Happy and satisfied employees make your business thrive and lead to even better profits. However, the specific benefits for employees in Latvia might not all be familiar to you yet. By using our PEO and EOR service we can provide compliant labor contracts for employees in Latvia including local benefits.
When expanding your company’s presence in a new country, you need to ensure compliance both in your employment contracts and benefit guarantees. These involve social security contributions, sick leave, health insurance, and unemployment, to name a few. In Latvia, benefits can be guaranteed by labor law and national legislation, as well as collective agreements with trade unions or workers’ councils.
Our guide will explain what benefits and employee compensation are guaranteed, and what can be modified, for any employer who wishes to expand their business into the Baltics.
What Latvia Compensation Laws Exist?
In Latvia, compensation laws are set by the Labor Code and national legislation, but the compensation may vary according to the sector the employees are in, regulations of applicable collective agreements, and the internal regulations of the company.
For example, the 13th month salary payment is not required, but companies may pay the salary as a yearly bonus – employee compensation and a daily allowance is also required for business trips.
There are, however, other benefits/compensation that are guaranteed by national legislation:
• National Minimum Wage: The minimum wage was recently increased from EUR 430 (2020) to EUR 500 (2021). Employees in Latvia must receive at least this amount from their employers (but this can vary according to the position and qualifications).
• Social Insurance Contributions: Employees in Latvia are entitled to social security benefits. Social security contributions are paid monthly to the State Social Insurance Agency (VSAA) through contributions by the employee and the employer (employee contributions are withheld by the employer).
The contribution percentage varies according to the employee’s pay. Social security contributions include insurance for state pensions, unemployment, accidents and occupational diseases at work, invalidity, maternity leave, sickness, and parental leave.
• Notice Periods: Notice periods in Latvia are mandatory and vary according to the termination type.
• Redundancy, Termination and Severance: Employees are entitled to severance pay after the probation period is passed and is granted expect in employment termination due to misconduct.
Termination can be of either the employee’s or the employer’s will. The standard notice is one month, but in case of the employer’s will, this depends on the grounds of dismissal.
• Work Hours and Breaks: Average working hours is 8 hours a day, 5 days a week. Daily working time is a 6-day week cannot exceed 7 hours. Breaks are between 30-60 minutes in an average workday.
• Sick Leave: All employees in Latvia are entitled to sick leave and compensation, which is paid by both the employer and social security funds.
• Holiday/Vacation Leave: Employees are entitled to annual leave, as well as leave on public holidays. Annual vacation leave starts at 28 days and can increase according to an employee’s length of employment.
• Maternity/Paternity Leave: Employees are entitled to 112 days of maternity leave and are eligible for an additional 14 days in case of complications or the birth of two or more children. Fathers are entitled to 10 days’ leave in the first two months of the child’s birth.
• Parental Leave: Employees are entitled to up to one and a half years of parental leave that may be taken up to date of the child’s eighth birthday. This leave may be taken in installments or in a full period.
Social Security in Latvia
Social security contributions in Latvia are generally settled through an employee’s salary (which are withheld from an employee’s salary and paid by employer every month) as well as an employer’s own monthly contributions. An employee must contribute 10.5% of their monthly wages, whilst an employer must pay their own contributions of 23.59% of an employee’s salary.
Foreign employees who do not have a permanent residence in Latvia but remain in the country for more than 183 days in a calendar day and are employed by a non-EU/EEA company, must pay quarterly contributions at a rate of 31.83% (which could be paid by either the employer or the employee).
Social Security Contribution
Foreign employees (non-residents): 31.83%
Statutory Cost in Latvia
The National Minimum Wage: Employee wages must at least be equal to the national minimum wage of EUR 500 per month. This wage is determined upon annually by the Tripartite Cooperation Council and the Government of Latvia.
Social Insurance: Social security contributions are made by both the employer and employee in monthly installments. These contributions guarantee employee’s health insurance, pensions, unemployment insurance, and maternity, paternity, and parental leave.
Solidarity Tax: For employees earning more than EUR 62,800 per year, employers and employees are also obligated to contribute to a solidarity tax, which is split into the same rates as social security contributions – an extra 23.59% from the employer’s side and an extra 10% from employee’s side. However, employers are entitled to reimbursement for their contributions.
Solidarity Tax Contribution
What Benefits Are Guaranteed in the Latvia?
Overtime: Overtime payment is guaranteed to workers at no less than 100% of workers’ daily hourly rate.
Health Insurance: All employees benefit from national health insurance if they are paying social security contributions.
Public Holidays: Latvia enjoys about 15 annual public holidays, and employees are entitled to get those days off, as well as receive compensation for them.
Vacation Leave: Vacation leave is also guaranteed in Latvia, which starts at 28 days and may increase.
Sick Leave: Sick leave and sick leave payments are guaranteed and paid by both the employer and social security funds.
Maternity Leave & Paternity Leave: Expectant mothers are entitled to 112 days of maternity leave, with pay. 10 days of paternity leave within the first two months of the child’s birth is also guaranteed to an employee.
Parental Leave: Parental Leave up to a year a half is also guaranteed to employees in Latvia.
Unemployment: A monthly allowance for a specific period is given to unemployed employees by the social security authorities.
What Restrictions Exist for Benefits and Compensation in Latvia?
Social Security: Social security payments are capped at EUR 62,800.
Probation: Probation cannot exceed 3 months and are not entitled to severance pay during this time.
Severance Pay: Severance pay depends on the length of employment, with a maximum of four-months’ average wage.
Overtime: Overtime cannot exceed 144 hours in a four-month period and must generally be agreed to by both the employer and the employee in writing.
Unemployment Benefits: Unemployment benefits may only be granted for 9 months. The benefit amount will also depend on employment history and the wage level from which social insurance contributions have been paid.
Health Insurance and other Benefits in Latvia
Employees are entitled to health insurance – public healthcare in Latvia is delivered through a universal system which entitles citizens to free or low-cost healthcare that is funded by compulsory monthly social security payments.
However, private health insurance options are also available and can be acquired on the employee’s or company’s initiative.
Company benefits, however, may vary according to the industry and sector, but can normally include private healthcare and a company car.
Contact us to see how we can benefit your plans in Latvia
Employment law in Latvia is based on a mix of legislation – employment law, the labor code, collective agreements, trade unions and work councils’ agreements – which only adds to the hurdles of business expansion and establishment.
Employment compensation, benefits, social security contributions, and health insurance must be attended to swiftly and efficiently to ensure a smooth transition of your new venture into Latvia. Get ahead of these issues by working with Bradford Jacobs’ Employer of Record (EOR) services. Contact us today to see how we can benefit your plans in Latvia!