On October 16, 2025, the Lithuanian government approved the 2026 budget, confirming an 11.1% minimum wage increase from €1,038 to €1,153 per month. This change, effective January 1, 2026, carries immediate and significant implications for payroll calculations, social security contributions, and labor costs, particularly for employers with minimum-wage workers and posted employees from Nordic markets. This comprehensive guide breaks down the exact numbers, hidden costs, and system updates you must implement before January 1.

1. Exact 2026 Minimum Wage and Hourly Rate Changes

Official Rates (Valid January 1, 2026)

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Key point: Health insurance contributions are calculated as 6.98% of the minimum wage, directly tied to MMA increases.

What This Means for Your Payroll Software

Your accounting system must update three critical parameters by December 31, 2025:

1. Base monthly wage floor: €1,153
2. Hourly rate floor: €7.05
3. PSD calculation basis: Automatic 6.98% of €1,153

Failure to update these figures will result in non-compliant payroll runs and potential fines from VMI (State Tax Inspectorate) and Sodra.

2. Cascading Impact on Social Security Contributions

The minimum wage increase triggers automatic adjustments across multiple contribution thresholds:

Health Insurance (Privalomasis Sveikatos Draudimas – PSD)

• Calculation: 6.98% × €1,153 = €80.48/month
• Employer portion: 6.98% (€80.48)
• Employee portion: 6.98% (€80.48)
• Total monthly health insurance cost per minimum-wage employee: €160.96

Social Insurance Floor (“Sodra Grindys”)

The contribution floor ensures employees are insured at least at the minimum wage level, even if actual wages are lower (e.g., part-time workers). This floor rises proportionally with MMA:

• 2026 Floor: €1,153 (previously €1,038)
• Self-employed individuals on business certificates must contribute based on this new minimum

Budget Impact Calculation Example

Company profile: 15 employees, 5 at minimum wage, 10 above threshold

TableCopy

Note: Sodra rate includes 1.61% unemployment insurance, 0.16% guarantee fund, and 30.41% social insurance.

3. Posted Workers: Critical €1,902.45 Threshold

For companies posting employees from Finland, Sweden, or other countries to Lithuania, the minimum wage for posted workers rises significantly:

• New posted worker minimum: €1,902.45/month or €11.63/hour
• Calculation: €1,153 (MMA) × 1.65 factor = €1,902.45
• Previous rate: €1,712.70 (€1,038 × 1.65)

This represents a €189.75/month increase per posted worker and is non-negotiable for A1 certificate validity and tax avoidance.

Compliance Check for Nordic Employers

If you’re posting workers from Finland/Sweden to Lithuania under the EU Posted Workers Directive:

• Update employment contracts to guarantee €1,902.45 gross minimum
• Adjust per diems and allowances (these don’t count toward MMA)
• Notify Sodra of wage changes within 5 working days
• Update A1 certificate applications with new wage declarations

1Office Lithuania provides cross-border payroll services that automatically sync Finnish, Swedish, and Lithuanian compliance requirements.

4. Non-Taxable Income (NPD): Calculation Method Update

While the government confirmed the MMA increase, the NPD (Neapmokestinamasis Pajamų Dydis) calculation method is also changing in 2026.

Current NPD Formula (2025)

NPD = €540 – 0.19 × (Annual Income – €6,768)

Expected 2026 Changes

The Tripartite Council must align NPD with the new MMA to maintain progressivity. Early indications suggest:

• Floor NPD may increase from €540 to €580-600/month
• Income threshold for NPD reduction will likely rise from €6,768 to €7,200+

Budget Impact: Higher NPD reduces employee PIT (Personal Income Tax) withholding, partially offsetting the employer’s wage increase burden.

Action Required: Your payroll software must accept new NPD formula parameters by January 1. Test runs in December are essential.

5. Employer Action Plan: October–December 2025

Week 1-2 (By November 30)

• Audit employee contracts: Identify all workers at or near €1,038/month threshold
• Notify employees: Send written notice of wage increases (required by Labour Code Art. 37)
• Budget revision: Calculate total cost increase using the table above
• Software update: Contact your accounting provider (or 1Office) to schedule MMA parameter updates

Week 3-4 (By December 15)

• Update employment contracts: Amend gross wage clauses for affected employees
• Adjust 2026 budgets: Incorporate €1153/month baseline for workforce planning
• Posted worker review: Verify all A1 certificates and wage guarantees meet €1,902.45
• Bank notification: Ensure payroll funding accounts reflect increased monthly outflows

Week 5 (December 31 Deadline)

• Final payroll test run: Process December 2025 payroll with 2026 parameters in sandbox environment
• Backup data: Export all 2025 payroll reports (retention period: 10 years per VMI)
• System go-live: Activate 2026 rates in production payroll system

6. Special Considerations for Foreign-Owned Companies

Branch vs. UAB (Limited Liability Company)

Branch Offices: Wages paid by Lithuanian branches must comply with Lithuanian MMA, even if parent company is in Finland, Sweden, or Estonia. The €1,153 applies to all employment contracts under Lithuanian law.

