At Bradford Jacobs, our Employer of Records (EOR) platforms provide reliable solutions for companies wishing to establish their presence in the Lithuanian economy. Compliance with the local payroll laws and regulations are vital to a business’ smooth and hassle-free transition, which is where we come in. We offer dedicated Lithuania Payroll solutions that can be personalized to your requirements.
We aim to make business expansion easy. We navigate the administration of the Lithuanian payroll system for you – and as part of our service, we make the returns and associated payments for income tax and social security contributions directly from our payroll system to the local tax authorities. We do the work, so you do not have to.
You may encounter some challenges regarding payroll during your expansion into Lithuania but allow us to take the reins and answer any of your questions and concerns with our trusty guide on payroll for Lithuania.
What Lithuania Payroll Options Are Available for Companies?
Businesses in Lithuania have access to a variety of payroll options, depending on your business’ needs:
- Payroll Option Information
Remote payroll This option allows businesses to operate under a single payroll system for all employees, by adding your employees in Lithuania to your parent company’s payroll. However, these employees must operate under different regulations, which can cause some confusion.
- Internal payroll
You may operate payroll out of your subsidiary, especially if you are committed to growing your company’s presence in Lithuania. However, this does require hiring a dedicated HR staff that understands the local employment and compliance laws.
Lithuania payroll processing company
If you are keen on outsourcing, working with a Lithuania payroll processing company will help in processing your payroll – but not when it comes to compliance.
Lithuania payroll outsourcing
However, there is another option available which solves both needs - working with a company like Bradford Jacobs.
We can handle both your payroll and compliance for all your employees in Lithuania. We take the stress of administration off your shoulders so you can focus on what you do best.
Lithuania Payroll Services
Payroll regulations in Lithuania change frequently, and businesses risk sanctions and financial penalties if they fail to comply with these changes. Our payroll service requires staying up to date with these shifting demands – which includes administering returns and associated payments for wage tax and social security contributions directly from our payroll system to the tax authority. Our role consists of:
• Registering with the State Tax Inspectorate for a Lithuanian Tax Identification Number (VMI)
• Registering with the State Social Insurance Fund Board (SODRA)
• Registering with the State Labor Inspectorate (VDI)
• Registering employees with the Lithuanian Employment Service
• Creating employment contracts for your new employees, in Lithuanian and English
• Register with the Compulsory Health Insurance Fund (CHIF)
• Applying for employees’ special expatriation status (if applicable)
• Calculating employees’ monthly salary and sending them their pay slips
• Researching for any available tax incentives
• Submitting employees’ or employer’s wage tax returns and national insurance forms
• Corresponding with the applicable national authorities regarding payroll changes and payments
• Creating and submitting your company’s annual accounts, administration, and year-end statements
• Creating payment schedules for wage tax, national insurances, and net wages
• Ensuring proficient personal income tax returns for you and your employees
What Is Required to Set up Lithuania Payroll?
The requirements for setting up Lithuania payroll will depend on how you establish your presence in the country. If you would like to set up as a subsidiary, you will need to have your subsidiary established first – but this can take some time, depending on where you incorporate as well as the entity type you choose.
To start processing payroll in Lithuania, you will need:
- A tax identification number (known as a VMI)
- A social insurance registration (SODRA)
- A local bank account
It should also be noted that it is not necessary to be licensed before making any tax or social security fillings on behalf of a client.
Registering with the tax and social contributions authorities will take approximately 5 working days. To pay employees and local authorities from an in-country bank account, it only takes one day to set up – however, this is not mandatory for payroll. If you would like to make the appropriate payments online, however, a bank account is required.
What Entitlement/Termination Terms Are Needed to Set up Lithuania Payroll?
Lithuanian workers benefit from entitlements for employment and termination, which are enforced by the local employment organizations, trade councils and labor institutions:
National Minimum Wage: The National Minimum Wage of Lithuania was recently increased in 2021 to €642 per month. Bonuses are not mandatory, but additional compensation be negotiated during the contract stage of employment by the employee.
Working Hours: In Lithuania, the standard working week is 40 hours, with 8 hours a day, although in certain industries, this can go up to 48 hours a week. The maximum working time in Lithuania (with overtime and additional work) cannot exceed 12 hours a day and 60 hours a week.
If an employee is working under a cumulative working period, the maximum working time per week cannot exceed 52 hours (but does not apply if additional work or standby duty is agreed to under agreement).
If an employee is working at night, the average working time may not exceed 8 hours per shift during the reporting period of 3 months.
Overtime: For overtime, employees are paid 150% of their normal hourly pay. If the overtime is from 10pm-6am, they should receive 200% of their normal hourly pay. Maximum overtime cannot exceed 8 hours in 7 consecutive days, or 12 hours in that time, if the employee has expressed their consent in writing beforehand.
Leave: Employees in Lithuania are entitled to a minimum of 20 days paid annual leave when working a five-day week, and increases depending on the length of an employee’s service. This minimum is increased to 24 days if an employee is working six-day weeks.
