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Employee Benefits and Compensation in Latvia: A Detailed Guide

What are Employee Benefits?

The employers provide certain perks to employees in addition to their base wage. These perks are called employee benefits, and they help companies to attract and retain a proficient workforce. They boost employees’ work productivity, loyalty, morale, and interest in work. The employee benefits can be either monetary or non-monetary based on the company’s budget and the employees’ requirements.

The employment contracts define certain mandatory benefits all employees will obtain in Latvia. These benefits encompass statutory minimum wage, working hours, overtime pay, paid leaves, annual leave, sickness benefits, maternity leave, paternity leave, disability pension, retirement benefits, severance fund, and more.

Compensation Laws in Latvia

Various compensation laws oversee compensation and benefits in Latvia. The below section discusses the laws related to the compensation and benefits policy in Latvia:

Latvia Labour Law

  • Section 136 (6) and 138 (6) of the Labour Law forbids the employment of pregnant female employees for up to one year after delivering birth. It also forbids breastfeeding female employees from overtime work or working at night. The employers can only send such employees on a work trip if they agree (Section 53 (2) of the Labour Law).
  • The female employees on maternity leave get state social insurance benefits if they socially insure themselves as per the Law on State Social Insurance.
  • Section 146 of the Labour Law ensures additional breaks (of at least 30 minutes) for employees with a child under the age of 1.5 years. The employers must provide these additional breaks at least every three hours. The breaks for breastfeeding a child fall under the working time (the payable amount is according to average earnings).
  • Section 155 of the Labour Law entitles ten calendar days’ leave to the child’s father. The father can take this leave within two months from the child’s birth. The child’s father gets 70 days of leave in specific cases. These cases are if the mother died during childbirth or within 42 days of birth, suffered from illness/injury/health-related issues, or refused to take care and nurture the child.
  • Section 157 of the Labour Law entitles employees to study leave if the collective work agreement/employment contract defines this entitlement, while the employment continues. The employer can determine whether to grant study leave with or without restraining the work remuneration.
  • Section 59 of the Labour Law specifies that work remuneration includes wages, supplements, bonuses, and other work-related payments (according to the collective agreement, regulatory enactments, or the employment contract).
  • According to Section 69 of the Labour Law, an employee is entitled to overtime compensation of at least 100.00% of the daily wage or hourly rate.

How to Design an Employee Benefits Program for Employees in Latvia?

Considering the below considerations before creating a compensation package in Latvia helps you effectively design an employee benefits program.

Step 1: Set business objectives for your benefits program and plan budget

Specifying the business objectives you anticipate obtaining from the compensation structure in Latvia is the foremost step to attaining the maximum profits from your compensation policy. You must review employment contracts or collective bargaining agreements to confirm employment relationships and entitlements related to compensation and benefits in Latvia.

Before designing the employee compensation policy in Latvia, you should concentrate on the company’s competency, commercial environment, and the business sector in which it operates. Intensely analyze the collective bargaining agreements or employment contracts to validate employee benefits entitlements and employment relationships. You must also assess your company’s budget to capitalize on employee benefits and consequently prepare the compensation structure in Latvia.

Step 2: Learn about employees’ requirements

Arranging use cases or interviews or creating opinion polls helps you thoroughly learn the employees’ requirements and expectations. So, this step in creating the compensation and benefits policy in Latvia encourages employees to share their opinions confidently.

Extensively research the set industry standards and the benefits other companies in your business sector offer their employees. The pertinent internal survey and research outcomes help you design an all-inclusive compensation and benefits policy in Latvia that follows industry principles and market competition. Consequently, you can design an adequate compensation package in Latvia that provides all the obligatory employee advantages.

The internal survey specifies the areas that demand improvements and implies essential changes to bring in the compensation and benefits policy in Latvia. You can exclude certain extra benefits to reduce company expenses.

Step 3: Design your benefits plan

After inferring the employees’ requirements and anticipations as per the employee compensation policy in Latvia, you should conduct a gap analysis. This approach helps you to discern the existing situation of the benefits plan. 

