How to hire employees in Lithuania through an Employer of Record (EOR) [2023 Guide]

Hiring in the Republic of Lithuania? Foreign employers keen on tapping into the Baltic country’s skilled workforce can start by hiring Lithuanian contractors and sending international payments. But if you want to expand and hire full-time employees, you’ll need to establish a legal entity or hire through an EOR. 

Registering a legal entity can take months. Once established, it requires knowledge of complex Lithuanian and EU employment laws. Any misstep can incur fines and legal action from the State Labour Inspectorate, which enforces the Lithuanian labor code.

Familiarity with the Lithuanian Ministry of Health and State Social Insurance Fund Board (SODRA) regulations is important as well. SODRA oversees many areas including state-funded health insurance, health insurance contributions, maternity benefits, paternity benefits, child benefits, pensions, sickness benefits, unemployment benefits, occupational health and safety benefits...the list goes on.

Alternatively, you can use an “Employer of Record” (EOR), which handles Lithuanian payroll, tax, and compliance considerations.

Here’s a step-by-step guide for hiring through an EOR in Lithuania.

Step by step: How to hire through an Employer of Record in Lithuania

Step #1: Decide between a Lithuanian EOR and a legal entity

Should you hire Lithuanian employees through an EOR, or set up your own entity? This depends on your company’s resources, size, and plans to scale. 

• Legal entity in Lithuania. Setting up a legal entity from scratch usually requires registration with local authorities, opening a local bank account, and consulting with local experts to ensure compliance with Lithuanian tax and labor laws and Ministry of Health and State Social Insurance Fund Board (SODRA) regulations. There are many steps in this process and mistakes can result in delays in getting up and running.
• Lithuanian EOR. An EOR is a third-party service that operates as an employer on a company’s behalf—meaning you don’t need to set up your own entity. As well as allowing you to hire full-time Lithuanian employees, a Lithuanian employer of record service can handle all the legal requirements for complying with EU and Lithuanian laws for payroll, term contracts, and benefits. EOR services also include calculating and withholding taxes at the correct tax rate, onboarding and managing employees, and running payroll.

Step #2: How to choose the best EOR for your business

Before you choose a platform, you should consider the services you will need, and how much you plan to grow your global hiring presence.

• Is the EOR active in the countries in which you need to hire? The first, and perhaps most obvious consideration when choosing an EOR for global expansion.
• Does the EOR own its own entities in the countries it services? If the EOR does not own the entities, it means they are partnering with a local or third-party provider.
• How does the EOR protect your sensitive and confidential information? It is vital that your EOR has the appropriate data protections in place, as well as secure technology that eliminates potential disclosures of private information. Compliance with EU data regulations (GDPR) is required in Lithuania.
• Does the EOR offer automated solutions? You may want to look for an EOR that automates the busy work like onboarding and benefits enrollment and other common HR and IT tasks.
• What is the EOR’s support model? It’s essential that your EOR has support staff that are both easy to contact and experts in the regulations of the countries in which you are hiring.

Get the full checklist in our guide: What is an EOR?

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Step #3: How to hire and onboard your Lithuanian employees

Once you’ve picked an EOR that works in Lithuania, you can begin the onboarding process by collecting the following information from your new employees:

• Name (matching the account where you’ll deposit their pay).
• Date of birth.
• Date of hire.
• Contact information, including their mailing address in Lithuania.
• Lithuanian personal ID/tax identification number.
• Bank account information.
• Amount to be paid in euros (EUR).
• Forms to register the employee with the State Social Security Fund (SODRA).
• Forms to register the employee with the State Tax Inspectorate (VMI). 
• Note that EU/EEA citizens do not require work permits in Lithuania. However, if the employee (and their families) stay in Lithuania for longer than 3 months within a 6-month period, they must obtain a certificate attesting to their right to stay.

Next, you need to send out an employment agreement that outlines key working conditions such as type of work, position, location of work, working days and hours, monthly salary, date work starts, and probation or trial period. 

An EOR can automatically localize and distribute employment agreements. Every Lithuanian hire will have a legally compliant contract offering statutory requirements for probationary periods, working hours, minimum wage, benefits, and termination policies like severance pay and notice periods.

