Remuneration is one of the most essential terms of an employment contract. Although in practice the employer and the employee most often agree on a specific monthly salary or hourly rate, the regulation under the Labour Law is broader. It is important not only to agree on the amount of remuneration, but also to clearly determine which remuneration system applies to the employee, which supplements or bonuses may be payable to the employee, and when remuneration is paid.
Imprecisely drafted remuneration provisions may lead to disputes both regarding the employee’s basic salary and regarding supplements, bonuses and other elements of remuneration. Therefore, it is important for the employer to establish the remuneration system in such a way that, from the beginning of the employment relationship, the employee understands what they are paid for and according to which principles.
What information on remuneration must be included in the employment contract?
Pursuant to Section 40 of the Labour Law, an employment contract must be concluded in writing before work is commenced. Among other matters, the employment contract must specify the amount of remuneration and the time of payment.
However, this does not mean that absolutely all elements of remuneration must necessarily be set out in detail in the employment contract itself. Section 40, Paragraph three of the Labour Law allows information regarding remuneration to be replaced by a reference to the relevant provisions of laws and regulations, a collective agreement or the working procedure regulations. In such a case, the employer must ensure that the relevant information is available to the employee free of charge, in a clear, complete and easily accessible manner, including electronically.
The commentary on the Labour Law also emphasises that the amount of remuneration does not always have to be expressed solely as a specific figure in the contract itself – it may also be determined by reference to an internal document or a legal act that allows the relevant amount of remuneration to be objectively established.
In practice, however, it is advisable to specify the employee’s basic salary in the contract as clearly as possible, for example:
“The Employee shall be paid a monthly gross salary of EUR 2,000.”
or
“The Employee shall be paid a gross hourly rate of EUR 12.00 for the hours actually worked.”
Variable remuneration, a bonus scheme or other more complex elements of remuneration may, in turn, be described in detail in separate remuneration rules or another internal document of the employer to which an appropriate reference is made.
Salary and remuneration are not the same thing
In practice, the terms “salary” and “remuneration” are often used as synonyms; however, within the meaning of the Labour Law they are not identical.
Section 59 of the Labour Law provides that remuneration is the regular compensation for work payable to an employee, which includes:
- salary;
- supplements provided for by laws and regulations, a collective agreement or the employment contract;
- bonuses;
- any other type of compensation in relation to work.
Accordingly, the employee’s salary is only one part of the overall remuneration.
This distinction may have practical significance, for example, when calculating average earnings, holiday pay or assessing whether a particular payment by the employer constitutes part of remuneration.
The commentary on the Labour Law also notes that the concept of “any other type of compensation in relation to work” is intentionally formulated broadly. This means that the legal nature of compensation cannot be determined solely by the name given to the relevant payment by the employer.
Time-based salary or piecework pay
Section 62 of the Labour Law provides for two main salary systems – time-based salary and piecework pay. The employer organises both the salary system and the system of supplements and bonuses in accordance with laws and regulations and the collective agreement, if one has been concluded within the undertaking.
In the case of time-based salary, the decisive factor in calculating remuneration is the time actually worked. This may be, for example, a monthly salary, daily salary or hourly rate.
In the case of piecework pay, remuneration is calculated according to the amount of work completed, irrespective of how much time was required to perform the particular work. The commentary on the Labour Law also describes piecework pay as payment for a particular unit of work – namely, payment for a specific work result or a specified quantity of work.
If a new remuneration system is introduced in an undertaking or the existing system is changed, the employer must, pursuant to Section 62, Paragraph four of the Labour Law, inform employees thereof in writing at least one month in advance.
At the same time, a change to the remuneration system must be distinguished from a reduction of the salary agreed in an individual employee’s employment contract. If a specific salary amount has been agreed in the employment contract, the employer generally may not reduce it unilaterally solely by amending internal rules – the provisions of the Labour Law governing amendments to an employment contract must be observed.
Should a gross or net salary be stated in the employment contract?
