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At G-P, our industry leading Global Employment Platform™ helps companies unlock their full potential by building highly skilled global teams in days instead of months. But how does the everywhere workforce work together best? Here we discuss the opportunities – and challenges – in achieving the kind of global growth and success we can all share.
G-P. Global Made Possible.
With its business-friendly regulations and tax policies, educated workforce, government support, and vibrant financial and technology sectors, Lithuania is full of potential as a place for companies to grow internationally. Currently, the country ranks 27th out of 161 countries on Forbes’s prestigious “Best Countries for Business” list.
If your company is considering global growth, you’ll want to start thinking about how to optimize your hiring. To give you a head start, we’ve developed this guide to hiring in Lithuania. Explore these topics to learn the essentials of the Lithuanian labor code and get some important tips for building teams in this beautiful Baltic country.
What to know before hiring in Lithuania
Before initiating the hiring process, your company will need correct, comprehensive information about several aspects of employment in Lithuania. You’ll want to look into contracts, termination requirements, payroll and taxes, working hours, compensation, benefits, the makeup of the workforce, and new labor law amendments.
1. Contracts and termination
Lithuanian law requires written contracts for all employees. Indefinite contracts are common, and fixed-term contracts are permissible for either two years or five years — the length depends on whether the employee will perform single or multiple job functions. Fixed-term contracts for permanent-type jobs cannot exceed 20 percent of a company’s total contracts.
No matter the type, each contract must define the employee’s job location, position responsibilities, compensation, benefits, probation period, and termination requirements.
Lithuanian law allows for probation periods of up to three months. During the probation period, termination is possible with three days’ written notice. Afterward, employees can terminate their contracts by providing 14 days’ written notice. Companies can terminate employees’ contracts by providing two months’ written notice.
Employees terminated without fault must receive compensation based on the length of their employment. Those who have worked for their employer for less than a year should receive one month’s pay. Those who have worked longer should receive more — employees who have worked for their employer for 20 years or more, for example, should receive six months’ pay.
2. Payroll and taxes
Employers in Lithuania are responsible for withholding payroll taxes. Employees generally contribute 19.5 percent of their pay to social security funds.
Employers must make additional social security contributions as percentages of their payroll:
- Social insurance tax: 1.45 percent to 2.71 percent
- Long-term employment fund contribution: 0.16 percent
- Guaranteed fund contribution: 0.16 percent
Employees must also pay income taxes of 20 percent on any income below EUR 82,162. The tax rate increases to 32 percent for any income beyond that.
The corporate tax rate in Lithuania is relatively low at 15 percent.
3. Wages and working hours
The minimum wage in Lithuania is EUR 642 per month. The Social Security and Labour Ministry has proposed raising that figure to EUR 730 in 2022. Your company may want to check the parliamentary budget regularly to determine whether the minimum wage has changed.
The standard workweek in Lithuania consists of 40 hours — eight hours a day for five days. However, some employees, including those in healthcare, childcare, and certain communications services, can work up to 24 consecutive hours.
Otherwise, overtime is generally prohibited unless exceptional circumstances arise. Then, overtime is permissible as long as it does not exceed 48 hours in seven days. Overtime also cannot exceed four hours during two consecutive days or 120 hours per year.
4. Leave and benefits
Employees should receive a paid day off for each of Lithuania’s 13 national holidays. They must usually receive an additional four weeks of paid vacation time annually and take at least 14 days at a time. If they are single parents of children under 14, they must receive 35 days of paid annual leave.
Lithuanian employees should receive sick leave each year. For the first two days of illness, they are entitled to receive 80 to 100 percent of their usual pay from the company. From the third through the seventh day of illness, they should receive 40 percent of their usual wages. After that, they receive sick pay of 80 percent through Lithuania’s State Social Insurance Fund.
Employees may be absent from work for illness or injury for 120 consecutive days without risking termination.
