Employee vs. contractor: how to classify workers in Lithuania (quiz included) [2024]
When hiring employees in the Republic of Lithuania, it's crucial to classify them correctly—otherwise, you risk significant fines and penalties. Misclassifying employees as contractors can result in fines, back taxes (income tax), and other harsh penalties from official agencies. Fines can range from €868 to €2,896 for each violation.
Misclassification of the employment relationship is also damaging for workers: It cheats employees out of benefits and protections they're entitled to under Lithuanian and European law, such as minimum wage, overtime pay, vacation pay, and employment insurance benefits. This has a negative impact on the company’s reputation, too.
Learn about how to classify your workers correctly—and stay compliant with Lithuanian labor codes and employment laws—in this guide.
Classifying workers in Lithuania
As in many countries, Lithuania categorizes employees and contractors differently—and classifying them correctly can be the difference between smoothly running your global team and racking up huge fines and penalties (more on those below).
What is an employee in Lithuania?
In Lithuania, an employee is generally defined as an individual who works for an employer in return for wages or other remuneration. Employees are defined by Lithuanian and European law, but the most important distinction is that Lithuania's robust worker protection laws and labor code always apply to employees—meaning they're always entitled to statutory benefits, including:
- Minimum wage
- Unemployment insurance
- Health care insurance
- State pensions
- Vacation pay
- Public holidays
- Sick leave
- Working time and overtime pay
- Maternity leave
- Parental leave
- Annual leave
- Childcare benefit
- Probation period
- Notice period
- Severance pay for dismissed employees
- Regulations covering termination of employment
- Regulations covering working conditions
- State social insurance and other social security benefits
Note that the provisions in Lithuanian labor law apply to employees who have an employment contract or agreement. Regardless of their job function, independent contractors in Lithuania aren’t entitled to any benefits.
What is a contractor in Lithuania?
In Lithuania, a contractor is defined as an individual who provides services to a business or organization, but who is not an employee of that business or organization. Independent contractors are also known as self-employed individuals, consultants, entrepreneurs, or freelancers.
Worker classification overview: Employees vs contractors in Lithuania
Contractors
Employees
High level of worker control. Contractors are generally given more autonomy to determine how to complete the work and when to do it.
More direction from the employer. Employees are generally subject to more control and direction from their employer, who will provide guidance on how to perform the work and may set specific hours of work.
Equipment and tools are owned by the worker.
Equipment and tools are typically provided by the company.
Less integrated. Contractors tend to be independent, they're more likely to work remotely, and they use their own tools and equipment.
Highly integrated. Employees are typically more integrated into the employer's organization, for example, their place of work may be at the employer's premises.
No entitlement to benefits. Contractors are not entitled to the same benefits and protections as employees, and they are responsible for paying their own taxes.
Entitled to benefits. Employees are entitled to certain employment benefits and protections, such as minimum wage, overtime pay, and vacation pay. They may also be entitled to benefits like health insurance, retirement plans, and paid sick leave.
Time-bound engagement. Contractors are typically engaged for a specific project or period of time (often with a fixed-term contract).
Indefinite engagement. Employees are generally hired for an indefinite period of time.
Risk of loss. Contractors may assume more risk and liability for the work they perform.
No risk of loss. Employees are generally protected from liability for work-related issues.
Non-exclusive services. Contractors cannot be contractually bound to a single company; they can provide their services to more than one organization.
Exclusive services. Employees can be contractually bound to provide services to just one company.
Penalties for misclassifying workers in Lithuania
Businesses found to have misclassified employees as contractors in Lithuania face serious financial risk.
- Fines can range from €868 ($946) to €2,896 ($3,157) for each violation, plus other penalties like back and income taxes, missed benefit payments, and more, going back several years.
- Additionally, the contractor becomes an employee with immediate effect and is entitled to all compulsory benefits. Salary and benefits are retroactive for the period of the misclassification.
There's more than just the financial risk. Companies found misclassifying workers in Lithuania can suffer other consequences, such as legal disputes, reputational damage, difficulty recruiting new workers, negative impact on employee morale, poor employment relations, and increased scrutiny from government agencies. Misclassification, whether accidental or intentional, is risky and potentially very costly.
Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.