In practice, the safest and legally clearest approach is to specify the gross salary in the employment contract, namely the salary before the deduction of the employee’s taxes and mandatory State social insurance contributions.
Net salary is the amount actually received by the employee after taxes have been applied. Its amount depends not only on the agreement between the employer and the employee, but also on the individual tax situation of the particular employee.
An employee’s net salary may be affected, among other things, by the applicable personal income tax rate, the non-taxable minimum, tax relief for dependants, the mandatory State social insurance contribution rate applicable to the employee and other circumstances. In 2026, the general non-taxable minimum is EUR 550 per month, while tax relief of EUR 250 per month applies for a dependant.
Therefore, the same gross salary may result in different take-home amounts for different employees.
The Labour Law itself does not directly prohibit agreeing on a net amount; however, such an approach creates significantly greater tax and calculation risks for the employer, because in practice the employer assumes an obligation to ensure a specific amount payable to the employee regardless of the employee’s individual tax situation. Therefore, from an accounting and tax calculation perspective, a gross amount is considerably clearer.
Accordingly, it is advisable to use the wording “gross salary” clearly in the employment contract.
Minimum salary in 2026
Section 61 of the Labour Law provides that the minimum salary may not be lower than the minimum amount determined by the State.
As of 1 January 2026, the minimum monthly salary in Latvia for normal working time is EUR 780. It is determined by Cabinet Regulation No. 656.
This means that an employee for whom normal working time has been agreed may not have a monthly salary lower than EUR 780 gross.
In the case of part-time work, however, remuneration may be lower than EUR 780 per month because it is determined in accordance with the agreed and actually worked time. Therefore, it would be incorrect to conclude that every employee, irrespective of working time, must necessarily receive at least EUR 780 per month.
The minimum hourly rate in 2026 is not expressed as one fixed amount for the entire year – it is calculated according to the number of normal working hours in the relevant month in accordance with the formula provided for in Cabinet regulations.
Minimum social insurance contributions are not the same as the minimum salary
The minimum salary must be distinguished separately from the minimum object of mandatory State social insurance contributions.
In 2026, the minimum object of mandatory State social insurance contributions for an employee is EUR 2,340 per quarter, or three minimum monthly salaries. If a person works for several employers, the declared income is aggregated for the purpose of determining the minimum contributions.
However, this does not mean that a part-time employee must necessarily have a salary of EUR 780 specified in the employment contract. Part-time working time and remuneration proportionate thereto may be agreed in the employment contract. The rules on minimum social insurance contributions, in turn, determine whether and to what extent the employer may incur an additional obligation to make mandatory State social insurance contributions.
There are also changes in this regulation in 2026 – for example, the employer is not required to make minimum mandatory contributions for days on which the employee is idle due to their own fault or has been suspended from work without retaining salary.
Therefore, the issues of the minimum salary and the minimum social insurance contributions must be assessed separately.
Supplements for night work, overtime and work on a public holiday
Remuneration may also consist of supplements prescribed by law.
An employee who performs night work is entitled, pursuant to Section 67 of the Labour Law, to a supplement of not less than 50 per cent of the specified hourly or daily salary rate. If piecework pay has been agreed, the supplement is at least 50 per cent of the rate for the relevant piecework. A higher supplement may also be provided for in the employment contract or collective agreement.
For overtime work or work on a public holiday, pursuant to Section 68 of the Labour Law, a supplement of not less than 100 per cent of the hourly or daily salary rate specified for the employee is payable as a general rule.
An exception is possible in certain sectors where a general agreement complying with the requirements of the Labour Law has been concluded and the sectoral minimum salary is substantially higher than the State minimum. In such a case, within the framework of the general agreement, the overtime supplement may be reduced in certain circumstances, but not below the limit prescribed by law.
In addition, Sections 65 and 66 of the Labour Law provide for supplements for additional work and for work associated with special risk.
Therefore, it is not sufficient for the employer simply to state in the employment contract that “the salary includes all supplements”. The application and calculation of mandatory supplements must be assessed in accordance with the actual circumstances and the requirements of the Labour Law.