You should then create a good employee compensation policy in Latvia that imitates the dynamic features of the business. The equivalent flexible benefits and compensation structure in Latvia facilitates employees to choose mandatory benefits easily. Also, it advises the employer to obtain supreme benefits from the designed compensation and benefits policy in Latvia.

While preparing a benefits plan for worker’s compensation in Latvia, you must incorporate aspects like employee contributions, the company’s budget, and outsourcing requirements.

Step 4: Communicate your benefits offered to the stakeholders

You can now implement a practical plan for the organization and the employees. Ensure you communicate the advantages of your prepared compensation package in Latvia to all the stakeholders and employees. They can share feedback on your benefit plan’s draft. Accordingly, you can employ a valuable plan of worker’s compensation in Latvia that benefits the employees and the company.

If you recognize any worthy feedback, you can add them to your compensation package in Latvia. However, if the feedback classifies any benefits as redundant, you can discard them and revise the employee benefits accordingly.

Step 5: Examine the plan and upgrade it periodically

Companies in Latvia intend to provide excellent employee benefits in Latvia to be ahead of the market competition. Therefore, you must periodically study the compensation structure in Latvia and upgrade it accordingly. This step also helps you recognize the benefits plan’s efficiency and viability.

Proceed with implementing the employee compensation policy in Latvia after ensuring it is error-free. Make sure to carefully examine all the benefit plan’s components and implement them. 

Types of Guaranteed Benefits in Latvia

Employees are entitled to various kinds of employee benefits. The details of the mandatory benefits are here:

Minimum wage

  • The minimum wage paid to employees in Latvia is 620 EUR per month.

Working hours and overtime

  • In Latvia, the standard working hours are 8 hours per day, 40 hours per week.
  • The employer entitles the employees to overtime compensation for work performed exceeding standard working hours or during a public holiday.
  • The employer and employee must mutually agree on overtime compensation before starting the overtime work.
  • The overtime compensation of this employee benefits in Latvia is 200.00% of the employee’s standard salary.
  • Employees with at least six consecutive months are entitled to annual leave.
  • The minimum annual leave is 20 days (excluding public holidays).
  • Employees under 18 years of age receive one month of annual paid leave.
  • As per the agreement between the employee and the employer, the employees may obtain annual paid leave in parts. A part of the annual leave in the current year should be at least equal to two consecutive calendar weeks.

Public holidays

  • The employees in Latvia get 13 public holidays per year.

Date

Public holiday

1 Jan

New Year’s Day

7 Apr

Good Friday

10 Apr

Easter Monday

1 May

Labour Day

4 May

Independence Restoration Day

5 May

Independence Restoration Day Holiday

23 Jun

Midsummer’s Eve

24 Jun

St John’s Day

18 Nov

Independence Day

24 Dec

Christmas Eve

25 Dec

Christmas Day

26 Dec

2nd Day of Christmas

31 Dec

New Year’s Eve

Sick leaves

  • Employees with at least one month of employment are entitled to 10 days of sick leave.
  • The employer pays this workers’ compensation in Latvia at a 75.00% rate of the standard salary for the first three days.
  • The sick leave benefits in Latvia increase up to 80.00% for the fourth to the tenth day of sick leave.
  • If the employee is sick for more than ten days, the government compensates the medical benefits for employees in Latvia for up to 52 weeks.

Maternity leaves

  • The female employees get 112 days of paid maternity leave (56 days before the child’s birth and 56 days after the child’s birth).
  • The government provides maternity benefits in Latvia at 80.00% of the standard salary. 

Paternity leaves

  • The employees in Latvia are entitled to up to 10 days of paternity leave.
  • The child’s father can take paternity leave up to 6 months after birth.