UAB Companies: If you have non-resident directors receiving director fees:

• Director fees are not subject to minimum wage rules but are taxable at 15% PIT
• However, if directors also have employment contracts, MMA applies

E-Residents and Digital Nomads

For foreign e-residents hiring in Lithuania:

• Mandatory Lithuanian contract: Must comply with MMA even if work is remote
• PSD obligation: €80.48/month health insurance applies regardless of EU health card status
• Sodra registration: Required within 5 days of contract signing

1Office Lithuania’s company formation packages include compliant employment contracts that auto-update with legal changes like this MMA increase.

7. Hidden Costs Beyond Gross Wages

Indirect Budget Impacts

1. Severance Pay Calculations: Based on employee’s average wage. Higher MMA increases severance for minimum-wage workers by €115/month of service.
2. Vacation Pay: Calculated on 3-month average. December 2025 wage increase raises Q1 2026 vacation pay baseline.
3. Overtime Premiums: Overtime is 1.5× hourly rate. New €7.05 base rate increases overtime cost to €10.58/hour.
4. Night/Weekend Work: Minimum supplements (e.g., +50% for night work) scale with hourly rate increases.
5. Statutory Benefits: Some collective agreements tie meal vouchers or transport allowances to MMA percentage—verify your agreements.

Tax Deductibility

• All increased wage costs are fully deductible for Corporate Income Tax purposes
• No CIT rate change (remains 15% standard, 5% for small businesses under €300k turnover)

8. How 1Office Lithuania Manages Your Transition

Unlike remote-only accounting services, our Vilnius-based team physically interfaces with Sodra and VMI for immediate clarification. Here’s our 3-step support model:

Step 1: Pre-Implementation Audit (€250 flat fee)

• Review all employment contracts for MMA compliance gaps
• Calculate exact budget impact for your workforce
• Test your payroll software parameters in our sandbox

Step 2: System Updates & Contract Amendments

• Direct API updates for Procountor, Rivile, and other Lithuanian payroll systems
• Bilingual contract amendments (English/Lithuanian) for foreign employers
• Posted worker documentation package for cross-border compliance

Step 3: Post-Go-Live Verification

• January 2026 payroll run validation with Sodra filing confirmation
• Employee payslip accuracy audit
• Quarterly budget variance analysis
  

9. Frequently Asked Questions

Q: Does the increase apply to part-time employees?

A: Yes, proportionally. A 20-hour/week employee must earn at least €576.50/month (50% of €1,153).

Q: What if we already pay above €1,153? Do we need to increase?

A: No, but review collective agreements. Some tie wage scales to MMA multiples.

Q: When must we notify employees?

A: Written notice at least 1 month before change per Labour Code Art. 37. Deadline: December 1, 2025 for January 1 implementation.

Q: Does this affect our EU-posted workers from Estonia?

A: Yes. A1 certificates require compliance with host country minimums. Your Estonian employees in Lithuania must earn €1,902.45.

Q: Can we offset this with reduced hours?

A: No. Reducing hours to avoid MMA increases violates Labour Code Art. 41 (unilateral contract changes).

Q: What’s the penalty for non-compliance?

A: Sodra fines up to €2,900 per employee; VMI can impose 10-50% of underpaid amounts; criminal liability for systematic violations.

10. Long-Term Strategic Considerations

MMA Growth Trajectory

Lithuania’s minimum wage has increased 67% since 2019 (from €555 to €1,153). The Tripartite Council’s formula ties MMA to 45-50% of average wage, suggesting further increases are likely through 2027.

Competitive Positioning

For investors comparing Baltic states:

• Lithuania €1,153 vs. Estonia €820 (expected 2026) vs. Latvia €700
• Higher wages signal stronger consumer market but increase labor costs
• Strategic recommendation: Automate minimum-wage positions where possible; invest in upskilling to justify premium pay

EU Directive Compliance

The 2026 increase reflects transposition of the EU Minimum Wage Directive (enacted October 2024). Future increases will follow stricter criteria, including productivity growth and purchasing power, providing more predictability for multinationals.

Final Checklist: October–December 2025

• November 25: All employee contracts reviewed and amendments drafted
• December 1: Written notifications sent to affected employees
• December 15: Payroll system parameters updated and tested
• December 20: 2026 budgets finalized with €1,153 baseline
• December 31: Posted worker wage guarantees verified at €1,902.45
• January 5, 2026: First compliant payroll run processed

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