A bonus is not automatically the same as a supplement
It is also important to distinguish between a supplement and a bonus within the remuneration system.
In many cases, a supplement arises directly from the law, the employment contract or a collective agreement and, when the relevant prerequisites are met, the employer is required to pay it.
A bonus, in turn, may be linked to work results, individual or company targets, the employer’s assessment or other predetermined criteria.
If the employer wishes to retain the right to decide on the granting of a bonus, the remuneration rules should clearly specify whether the bonus is guaranteed or whether its granting and amount depend on the fulfilment of specific criteria or on the employer’s decision.
The more specifically the entitlement to a bonus is defined in the employment contract or bonus rules, the less scope there is for the employer later to argue that the payment was entirely discretionary.
When must remuneration be paid?
Section 69 of the Labour Law provides that remuneration must be paid not less frequently than twice a month, unless the employee and the employer have agreed that it will be paid once a month.
Therefore, the common practice in undertakings of paying remuneration once a month is fully permissible if there is an appropriate agreement to that effect.
If the payment date falls on a weekly rest day or a public holiday, remuneration must be paid before that day.
Holiday pay and remuneration for the time worked up to the holiday must, as a general rule, be paid no later than one day before the holiday. At the employee’s written request, it may be paid later, but no later than the next remuneration payment date.
The remuneration statement is not merely an informational document
When paying remuneration, the employer must provide the employee with a remuneration statement pursuant to Section 71 of the Labour Law.
It must indicate the remuneration paid, the taxes withheld, the mandatory State social insurance contributions made and the hours worked, including overtime hours, hours worked at night and hours worked on public holidays. At the employee’s request, the employer must also explain the calculation.
The commentary on the Labour Law emphasises, on the contrary, that the remuneration statement is not merely a formality. Its purpose is to enable the employee to verify whether working time has been recorded correctly, whether remuneration has been calculated in full and whether taxes and social insurance contributions have been withheld correctly. At the same time, the remuneration statement itself does not prove that the relevant amount has actually been paid.
The statement may also be provided electronically, for example by sending it to the employee by e-mail or providing access through the undertaking’s personnel management system, provided that the information is genuinely accessible to the employee.
Equal pay is becoming increasingly important
Section 60 of the Labour Law already imposes an obligation on the employer to determine equal remuneration for men and women for the same work or work of equal value.
In 2026, this issue has become even more relevant in connection with the European Union Pay Transparency Directive. Among other matters, the Directive provides for more transparent criteria for determining remuneration, employees’ rights to receive information on pay levels and an obligation for employers to justify pay differences by objective and gender-neutral criteria.
At the same time, it is important to note that, as of September 2026, the Latvian Pay Transparency Law has not yet entered into force. Although the deadline for transposition of the EU Directive was 7 June 2026, the relevant regulation in Latvia is still in the legislative process.
Therefore, employers should not treat the requirements of a draft law that has not yet been adopted as already being in force; however, it is advisable to review remuneration systems in good time and verify whether differences in remuneration for comparable positions have an objective and documentable justification.
What should the employer consider including in the employment contract?
To reduce the risk of disputes, the employment contract or the remuneration rules applicable to it should clearly determine which salary system applies, the amount of the basic salary or hourly rate, when remuneration is paid and which principles apply to variable remuneration.
If the undertaking provides for bonuses, commission payments, individual bonuses or company performance bonuses, it is advisable to determine at least the main principles for granting them in advance.
The wording of the employment contract should also be sufficiently clear to allow both the employee and the employer to determine objectively what remuneration is payable in the particular situation.
A transparent and consistent remuneration system is one of the most effective ways to prevent later disputes concerning salary, supplements and bonuses.
Questions About Remuneration in Employment Contracts?
If you would like to review your employment contract templates, remuneration rules or bonus principles in line with the Latvian Labour Law, please do not hesitate to contact Leinonen Latvia Tax & Legal team.
