Lithuania updated its tax system significantly for 2026, introducing a new three-bracket income tax structure and raising the minimum wage by over 11%. If you’re hiring in Lithuania this year, you’ll need to understand both your direct payroll costs and your withholding obligations. This guide covers every layer of the employer tax picture, with a worked example at the end so you can budget accurately.
How employer taxes work in lithuania
Lithuania’s payroll tax system sits across two institutions. The State Tax Inspectorate (VMI) handles personal income tax (PIT), while Sodra, the State Social Insurance Fund Board, manages social insurance contributions. As the employer, you’re responsible for paying your own contributions directly to Sodra, and for withholding both social insurance and income tax from employee salaries before remitting everything on a monthly basis. There’s no separate annual reconciliation system that lets you defer; the calculations happen each pay cycle.
Lithuania is an EU member state and uses the euro, which simplifies cross-border payroll for teams already operating in the eurozone.
Employer sodra contributions
Your direct employer-side social insurance contributions go to Sodra every month. The rate you pay depends on the type of employment contract you’ve offered.
Permanent and indefinite contracts
For employees on permanent or indefinite contracts, the employer Sodra rate is 1.77% of gross salary. This rate includes a Guarantee Fund contribution (approximately 0.16%) and a Long-Term Unemployment Fund contribution (approximately 0.16%).
Fixed-term contracts
For employees on fixed-term contracts, the employer rate rises to 2.49% of gross salary. The higher rate reflects greater social risk associated with temporary employment.
Accident and occupational disease insurance
On top of the base Sodra rate, you’ll also pay accident and occupational disease insurance. This ranges from 0.14% to 1.4% of gross salary, depending on the risk category assigned to your industry or role type. Lower-risk office-based work sits at the low end of that range.
Contribution ceiling
The Sodra contribution ceiling applies to income exceeding approximately €138,729 per year (set at 60 times the average monthly salary). Above this threshold, neither the employer’s base Sodra rate nor the employee’s social insurance (VSD) contributions apply to the excess earnings. Only the health insurance component (PSD) continues above the ceiling.
Employee sodra contributions: the employer’s withholding role
Although these contributions come out of the employee’s gross salary, you’re legally responsible for calculating, withholding, and remitting them each month. Getting this wrong creates compliance exposure for you, not just the employee.
Employee Sodra contributions total 19.5% of gross salary, split across two components:
- Health insurance (PSD): 6.98%
- Social insurance (VSD): 12.52%, made up of pension insurance (8.72%), sickness insurance (1.99%), and maternity/paternity insurance (1.81%)
If an employee has opted into the second pension pillar, an additional 2.4% is withheld and directed to their chosen pension fund. It’s worth noting that automatic enrollment into the second pillar was abolished from 2026. Enrollment is now fully voluntary, so you’ll need to check each employee’s individual preference before applying the additional deduction.
For employees earning above approximately €138,270 per year, only the health insurance component (6.98%) applies to the income above that threshold. The VSD portion stops at the ceiling.
Personal income tax: the 2026 reform
Lithuania overhauled personal income tax for 2026. The previous flat-rate system has been replaced with a three-bracket progressive structure, and the scope of what counts as aggregated income has broadened significantly.
The new brackets, based on multiples of the average monthly wage, are:
- 20% on annual income up to approximately €82,962 (36 times the average monthly wage)
- 25% on annual income between approximately €82,963 and €138,270 (between 36 and 60 times the average monthly wage)
- 32% on annual income exceeding approximately €138,270
One of the most significant aspects of this reform is aggregation. From 2026, almost all income types are combined and taxed together under this progressive structure. This affects employees who have multiple income sources, but it also means you’ll need to apply withholding carefully if you’re aware of an employee’s broader income picture.
A 15% flat rate continues to apply, but only for specific non-aggregated income types such as long-term capital gains and certain pension payouts. For standard employment income, the three-bracket system applies.
You withhold PIT from each salary payment and remit it to VMI monthly. The withholding is calculated on the employee’s employment income, using the progressive brackets applied on a cumulative basis over the calendar year.
What it costs to employ someone in lithuania
Here’s a worked example using a minimum wage employee earning €1,153/month gross (the rate in effect from January 1, 2026, up 11.1% from €1,038 in 2025).
Monthly gross salary: €1,153.00
Employer Sodra (permanent contract, base rate 1.77%): €20.41
Accident insurance (at 0.14%, low-risk example): €1.61
Total employer cost: approximately €1,175.02 per month
For the employer, the direct on-cost over and above the gross salary is relatively modest, sitting below 2% at minimum wage for a low-risk permanent role. Fixed-term contracts or higher-risk classifications push that figure up.
For reference, the employee’s take-home would be reduced by their Sodra contributions (19.5% = €224.84) and income tax withheld at 20% on the remainder after contributions, but those sums don’t affect your total cost as the employer. They flow through your payroll as withholdings.
The minimum hourly rate from January 2026 is €7.05, which matters if you’re hiring part-time or calculating overtime thresholds.
How an EOR manages lithuanian employer taxes
Running Lithuanian payroll in-house means registering as an employer with Sodra and VMI, staying current with rate changes (such as the 2026 PIT reform and the minimum wage increase), and filing accurate monthly declarations. For companies hiring one or two people in Lithuania, the administrative overhead can be disproportionate.
An Employer of Record (EOR) handles all of this on your behalf. The EOR employs your Lithuanian team members legally, runs payroll, applies the correct Sodra rates for each contract type, withholds and remits PIT under the new progressive brackets, and files all monthly declarations with Sodra and VMI. You get a single employer cost invoice each month without needing a local legal entity.
If you’re still weighing up your options, it’s worth comparing EOR services to understand what different providers cover and where the cost differences lie.
RemotePass supports hiring in Lithuania and across 150+ countries, with built-in compliance for local tax rules. To see how it works for your team, request a demo at remotepass.com/request-demo.
