Employer of Record in Lithuania

Lithuania's legal framework largely lacks comprehensive guidelines regarding the EoR concept. Unlike in some other jurisdictions where the EoR model is recognized and regulated, Lithuanian law does not explicitly define or address this arrangement. As a result, the market in Lithuania currently lacks companies officially offering employee hiring services via an EoR. Despite its absence from formalized legal statutes, the concept of EoR has yet to gain traction or generate demand within the country.

Considering the sparse regulatory provisions concerning EoR, there is also a notable absence of case law concerning its application or legality in Lithuania. This absence of precedent further underscores the nascent status of EoR within the Lithuanian business landscape. Therefore, the questions regarding the demand for EoR and the distinction between interest from local versus foreign companies remain largely speculative. Without comprehensive regulatory guidelines or established practices, the potential for EoR adoption in Lithuania remains uncertain.

Additionally, while the EoR concept shares similarities with temporary employment or labour leasing, notable distinctions exist within Lithuania's regulatory framework. In Lithuania, temporary employment agencies usually function independently in leasing employees since they don't represent the Economic Employer. Instead, they engage in contracts autonomously and assume full responsibility for employer obligations, including wage calculation and tax withholding. This contrasts with the EoR model, where the designated EoR entity assumes comprehensive responsibility for employment-related matters on behalf of the Economic Employer. Understanding these nuanced differences is crucial for businesses navigating the complexities of workforce management within Lithuania.

In Lithuania, the activity of lending employees does not require a specific license. However, companies engaging in this practice must adhere to the regulations outlined in Article 721 (1) of the Labour Code of the Republic of Lithuania and be officially listed as temporary employment companies by the State Labour Inspectorate. Failure to comply with these requirements may result in administrative penalties or, in severe cases, criminal prosecution for both the company and its management. The absence of a licensing requirement for temporary employment means that there is no legal fiction of employment relationship between the economic employer and the employee in this context.

Temporary employees in Lithuania are entitled to the same employment conditions as directly hired workers of the economic employer. This includes protection against discrimination, adherence to maximum working hours and minimum rest periods, and entitlement to holidays and public holidays. The economic employer is obliged to ensure that temporary employees receive the same legal protections and benefits as their regular employees, maintaining parity in pay and access to workplace facilities. Cross-border arrangements are also subject to Lithuanian labour laws, ensuring that leased employees are not deprived of their statutory rights regardless of their employment circumstances.

Tax implications tied to the EoR concept in Lithuania prompt concerns about the potential classification of economic employers as operating through a permanent establishment. This risk underscores the importance of analyzing the nature and extent of the business conducted by employees under the EoR arrangement. Tax authorities retain the authority to scrutinise the arrangement, particularly examining whether the activities generate income, contribute to creating economic value, or fulfill the contractual obligations of the economic employer. Despite the significance of these tax implications, there are no specific provisions addressing temporary employment within the Lithuanian-German agreement for the avoidance of double taxation and its protocols. Consequently, the application of general tax provisions remains applicable to temporary employment situations, reinforcing the need for careful consideration and compliance with existing tax regulations.

In summary, although the EoR concept offers potential solutions for managing the workforce in Lithuania, its current absence of regulation and implementation presents adoption challenges. As stakeholders navigate these complexities, monitoring developments in employment law and practices remains crucial. Moving forward, fostering dialogue and collaboration can pave the way for a more robust and adaptable employment system in Lithuania.