To convert an existing contractor in Lithuania, agree the employee package and supplier exit, confirm the actual employer or EOR is ready, and complete admission before work starts. Then reconcile the final invoice and first payroll.
The key local decisions are pre-start Sodra notification, employee rights and payroll periods. The October-start/November-payday example below shows why accrued wages and paid salary create different reporting clocks.
Rules checked 19 October 2026. The worked example assumes a Lithuanian resident citizen working in Vilnius for an existing Lithuanian private company.
What changes when a contractor becomes an employee in Lithuania?
The employing company becomes responsible for employee pay, statutory entitlements, payroll deductions and employer contributions. The supplier relationship needs its own documented ending.
Establish status, work rights and the employment route
Lithuania's Labour Inspectorate, VDI, describes employment through paid work under the employer's direction. If earlier work already met that description, preserve records and assess past service, balances and corrective duties separately. A new contract, backdating or general waiver does not decide historical status. See VDI's employment guidance.
Name the employer before promising a start:
- Existing Lithuanian company: company tax registration also registers the company as an insurer. A correctly registered UAB does not apply afresh merely for its first ordinary hire. Confirm its insurer record and reporting authority; employee admission remains separate. Notify VMI of changed registration data within five working days.
- Foreign company employing directly: FR0227 registration includes foreign social-contribution payers. Income-tax allocation depends on the actual structure: under VMI's resident example, wages from a foreign unit without a Lithuanian permanent establishment are B-class income declared and taxed by the resident. Establish the actual tax/social setup before copying the local-company calendar.
- Employer of record: where the arrangement constitutes temporary employment, the employing company must meet the criteria and appear on VDI's list. The temporary-work rules allow indefinite contracts; the three-year ceiling applies to fixed-term temporary contracts and the aggregate of successive such contracts for the same worker and work, counting breaks of two weeks or less. It is not a universal EOR cap.
For temporary employment, provide assignment information at least two working days in advance unless the worker agrees to an earlier start; the worker has one working day to refuse. Check that the client is not using agency staff to perform striking workers' functions or replace dismissed employees. The agency cannot charge the worker its contract-related placement, employment or termination costs. Confirm comparable workplace conditions and the client's pre-start safety information.
The example uses a Lithuanian citizen. For another worker, establish permission for the particular employee job and employer before admission; evidence permitting independent activity is not sufficient proof of employee eligibility. Regulated duties can require additional authorization.
Agree the buyer and employer handoff
Before ending supplier service, your company supplies the actual contractor agreement, notice/consent terms, last-service and invoice details, and existing deliverable/IP records. The worker supplies identity, work-permission evidence where relevant, bank and payroll inputs, and the personal circumstances that affect entitlements.
The prospective employer or EOR confirms accepted terms, service/rights treatment, employee eligibility, coverage dates, payroll inputs and a start meeting Lithuanian admission rules. Agree in writing who closes the supplier contract, resolves missing rights and performs each filing and payment; confirm that division for the particular arrangement. Employment-start readiness comes first. Later payroll duties need named owners and scheduled dates before supplier exit, then completion evidence when due.
Agree the offer, start date and treatment of existing rights
Put the work function, salary, workplace, start, contract type and hours in writing. Give the employee the required written information before work starts. Previous access as a contractor does not complete employee onboarding.
VDI's leave rules give higher minima to certain workers, including a person singly raising a child under 14. Separate the applicable minimum, accrued leave, permitted use and extra contractual time off. VDI's employee handbook permits partial leave once at least one working day of entitlement is earned; ordinary full first-year leave normally follows working at least half the employment year's working days.
For the October example, any agreed probation remains under the pre-November rules, with an ordinary three-month maximum. The November amendments do not automatically extend an existing probation term.
Set different IP terms for earlier work and employee creations
Under Lithuania's copyright rules, economic rights in ordinary copyright works created while performing employee duties pass to the employer for five years unless the contract provides otherwise. Duty-created employee software has a separate employer-ownership default unless agreed otherwise. Decide whether future non-software work needs rights extending beyond that five-year default.
Earlier genuine supplier work needs its own title check. Inventory the retained deliverables, creators and existing grants; obtain any missing assignment or sufficient licence from the actual holder. If a supplier company holds the rights, the incoming individual's signature cannot transfer that company's rights. Assignment, licensing and commissioning agreements generally require writing, with a statutory exception for periodical-publication agreements. File delivery or payment alone does not establish an economic-rights transfer.
Compare the old invoice with the employee package
Use a full-month comparison before agreeing the offer. Assume the old service fee is EUR4,500 excluding VAT and reimbursed business expenses. The proposed salary is EUR4,000 gross, with an indefinite private-company contract, accident risk Group I, no supplementary pension contribution and a EUR4,000 contribution base. These are illustrative inputs, not a salary recommendation.
The 2026 Sodra schedule supports these scoped rates. The 1.77% comprises unemployment, accident-insurance, Guarantee Fund and Long-term Employment Benefits Fund charges. Supplementary pension participation can add a 3% employee deduction; contract type, accident group and contribution-base rules can change the calculation. October's partial salary is a separate payroll calculation.