You can onboard new hires anywhere, end to end, with Rippling. Request a demo today.

Step #4: Run payroll

For the A-to-Z on global payroll, read our comprehensive guide to running international payroll for employees in Lithuania.

Once you’ve collected a new hire’s information and both parties have signed employment agreements, an EOR will pay your Lithuanian employees in EUR, while withholding legally required taxes from salaries. This includes contributions to:

• The State Social Insurance Fund, which covers:
• Long-term employment fund.
• Health insurance.
• Sick leave. 
• Unemployment.
• Retirement.
• Parental leave.
• Maternity leave. 
• Worker’s compensation insurance. 
• Guarantee fund (benefits paid in the event of company insolvency).
• Other voluntary entitlements (for example, a company pension plan).

In Lithuania, employers must issue itemized payslips, which may be in paper or digital form.

Frequently asked questions about hiring through an EOR in Lithuania

How much does an EOR cost?

EORs typically use one of two pricing structures:

• Fixed monthly fee per employee.
• Percentage of payroll plus applicable taxes.

Both methods can also come with various administrative fees, onboarding charges, and other costs for supplemental features. 

Keep in mind that you don’t need to use an EOR for your entire workforce. If you want to segment its use, you’ll only be charged for the employees you employ through the EOR.

What is the difference between an EOR and PEO?

A Professional Employer Organization (PEO) co-employs a company’s workforce and provides administrative services like paying employees, handling compliance, and filing payroll taxes. The company and PEO are jointly responsible for the workforce. A PEO does not, however, allow you to hire in other countries where you haven’t set up a local entity. 

An EOR, on the other hand, is the sole employer of the portion of your workforce you use it for, assuming all the associated liabilities. An EOR allows companies to work with employees in other countries without setting up a legal entity.

Does an EOR protect your sensitive and confidential information?

While outsourcing your payroll management to an EOR can spare you time and compliance risk, sharing your data with companies who use third-party vendors leaves you exposed to data breaches from manual uploads. In Lithuania, data protection is covered by European Union law, the General Data Protection Regulation (GDPR), and Lithuania’s Personal Data Protection Law. Enforcement is handled by the State Data Protection Inspectorate (VDAI) and penalties can be as high as EUR 60,000 ($66,360). GDPR fines can be as high as EUR 20,000,000 ($21,934,000). 

You should seek out EORs that prioritize data protection, including:

• Compliance with industry-standard privacy regulations in different countries.
• Secure infrastructure with around-the-clock maintenance.
• Carefully vetted personnel.

You can also establish a Data Processing Agreement (DPA) with a payroll service that mandates sound privacy practices and provides legal protection. 

Thinking of setting up your own business entity? According to the World Bank, it takes an average of 5.5 days to do so in Lithuania.

Does an EOR help with Lithuanian tax filings?

An EOR can automatically calculate and file your employer taxes in Lithuania. It can also provide employees with official records of their net and gross income, tax deducted, benefits, and other contributions. For businesses, an EOR can submit documentation covering: 

• Employment income.
• Taxable benefits.
• Income tax deducted.
• Other required deductions from gross income. 

What are the mandatory benefits for Lithuanian employees?

The mandatory employee benefits in Lithuania are:

• Annual leave.
• Health insurance.
• Pension. 
• Sick leave.
• Education leave.
• Unemployment insurance.
• Parental leave (including paternity leave and maternity leave).
• Vacation entitlements (which vary depending on years of service).
• Public holidays.
• Severance pay. 
• Other state social insurance fund entitlements. 

What are the employer costs for full-time employees in Lithuania?

• In addition to taxes, employers are responsible for deducting social security contributions from their full-time employees’ paychecks. Note that in Lithuania, employers contribute a percentage of the employee’s gross salary. As of 2024, the rates are 1.45% to 2.17% for permanent employees and 2.17% to 3.43% for those on a fixed-term contract. The contributions fund:
• Unemployment coverage
• Accident at work coverage
• Worker's guarantee fund
• Long-term employment fund

Employers also pay employees for statutory holidays (there are 13) and annual leave. 

Rippling helps you hire, pay, and manage people worldwide. Request a demo today.

Rippling and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.