Additionally, Lithuanian mothers should receive 70 days of maternity leave before the birth and another 56 days afterward. They receive a maternity leave allowance through the State Social Insurance Fund. Mothers, fathers, grandparents, and any other relatives who are primary caretakers of a child are entitled to parental leave as well.
Lithuania has state-sponsored healthcare, and all Lithuanian employees must register with their companies’ healthcare funds. The state covers many medical costs but not dental care. Employers can offer dental insurance if they choose, along with supplemental insurance to assist with other uncovered expenses.
Companies in Lithuania commonly provide additional benefits like phone, car, and fitness allowances.
5. Job market and workforce education
The job market in Lithuania is relatively stable. Unemployment rose to 17.81 percent in 2010 and has declined steadily since then, hitting a relative low of just over 6 percent in 2018 and 2019. The Covid-19 pandemic saw the unemployment rate rise again in 2020 to 8.43 percent.
Workforce education levels in Lithuania are rising with the education level of the overall population. If your company needs trained and educated employees, you will likely find a strong candidate pool in Lithuania. About 16 percent of the population in Lithuania has completed a vocational training program.
Younger generations tend to complete more of their formal education than the previous generations. As of 2018, 43 percent of Lithuanians aged 25 to 64 had completed their tertiary education, while 56 percent of Lithuanians aged 25 to 34 had tertiary educations.
Educational attainment in Lithuania correlates strongly with increased employment opportunities. As of 2018, 93 percent of adults with tertiary education were employed. The employment rate for adults with only secondary education was 16 percentage points lower. Workers with bachelor’s degrees also earned up to 55 percent more than workers with only secondary education.
6. Recent amendments to the labor code
In response to the Covid-19 pandemic, Lithuania’s parliament adopted several changes to its labor code. Here are some of the major pandemic-related amendment topics your company will need to consider as you hire employees in Lithuania:
- New employee health protections: Previously, employers could legally discriminate against employees with health conditions, as long as the conditions did not rise to the level of disabilities. Now, discrimination against employees on health-related grounds is illegal.
- Increased leave: The new amendments also require employers to grant employee requests for annual leave if the requests stem from health conditions confirmed by a medical professional. Employers must grant this leave even if the employee is a new hire or the request does not align with the employer’s formal leave schedule.
- Remote work for health conditions: Employees now have the right to work remotely at least one-fifth of the time. Employers must comply with employee requests for remote work, as long as the requests stem from health conditions confirmed by a medical professional and would not result in excessive costs.
- More pay for termination due to health conditions: If employees’ health conditions prevent them from fulfilling their job responsibilities, companies can terminate them, as long as they provide compensation of at least two months’ salary. This change doubles the previous compensation requirement and provides increased financial security for employees with health challenges.
The cost of hiring an employee in Lithuania
Factors like your company’s policies on benefits packages, bonuses, and allowances will determine the expense of hiring someone in Lithuania. In general, your company will need to consider direct and indirect costs like these:
- Company registration fees
- Job postings
- Recruitment agency fees
- Candidate-management tools
- Pre-employment checks
- Travel for interviews
- Direct compensation
- Benefits, including supplemental health coverage
- Monthly allowances
In Lithuania, performance-based bonuses are common. As you budget for hiring new employees in Lithuania, keep in mind that you will likely need to reward your employees for their hard work each year to keep your company aligned with the Lithuanian business culture.
Hiring practices in Lithuania
As you begin hiring, keep a few best practices in mind to comply with the law and help your company attract talented candidates. Here are a few tips for hiring in Lithuania most effectively:
- Use the local language and currency: The official language is Lithuanian, which more than 80 percent of Lithuanians speak as their first language. Polish and Russian are also somewhat common as first languages. Your company should use Lithuanian in official communications, such as employment contracts, and translate into other languages if necessary. You should also provide salary and benefit information in euros.
- Explore several recruitment strategies: Many international companies work with the State Labor Exchange office to recruit new employees. Your company might also partner with a third-party recruitment agency, lean on personal contacts for word-of-mouth recruiting, or advertise on online job boards, recruitment websites, or your company’s website.