The EUR500 difference between service fee and gross salary is not a net-pay comparison or a saving estimate. Decide whether salary, leave, benefits and any agreed transition payment form an acceptable offer. Do not convert VAT, business expenses or an invoice total into wages by applying a universal ratio.
For sickness, the employer pays the first two illness days falling on scheduled workdays even without the qualifying insurance history for later Sodra benefit. Check the worker's actual insurance history, including relevant self-employment coverage. Use the separate Lithuania cost assessment for broader budgeting.
Complete the country conversion steps
- Confirm the parties and route. Your company and the prospective employer document the employer, actual supplier, worker eligibility and any historical-status review. Apply the handoff above before committing to supplier exit.
- Agree a valid supplier ending. The supplier and engaging company agree notice or consent, last service, final deliverables and invoice terms under the actual agreement. Obtain grants for any missing earlier IP rights.
- Complete the employee package. The employer and worker sign the terms and service decisions. Payroll collects residence, bank, pension and contribution-classification inputs, plus any applicable NPD request under the 2026 income-tax law. Retain the worker's monthly-pay request.
- Complete admission and workplace preparation. Payroll submits ordinary 1-SD admission at least one working day before work begins. The employer separately supplies written information, safety instruction and any risk-required medical clearance. The one-working-hour admission exception for a sole management body does not govern this employee.
- Start employee work and coverage. The employer activates the agreed employee record, schedule, leave and benefits. Filing earlier does not bring forward the employment insurance start. Communicate any separate private-policy effective date.
- Run the first payroll. Payroll approves the partial-month gross, withholding and hours; finance transfers net pay. Under wage-information rules, provide the written/electronic statement at least monthly, showing calculated, paid and deducted amounts and working time, with overtime separate. The example delivers it with first pay. VMI's retail receipt rules address customer goods/services payments; this bank-paid salary is documented through payroll and the transfer record.
- Complete the scheduled returns and remittances. The accountable employer, preparer and finance owner use the calendar below. Keep accepted-return evidence separate from settled/allocated payments. Check location-dependent charges against the actual activity; Vilnius's local fees are a separate review from national wage withholding.
A worked October cutover
Assume an existing private UAB in Vilnius, its first ordinary hire, and a Lithuanian resident citizen taking an indefinite office job. The UAB is already correctly registered as an insurer; verify its record and filer authority before admission. Last contractor service is 23 October 2026; employment starts 26 October, with no weekend services. The employee requests monthly pay, with partial October salary paid 10 November. This is an ordinary monthly SAM/GPM313 employer, with calendar-year GPM312 reporting. Supplier exit is assumed to be validly agreed, with no change to the UAB's existing tax-registration data.
VMI distinguishes filing and payment: the December return does not defer November GPM remittance. Its GPM313 guidance also requires Lithuanian companies with employees to report even in a month without taxable A-class payments. Each return must reflect the employer's actual payments, including any beyond this worker.
Close the contractor engagement and verify first payroll
For the supplier closeout, retain valid termination/consent and last-service evidence, the approved final invoice and expenses with settlement proof, and acceptance of deliverables, grants, equipment and access changes. Invoice payment can occur later under its own terms without extending the service period.
For first payroll, reconcile the named employer and start, actual hours, prorated gross, employee deductions, net bank transfer and delivered wage statement. Check leave and benefit opening records. Use the calendar's evidence column to close returns and employer/employee remittances when due; a preparer's submission receipt does not demonstrate payment.
Prospective employment does not settle earlier classification exposure. Preserve that assessment and any dispute separately from the completed cutover records.
Two conversion situations to plan for
Ordinary planned conversion
The calendar's worker has genuinely operated independently. The buyer and employing UAB accept the package and complete the readiness handoff before the supplier exit. Their key decision is the first pay period: employee work accrues in October while salary is paid in November. Payroll therefore opens the accrued-wage and paid-income reporting records separately, rather than treating payday as the only reporting trigger.
The worker qualifies for additional leave
Assume the same worker singly raises a child under 14. VDI's leave rules raise the five-day-week minimum to 25 working days. The employer changes the offer and leave setup before signature; preserving the old invoice amount would not repair a 20-day template. The work schedule and protected status, rather than the contractor fee, determine this entitlement.
Questions about converting contractors in Lithuania
Can we keep the contractor's previous take-home amount?
Use a worker-specific payroll calculation before promising net pay. The invoice, expenses, other income, employee deductions and benefits have different tax treatment.
Can the employee keep invoicing through the first payday?
A final invoice can be paid later under the supplier agreement. It must cover genuine supplier services, without extending those service dates to the employee payday.
Do contractor years automatically become employee service?
Agree contractual recognition explicitly and separately assess any earlier legal employment. Do not automatically reset or carry over every entitlement.
Is a new probation period compulsory?
No. Decide whether it is appropriate and agree any lawful term expressly. For the October illustration, do not apply November's expanded option retrospectively.
Borderless AI's EOR service includes employment administration and payroll support. Ask us to assess the proposed Lithuania arrangement, actual employer, worker eligibility and cutover responsibilities before committing to a start date.
