PIT)	20%/32%
Employee Social Security Contributions	19.5%
Participation of an employee in pension scheme	3%
Employer’s part
Social Security Contributions paid by the employer	1.77%

Source:

Personal Income Tax (PIT)
Employee’s social security contributions
Social security contributions paid by the employer

TAX-EXEMPT AMOUNTS FOR SALARY REMUNERATION

Depending on the gross salary amount the following non-taxable amounts are applied for Lithuanian tax residents:

Gross salary amount is equal or less to EUR 1 038 – non-taxable amount is EUR 747;
Gross salary amount is more than EUR 1 038 but less than EUR 2 387,29– non-taxable amount is calculated according to the following formula: 747 – 0,49 x (Gross Salary – 1 038);
Gross salary amount is more than EUR 2 387,29 but less than EUR 2 865– non-taxable amount is calculated according to the following formula: 400 – 0,18 x (Gross Salary – 642);
Gross salary is above EUR 2 865– all amount is taxed.

Lithuanian tax residents with limited working capacity are eligible for specific individual non-taxable amounts. These include:

EUR 1 127, in case the working capacity is 0-25%;
EUR 1 057, in case the working capacity is 30-55%.

PROGRESSIVE PERSONAL INCOME TAX RATE

Employment income in Lithuania is subject to a 20% Personal Income Tax (PIT) rate. A reduced 15% PIT rate applies to sickness pay.

Starting in 2025, if annual employment income exceeds 60 average monthly salaries (EUR 126 532,80), a higher 32% PIT rate will apply to the excess amount.

Employees are responsible for reporting their annual income and fulfilling any additional Personal Income Tax obligations due to the progressive rate.

SOCIAL SECURITY CONTRIBUTIONS “FLOOR”

Employers in Lithuania must pay social security contributions for part-time employees whose monthly salary is lower than the minimum monthly salary (MMS), currently EUR 1038, based on the gross MMS amount.

Exemptions from the social security contributions “floor” include cases where the employee:

Is employed by another employer in Lithuania (total wages do not need to reach the MMS);

Receives a state pension for old age or a lost capacity (disability) pension;
Is not older than 24 years;
Has a working capacity of 0-55%;
Receives maternity, paternity, or parental leave benefits.

SOCIAL SECURITY CONTRIBUTIONS “CEILINGS”

In 2025, if employment income from the same employer exceeds 60 average monthly salaries (EUR 126 532.80), social security contributions ceilings will apply.

It is important to note that the social security contribution rates include compulsory health insurance contributions (6.98%), which are not subject to the ceilings.

Therefore, for any income exceeding the threshold, only the 6.98% compulsory health insurance contribution rate will be applied to the excess amount.

TAX EXEMPT BENEFITS

The following payments are not considered benefits in kind and are therefore exempt from taxation:

Non-monetary prizes and presents with a value not exceeding EUR 200, received from the employer.
Compensations made by the employer to cover health treatments, when required by law.
Working clothes, shoes, equipment, and other assets provided by the employer exclusively for performing work functions.
Amounts paid directly by the employer to educational institutions for an individual’s education.
Benefits received by employees when the employer pays for rail and road public transport tickets used for commuting to and from work.
Personal income tax, social security, and compulsory health insurance contributions paid on behalf of an individual by the employer.

Please note that any benefits in kind not included in the above list are taxed as employment income.

BUSINESS TRIPS AND PER DIEM

Employees are entitled to the following guarantees during business trips: retention of their job/position during the business trip and full payment of their regular wage.

Additional compensation:

Per-diem rates to cover daily expenses.
Reimbursement for costs directly related to the business trip.

The legislation establishes the maximum allowable per diem amounts.

For business trips within Lithuania, per diem rate is EUR 28.

For one-day business trips within Lithuania, a per diem may not be paid according to the Lithuanian Labour Code.

Per diem rates for business trips outside Lithuania are established by the Government and vary depending on the destination.

If the payable rates exceed those regulated by local legislation, the difference will be subject to taxation.

Lithuanian labor laws are designed to balance the interests of both employers and employees, ensuring fair treatment and fostering a stable working environment. Staying informed about payroll regulations, tax obligations, and employment rights is key to seamless business operations. If you need guidance on contract drafting, wage calculations, or managing absences and leaves, our expert advisors are here to help ensure compliance and efficiency in your workplace.

PAYROLL IN LITHUANIA: KEY INSIGHTS INTO REGULATION AND TAXATION