What Severance Pay Rules Must Employers Follow in Lithuania?

Which Employees Qualify for Severance Pay?

• Employees dismissed on the employer’s initiative for reasons not related to the employee (such as redundancy or restructuring).
• Employees whose employment is terminated due to the employer’s bankruptcy or liquidation, or transfer of the undertaking without job retention.
• Employees released because they can no longer perform their job for health reasons confirmed under Lithuanian law.
• Employees whose fixed-term contracts are terminated early by the employer without serious employee fault.
• Employees who mutually agree to terminate employment with severance if this is clearly documented in the agreement.
• Employees with long service may qualify for additional long-service severance paid by the Guarantee Fund when statutory thresholds are met.

What Are the Legal Timelines for Paying Severance?

In Lithuania, severance must be paid on the employee’s last working day together with all other final payments, unless a shorter payment date is agreed in writing. The Labour Code expects you to settle wages, unused vacation compensation, and severance without delay once the employment contract ends. If you are unable to calculate the exact amount on that day, you should pay the undisputed part and finalize any balance as soon as the figures are known. Late payment can trigger default interest and, in disputes, additional compensation ordered by the labour dispute commission or court. To stay safe, your company should build internal workflows that trigger severance calculations as soon as termination is initiated.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay severance correctly in Lithuania, you risk financial, administrative, and reputational consequences. Labour inspectors and courts take underpayment and late payment seriously, especially where statutory minimums are ignored or employees are pressured to waive rights. Non-compliance can also complicate future restructurings and increase the likelihood of collective disputes or union action.

• Labour authorities may impose administrative fines on the company and, in some cases, responsible managers.
• Courts or labour dispute commissions can order back payment of severance plus default interest.
• Employees may claim additional damages if they suffered loss due to delayed or incorrect payment.
• Persistent or serious breaches can trigger more frequent inspections and closer regulatory scrutiny.
• Disputes over severance can damage your employer brand and make hiring and retention more difficult.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (EOR) such as https://www.playroll.com/employer-of-record does not remove the need to follow Lithuanian severance rules, but it shifts day-to-day compliance tasks to the EOR. In Lithuania, the EOR is typically the formal employer on paper and is responsible for calculating and paying statutory severance. However, your company, as the client, usually bears the economic cost of severance through your service fees and remains exposed to commercial and reputational risk if workers are treated unfairly. If the EOR misapplies the Labour Code, authorities or courts may still look at the real relationship and, in extreme cases, find your company jointly responsible. A clear contract with the EOR should allocate severance responsibilities, approval workflows, and indemnities.

Be 100 Percent Compliant in Offering Severance with Playroll

Lithuanian severance rules are detailed, and they change depending on the legal ground for termination, the employee’s length of service, and whether special protections apply. Playroll helps your team navigate these nuances by mapping each termination scenario to the correct Labour Code provisions and market practice. You get clear guidance on when severance is due, how many average monthly salaries must be paid, and how to document the decision so it stands up in a dispute.

With Playroll, you can standardize global offboarding while staying fully aligned with Lithuanian law. Our platform coordinates with local experts to ensure final pay, unused leave, and severance are calculated and paid on time, in the right currency, and with proper payslip breakdowns. That means fewer surprises with labour inspectors, smoother exits for employees, and a lower risk of costly severance disputes for your company.