Hire in Latvia through our Employer of Record (EOR)

Latvia's employment landscape is characterized by a highly educated workforce, an aging population, and a balanced gender representation. The country faces challenges such as outward migration and skills shortages in certain sectors. The service sector dominates employment, followed by industry and agriculture. Latvia's workforce is adapting to modern economic demands, with increasing focus on STEM fields and lifelong learning.

Overview of Labor Laws

Latvia's labor laws are designed to protect both employees and employers, ensuring fair working conditions and rights. Key aspects of Latvian labor laws include:

• Standard working hours: 40 hours per week, with a maximum of 8 hours per day
• Overtime regulations: Limited to 144 hours over a 4-month period, with additional compensation required
• Minimum wage: Set annually by the government
• Annual leave: At least 4 weeks of paid vacation per year
• Parental leave: Up to 18 months, with job protection and partial salary compensation
• Probation periods: Generally limited to 3 months
• Termination notice: Varies based on length of employment, typically ranging from 10 days to 1 month

These laws align with European Union standards and aim to create a balanced and fair work environment.

Cultural Considerations

When engaging with the Latvian workforce, it's important to consider several cultural aspects:

1. Work ethic: Latvians generally have a strong work ethic, valuing punctuality and efficiency.

2. Communication style: Direct and reserved, with less emphasis on small talk in professional settings.

3. Hierarchy: Respect for authority and formal address in the workplace are common.

4. Work-life balance: Increasing importance placed on maintaining a healthy balance between work and personal life.

5. Decision-making: Often hierarchical, with major decisions made by those in senior positions.

6. Professional relationships: Formal at first, with a gradual shift to more casual interactions over time.

Understanding and respecting these cultural norms can greatly enhance workplace relationships and productivity.

Challenges of Direct Hiring

Direct hiring in Latvia can present several challenges for foreign companies:

1. Language barrier: While English proficiency is increasing, Latvian and Russian are still predominant in many workplaces.

2. Legal complexities: Navigating Latvian labor laws and regulations can be complex for foreign entities.

3. Administrative burden: Managing payroll, taxes, and social security contributions in compliance with local laws can be time-consuming.

4. Cultural differences: Misunderstandings due to different work cultures and communication styles can arise.

5. Talent acquisition: Competition for skilled workers in certain sectors can be intense due to the country's relatively small population.

6. Remote management: If the hiring company doesn't have a local presence, managing employees from afar can be challenging.

7. Employee retention: With opportunities for work in other EU countries, retaining top talent can be difficult.

These challenges highlight the potential benefits of using an Employer of Record service, which can navigate local regulations, handle administrative tasks, and provide cultural insights, allowing companies to focus on their core business operations.

Latvia's payroll and tax system is designed to support social welfare programs while ensuring fair contributions from both employers and employees. The system involves various components, including social security contributions, personal income tax, and additional taxes for high earners. Understanding these elements is crucial for both employers and employees to navigate the Latvian labor market effectively.

Employer Contributions

Employers in Latvia bear a significant responsibility when it comes to payroll taxes and contributions. Their obligations include:

Social Security Contributions

Employers are required to contribute 23.59% of an employee's gross salary towards social security. This covers a wide range of benefits, including:

• Old-age pensions
• Disability pensions
• Sickness benefits
• Maternity and paternity benefits
• Unemployment benefits

Solidarity Tax

For high-earning employees whose annual income exceeds €78,100, employers must pay the Solidarity Tax (ST). The employer's share of this tax is 23.59%, with an effective rate of 25%. It's worth noting that the excess is later refunded to employers.

Unemployment Insurance

In addition to social security contributions, employers pay 0.8% of the employee's gross salary towards unemployment insurance.

Personal Income Tax (PIT) Withholding

Employers are responsible for calculating and withholding Personal Income Tax from their employees' wages. The current PIT rates in Latvia are:

• 20% on income up to €20,004 per year
• 23% on income between €20,004.01 and €78,100 per year
• 31% on income exceeding €78,100 per year

Reporting and Payment Obligations

Employers must register with the State Revenue Service (VID) to obtain a taxpayer identification number. They are required to submit monthly reports detailing all mandatory contributions and remit payments to the SRS on a monthly basis.

Employee Contributions

While employers handle a large portion of the tax burden, employees in Latvia also have their share of contributions and tax responsibilities:

Social Security Contributions

Employees contribute 10.5% of their gross salary to the social security system. This funds various benefits, including pensions and sickness benefits.

Solidarity Tax

Like employers, employees are subject to the Solidarity Tax if their annual income exceeds €78,100. The employee's share of this tax is 10.5%, with an effective rate of 25%.

Personal Income Tax

Employees are subject to a progressive Personal Income Tax system:

• 20% on annual income up to €20,004
• 23% on annual income between €20,004 and €78,100
• 31% on annual income exceeding €78,100

Tax Deductions

To help reduce their tax burden, employees can benefit from several standard deductions:

1. Non-taxable Minimum: As of 2024, €500 per month of an employee's income is tax-free.
2. Dependents Deduction: Employees with dependents are eligible for tax reductions.
3. Justified Expenses: In certain cases, employees can deduct work-related expenses such as healthcare and education costs.

Understanding these contributions and tax obligations is essential for both employers and employees in Latvia. It ensures compliance with local regulations and helps in effective financial planning. As tax laws can change, it's always advisable to consult with local tax authorities or financial advisors for the most up-to-date information.