Severance pay

  • The severance pay for an employee in Latvia depends on the employment duration as mentioned below:

Duration of employment

Severance Pay

Up to 5 years

One month

5-10 years

Two months

10-20 years

Three months

>20 years

Four months

Employee Benefits for Expatriates

Foreign employees working in Latvia are eligible for the same compensation and benefits in Latvia as local employees. The compensation package in Latvia provides benefits like family allowance, meal allowance, health care insurance, travel allowance, child home care allowance, dental care, and unemployment benefits to expats.

Expats may repetitively travel to and from abroad to finish their short-term projects. Hence, businesses employ a simple, economical alternative to recruiting and compensating expats via local subsidiaries.

Foreign nationals targeting to work legally in Latvia should obtain a work permit. The mentioned obligations do not apply to EU citizens. Foreign nationals should demonstrate proof of their future employment in Latvia with a registered Latvian business to get a work permit.

The cost of living in Latvia is comparatively low compared to other European cities. Furthemore, a wide range of business opportunities attract many expats to Latvia. The expats moving to Latvia with their families are entitled to free public healthcare services and free public education facilities.

How are Employee Benefits Taxed in Latvia?

Employees in Latvia must pay income tax ranging from 20% to 31% (according to their income). The social security contributions are 10.5% and 23.59% for employees and employers, respectively. The tax residents should pay for their worldwide income, whereas the non-residents pay only for their income acquired from Latvia. Moreover, self-employed individuals should pay contributions related to pension, general sickness, and disability.

Restrictions for Latvia Benefits and Compensation

Nearly all benefits entitled to Latvian employees are taxable. So, you must be familiar with the benefit’s financial value to compute the tax amount payable by the employer precisely. Also, an employer should ensure that all tax payments are disbursed timely and submitted to the relevant authorities.

Ensure your business is established and legally runs in the country before designing employee benefits in Latvia. The companies should also reimburse the minimum remunerations to employees depending on their business sectors. Moreover, the benefits and compensation package in Latvia should follow all the labor laws controlled by the government.

It is essential to get a residence permit to work in Latvia. Obtaining a long-term D-Visa for work is essential for up to 1 year in the country.

Employers should not consider the compensation of expenses for accommodation and travel as part of the minimum wage rate. The disputes about compensation of official travel expenses are subject to special regulations defined by the Cabinet of Ministers.

The parties involved in an employment contract can sign a non-competition agreement. According to this agreement, the employee can agree not to perform competitive activities during employment or for a specific period after termination. Besides, an employee can sign another employment bond during their employment, except for the employment contract of the compensation package in Latvia stipulating otherwise.

Supplemental Benefits for Employees in Latvia

The employees are entitled to additional benefits offered per the compensation package in Latvia. Their details are below.

  • Company cars
  • Private health insurance
  • Holiday bonuses

How Multiplier Can Help with Benefits Management in Latvia

Starting a business overseas and hiring a talented workforce is easy but laborious. The employer should conform to the local laws and regulations before determining employment contracts and validating employee benefits. You can successfully organize this process by contacting a global PEO platform like Multiplier.

Multiplier streamlines compliance with Latvia’s labor rules. Our knowledgeable staff can help you efficiently manage the workforce without creating a countrywide subsidiary. We also assist you with recruiting proficient employees in 150+ countries. Thus, you can control your employment expenses and inspect new markets.

Frequently Asked Questions

The standard VAT rate is 21% in Latvia.

Yes, providing written employment contracts for your employees in Latvia is mandatory. These contracts should include details about the salary, working hours, the required notice periods, the probation periods, the employee’s occupation, the place of work, the employment joining date and the duration of the employment (for fixed-term contracts only), collective agreement conditions or the work procedure regulation applicable to the employment relationship.

Under the social security system, employers provide the following benefits in the compensation package in Latvia.

  • Old age pension
  • Survivor’s pension
  • Death benefits
  • Insurance indemnity due to occupational disease
  • Unemployment benefit
  • Sickness benefit
  • Maternity benefit
  • Paternity benefit
  • Parental benefit
  • Funeral benefit
  • Compensation related to accidents at work and occupational disease

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