Hiring Your First Employee in Lithuania: Payroll and Accounting Requirements

Your first payroll deadline comes before your first payday. Before a new employee starts work in Lithuania, the employment contract must be in place and the hire must be reported to Sodra, the state social insurance agency. Once work begins, the business takes on a monthly rhythm of salary calculations, tax payments, and two separate reporting streams.

For a founder used to paying contractors, this is a different commitment. A €2,000 gross salary is neither €2,000 in the employee's bank account nor the company's complete cost. Here is what needs to happen, in the order it happens.

Before the first working day: contract, notice, and a safe workplace

Agree the essential terms with the employee: their work, workplace, and pay. Put them in a written employment contract, together with the working-time arrangement and other required terms. Lithuania's State Labour Inspectorate says the contract must be signed before work begins.

Then submit the 1-SD notification through the employer's Sodra account at least one working day before the employee starts. A new hire cannot simply arrive on Monday while the paperwork is sorted out later. Sodra describes a narrower, one-working-hour notification rule for the appointment of a company's single-person management body; it is not the rule for an ordinary first employee. Sodra's hiring instructions set out both deadlines.

Prepare the job itself as well. The employer must assess workplace risks and put appropriate health and safety measures in place; the Labour Inspectorate offers a free risk-assessment tool for smaller businesses. Depending on the role, additional training, checks, or protective equipment may be needed. An office hire and a warehouse hire will not have identical requirements.

Agree a gross salary, then calculate the real employer cost

Employment contracts normally state gross pay: the amount before employee taxes and contributions. In 2026, Lithuania's minimum monthly salary is €1,153 gross for full-time work, and the minimum hourly rate is €7.05. The statutory minimum may be paid only for unqualified work; a position requiring professional skills must be paid above that floor. The Labour Inspectorate explains the distinction.

In an ordinary 2026 payroll calculation, 19.5% of gross pay is withheld for employee social and compulsory health insurance. An employee participating in additional pension accumulation generally has another 3% withheld. Personal income tax, or GPM, is calculated separately. The 2026 income-tax bands are 20%, 25%, and 32%, based on the relevant annual income thresholds; eligible employees can also have a monthly non-taxable amount, known as NPD, applied. A payslip therefore depends on the employee's circumstances, not merely the salary written in the contract. See the official Sodra contribution rates, VMI salary-tax bands, and 2026 NPD rules.

The company pays its own contributions on top of gross salary. For a standard indefinite contract in the lowest workplace accident-risk group, the combined employer rate is 1.77% in 2026. A fixed-term contract or a higher-risk group changes that figure. Budget separately for paid leave, equipment, and any payroll administration: none of those disappears because the employer contribution percentage looks small.

One less obvious cost affects part-time hires. Under Sodra's contribution-floor rules, when a person's monthly pay falls below the minimum monthly salary, the employer may have to pay social contributions on a higher base, covering the shortfall from its own funds. There are exceptions, including certain employees who also work for another employer. Do not assume a half-time hire costs exactly half as much in payroll charges. Check the person's status before calculating the offer. Sodra explains the contribution floor and exceptions here.

What payroll accounting looks like each month

The bookkeeper needs more than an agreed salary figure. Working hours, overtime, sickness, leave, bonuses, and the actual payment date can all affect payroll. Keep the time records and supporting documents, calculate gross pay, deduct employee contributions and income tax, pay the employee the net amount, and record the company's own charges as expenses and liabilities.

Two authorities then receive different information:

The deadlines come from Sodra's reporting instructions and VMI's tax calendar guidance. Special rules can apply when a salary is paid in instalments, so confirm the payment schedule with whoever processes payroll.

The easy mistake is to treat these as copies of the same report. SAM concerns salary calculated for a month; GPM313 generally follows what was paid. If January wages are transferred in February, your accountant must track both the month the pay was earned and the month the money reached the employee. Having an employee can also create a GPM313 filing obligation even in a month with no taxable payment.

Keep leave and payroll records from day one

An employee on a five-day week normally has at least 20 working days of annual leave; a six-day week normally means at least 24 working days. Some employees qualify for longer or additional leave. Track entitlement and days taken as the year progresses, rather than reconstructing them when the employee asks for time off or leaves the company. The Labour Inspectorate sets out the minimum entitlements.

Your records should connect the contract, time worked, leave and sickness documents, payslips, salary transfers, tax payments, and submitted declarations. That trail makes it possible to explain the balance in your accounts and correct a filing if the underlying payroll changes. A business that previously used occasional bookkeeping may need a monthly process once it employs someone. BalticIncorp's accounting services in Lithuania include payroll and tax reporting as part of the ongoing accounting work.

There is one further distinction for founders of an MB (small partnership): hiring an outside employee is different from paying an MB member. A member cannot be employed by their own MB under an ordinary employment contract. If the first person you intend to put on payroll is yourself, read the separate guide to paying yourself from an MB before drafting a contract.

The practical approach is to set up the payroll calendar before announcing a start date. Sign the contract, submit 1-SD in time, establish the correct contribution and tax treatment, and make sure each month's payroll records agree with the payments and declarations. Your first hire then becomes a manageable routine instead of a new deadline to discover each month.