Latvia offers a comprehensive set of employee benefits, combining mandatory provisions with optional perks to create an attractive work environment. As an Employer of Record (EOR), Rivermate expertly manages these benefits, ensuring compliance with local labor laws while helping companies provide competitive packages to attract and retain top talent. By partnering with an EOR, businesses can navigate the complexities of Latvian employment regulations and focus on their core operations, confident that their employees' benefits are being handled professionally and in accordance with local requirements.

Mandatory Benefits

• Annual Leave:

  • Minimum of 4 weeks (20 working days) paid annual leave per year
  • Employers can offer more than the minimum
  • Specific procedures for granting and carrying over leave

• Public Holidays:

  • 12 official paid public holidays annually
  • Additional compensation for work on public holidays

• Sick Leave:

  • 10 days of paid sick leave per year for employees with at least one month of employment
  • Employer pays 75% of salary for first 3 days, 80% for days 4-10
  • State Social Insurance Agency covers extended illnesses beyond 10 days

• Social Security Contributions:

  • Mandatory three-tier pension system
  • Employer contributions to national pension scheme and private pension plan
  • Contributions to unemployment insurance and other social security benefits

• Parental Leave:

  • Maternity Leave: 112 days total (56 days before and after childbirth)
  • Paternity Leave: 10 days of paid leave within 2 months of child's birth

Optional Benefits

• Health Insurance:

  • Employers can cover part or all of private health insurance premiums

• Life and Disability Insurance:

  • Financial support for employees or families in case of death or disability

• Flexible Work Arrangements:

  • Remote work options
  • Flexible working hours
  • Compressed workweeks

• Professional Development Opportunities:

  • Tuition reimbursement
  • Access to training programs
  • Conference attendance support

• Additional Perks:

  • Meal vouchers or subsidized cafeterias
  • Fitness programs or gym memberships
  • Company car or car allowance
  • Mobile phone allowance
  • Free or discounted company products or services

By offering a mix of these mandatory and optional benefits, employers in Latvia can create a competitive and attractive compensation package that supports employee well-being and job satisfaction while complying with local labor laws.

The process of termination and offboarding in Latvia is governed by specific legal requirements and best practices to ensure a smooth transition for both employers and employees. Understanding these procedures is crucial for companies operating in Latvia to maintain compliance and protect their interests.

Termination Process

In Latvia, employers must have valid grounds for terminating an employment contract. These grounds generally fall into three categories:

1. Employee conduct
2. Employee capabilities
3. Economic or operational reasons

When terminating an employment contract, employers must provide a minimum notice period of one month, unless the termination is due to severe misconduct. In such cases, immediate termination may be permissible.

It's important to note that employers cannot terminate the contracts of trade union members without prior consent from the relevant union for the first six months of their membership.

Severance Pay

Severance pay may be mandatory in certain circumstances, particularly when termination is due to redundancy or operational reasons. The amount of severance pay is typically based on the employee's length of service with the employer.

Offboarding Procedures

To ensure a smooth offboarding process, employers should consider the following steps:

1. Conduct an exit interview to gather feedback and insights from the departing employee.
2. Retrieve company property, including equipment, access cards, and uniforms.
3. Revoke access to company systems, email accounts, and sensitive information.
4. Provide necessary documentation, such as a reference letter or certificate of employment.
5. Process final payments, including any outstanding salary, unused vacation days, and severance pay if applicable.

Legal Considerations

Employers should be aware that employees have the right to challenge their termination in court. To minimize the risk of legal disputes, it's crucial to:

1. Document all reasons for termination thoroughly.
2. Follow proper procedures and notice requirements.
3. Ensure fair and equal treatment of all employees.
4. Consult with legal experts when dealing with complex termination cases.

By adhering to these guidelines and understanding the legal framework surrounding termination and offboarding in Latvia, employers can navigate this process effectively while minimizing potential risks and maintaining positive relationships with departing employees.

Latvia, a Baltic nation known for its rich history and vibrant culture, has become an increasingly attractive destination for foreign workers. As a member of the European Union (EU), Latvia's visa and work permit requirements vary depending on the worker's country of origin and the nature of their employment.

EU/EEA and Swiss Citizens

Citizens of EU/EEA countries and Switzerland enjoy the right to free movement within the EU, including Latvia. They can enter and stay in Latvia without a visa for up to 90 days. For longer stays or employment purposes, they must register their residence with the Office of Citizenship and Migration Affairs within 90 days of arrival.

Non-EU/EEA Citizens

For non-EU/EEA citizens, the process is more complex and typically involves obtaining both a visa and a work permit.

Visa Requirements

1. Short-stay visits (up to 90 days): Most non-EU nationals need a Schengen visa.
2. Long-stay visits (over 90 days): A national D visa is required.

Work Permit Process

1. The employer must register a job vacancy with the State Employment Agency.
2. If no suitable local candidate is found, the employer can invite a foreign worker.
3. The employer applies for a work permit on behalf of the foreign worker.
4. Once approved, the worker can apply for a residence permit.

Key Points to Remember

• The work permit is typically valid for up to five years but may be shorter based on the employment contract.
• Highly qualified workers may be eligible for the EU Blue Card, which offers a streamlined process.
• Some professions may require additional recognition of qualifications or licenses.
• Family members of foreign workers may be eligible for residence permits under family reunification rules.

It's important to note that visa and work permit requirements can change. Foreign workers and their employers should always consult the latest information from the Office of Citizenship and Migration Affairs or seek professional advice to ensure compliance with current regulations.