Annual leave may be taken in parts and must be no less than 10 or 12 days at a time, according to the length of workdays in a week. Single parents with children under the age of 14 are entitled to 35 days of annual paid leave.
Sick Pay: Employees must receive between 80-100% of their pay from their employer in the first two days of their illness. From the third through the seventh day, employees are eligible for 40% of their pay. After that, the State Social Security Fund pays 80% of the employee’s salary.
Holidays: Employees in Lithuania are also entitled to paid leave for 13 public holidays. The day before the holidays, work ends an hour early, but employees are still paid for the full day. The holidays are as follows:
• New Year’s Day
• Day of Re-establishment of the State of Lithuania
• Day of Restitution of Independence of Lithuania
• Easter Monday
• Labour Day
• St. John the Baptist’s Day
• State Holiday Lithuania
• Assumption Day
• All Saint’s Day
• Christmas Eve
• St. Stephen’s Day
Maternity & Paternity Leave: Mothers are entitled to 70 calendar days’ pregnancy and childbirth leave (in case of complications, twins, or multiple births) before delivery, and 56 calendar days after delivery. Maternity leave allowance is 77.58% of the mother’s wages, and is given to the mother in its entirety, regardless of the amount of leave days taken before delivery.
Paternity leave is granted for 30 days (uninterrupted). The leave can be taken any time from the date of birth to the age of 3 months. In the case of a complicated delivery, twins, or multiple births, the leave can be taken until the child reaches 6 months.
Parental Leave: Lithuania also has parental leave. Parental leave is paid by the State Social Security Fund, and the mother, father, grandmother, grandfather, or other relatives participating in the care and raising of a child are granted parental leave of 1 year until the child reaches the age of 3. The leave can be taken all at once or in instalments.
Termination/Severance: The length of notice for termination depends on the length of the employee’s service. Severance pay also varies according to the length of the employee’s service.
If an employee is terminated without fault, they are entitled to severance based on length of service, which ranges from 1 month for less than a year’s service to 6 months’ average monthly salaries as severance pay for 20 years or more. However, employees terminated with fault are not eligible for severance pay.
The employer must inform the State Insurance Fund Board (SODRA) on the termination of employment no later than a day after the termination of the employment contract.
The 13th month is not required in Lithuania; however, some companies pay an extra month’s salary to employees as a yearly bonus.
What Taxation Rules Exist for Payroll?
A crucial aspect of Lithuania payroll is knowing the local tax regulations. Employees typically pay a flat rate for income tax, as well as contribute to health insurance and social insurance through monthly salary deductions.
Salaries are paid monthly and are typically received by the 10th of the following month.
The employer must also make social security contributions monthly, as well as file a monthly social security tax report, as well as a yearly income tax report, which states employees’ yearly earnings. Yearly reports are to be sent to the tax authorities by the 15th of February of the following year.
Employers and companies in Lithuania are also obliged to make other payments:
• Corporate Tax: Companies are subject to a corporate tax of 15%. The taxable period is the financial year, 1 January to 31 December. However, a company may apply to adopt a substitute year of reporting. Corporate Income Tax must be filed by the 15th day of the 6th month of the following year (15th June for the calendar year). Payments must be done through the Tax Authorities online portal (VMI).
• Income Tax: Employees’ income is taxed at a flat rate of 20%, which is to be with-held from the employee and paid by the employer every month. If employment income exceeds 84 average monthly salaries, the employee income is taxed at 32%. Payment to the tax authorities must be made (by the employer) by the 15th of the following month. If salaries are paid after the 15th, then payments must be made by end of the following month.
• Social Taxes: Employees in Lithuania contribute 19.5% of their wages to social security and health insurance in monthly instalments (but can go up to 22.5% if the employee participates in the additional pension accumulation system). The employer is obliged to withhold social security payments from monthly salary payments and pay the employees’ contributions to the relevant authorities. Employee social security payments are divided as follows:
Contribution Employee Wage Percentage:
Health Insurance 6.98%
Maternity Insurance 1.71%
Employers must also contribute to social security, with a monthly payment for unemployment insurance (1.77% for indefinite employment contracts, and 2.49% for fixed-term employment contracts), and insurance from accidents at work or occupational diseases (0.14% is the standard rate). However, accidental insurance depends on the category the company is placed in, based on their history of accidents. The tariffs for each category are:
Category Rate of Contribution (%)
Category I 0.14
Category II 0.36
Category III 0.7
Category IV 1.4
Payments of Social Security Tax contributions must be filed with the relevant authorities by the 15th of the following month, or by the first preceding workday if the 15th does not fall on a working day (is on the weekend or a public holiday).
• Funds: Employers must pay 0.16% of an employee’s wage to the Guarantee Fund (in case of bankruptcy), and 0.16% to the Long-Term Unemployment Fund (for long-term employees’ severance pay). However, some company types are exempt from one or both payments, such as the central bank and budget institutions, as well as political parties, societies, and trade unions.
Get in touch with Bradford Jacobs
If you are looking to expand into Lithuania and need your employees’ payroll managed with extensive management in compliance, contact us today to see what our International Payroll services can do for you.