- Comply with anti-discrimination laws: Lithuanian laws prohibit employment and hiring discrimination based on race, gender, nationality, religion, sexual orientation, age, disability, place of origin, family or marital status, social status, beliefs, or membership in public or political groups. Your company should refrain from asking interview questions related to these protected categories or considering these protected characteristics in hiring decisions.
- Check Collective Bargaining Agreements (CBAs): Lithuania has relatively few trade unions or CBAs. Still, your company should check with reputable industry sources to determine what CBAs may influence the terms of your employment contracts.
- Request medical checkups: Pre-employment physicals are mandatory in Lithuania if your company is hiring employees who are under 18, have positions that could pose occupational risks to their health, or will work at night or as shift workers. Be sure to complete the necessary steps to ensure healthy teams.
What does a company need to hire employees in Lithuania?
To hire Lithuanian employees, your company will need a legal entity through which to employ them. One typical strategy is to establish a subsidiary in Lithuania. Your company sets up a local Lithuanian extension that you can control from your home country.
To establish a subsidiary, you first need to determine how to incorporate. Lithuania offers several options for formal incorporation, including public limited companies, limited liability companies (LLCs), branch offices, and representative offices. Most international companies incorporate as LLCs because of the increased opportunities and minimal risks this structure offers.
However, setting up a Lithuanian subsidiary can make the steps to hiring in Lithuania laborious and expensive. If you choose this option, you must complete several required tasks:
- Appointing at least one director, who must be a natural Lithuanian citizen, and one shareholder
- Opening a corporate bank account
- Depositing the minimum share capital of EUR 2,500
- Registering with the Company Register and the State Social Insurance Fund Board
- Registering with the State Tax Inspectorate to obtain a tax ID number and value-added tax (VAT) number
- Receiving your unique registration number and certificate of registration
- Obtaining the official seal that means your subsidiary can begin operations
- Applying for international employee visas and work permits, if necessary
The time between opening your corporate bank account and receiving your subsidiary’s official seal is generally about three weeks. During that time, you cannot hire employees or get your company up and running.
Alternatively, many companies minimize these requirements and their associated expenses by working with an Employer of Record like Globalization Partners.
Globalization Partners already has a trustworthy legal entity in Lithuania, so partnering with us lets you minimize registration formalities and stay within your budget. You can leverage our global employment platform to hire international employees and then add them to your teams, helping to expedite your new operations.
Hiring remote employees in Lithuania
Fortunately for many international companies, remote technology makes hiring from around the globe efficient and manageable. Here are a few tips for getting the most out of your remote hiring process in Lithuania:
- Practice and prepare: One of the best ways to present a professional image for remote interviews is to prepare beforehand. Double-check that all your tech is working, and practice with your remote platform so you can use it fluidly and know what to do if technical disruptions arise. You will also want to speak with your hiring team members ahead of time so they know what topics and questions they should focus on.
- Prioritize two-way communications: As you interview remotely, you may see the best results if you foster honest communication from both sides. Be sure to ask your remote candidates what questions they have for you and give them space to articulate what they are looking for in a new employer. Doing so helps you ensure the right fit and build long-lasting teams.
- Make room for key in-person meetings: Remote communication is often the most logical choice for much of your initial hiring. However, especially in the later stages of a multi-round hiring process, consider having one of your executives fly out to meet with candidates in person. Including this step helps you send a message of welcome and investment while still streamlining your hiring process overall.
Simplify international hiring with technology from Globalization Partners
When it’s time for your company to build new teams in Lithuania, work with Globalization Partners. Our AI-driven global employment platform enables you to overcome barriers to international hiring and get your new operations running more quickly.
Using our technology, your company can hire new employees and process their payments from anywhere in the world with just a few clicks. Consulting with our in-country tax and labor law professionals also helps you ensure compliance with Lithuanian regulations.