Doing Business in Poland & Lithuania: Social Contributions and Salary Scenarios

One of the most notable differences between Poland and Lithuania is the level of employer social contributions. While this does not significantly change the overall tax burden when comparing gross and net salaries, it does significantly affect the employer’s direct employment costs. This difference can influence competitiveness, particularly for businesses operating in labor-intensive sectors.

Employer Social Contributions: Headline Comparison

In Poland, the employer pays approximately 17.93% of the employee’s gross salary in social contributions, which include pension, disability, accident insurance, and labour fund contributions. In Lithuania, the employer’s burden is much lower—around 1.77% of gross salary for permanent employment contracts and 2.49% for fixed-term contracts. These contributions consist of unemployment social insurance (1.31% or 2.03%), accident insurance (0.14%), a guarantee fund contribution (0.16%), and a long-term employment fund contribution (0.16%).

Figure 1 below illustrates the difference in employer social contribution burden:

The difference above is largely due to Lithuania’s 2019 tax reform, which shifted most social security contributions from employers to employees. The reform increased gross salaries and consolidated contributions under the employee’s responsibility, while reducing employer rates to a symbolic level. The goal was to simplify payroll administration, improve transparency, and make Lithuania more attractive for businesses by lowering the direct cost of employment. While the overall tax burden for employees remains comparable to that in Poland and other EU countries, the employer-side cost is significantly lower.

Employee Tax Burden and Social Contributions

When comparing the real cost of employment in Poland and Lithuania, it’s essential to distinguish between the employer’s tax burden and the employee’s deductions from gross salary. These employee-side deductions determine the actual take-home pay and reflect fundamental policy choices in each country. Although Poland and Lithuania are neighboring EU states, the structure of employee contributions differs significantly, shaping both payroll complexity and net income outcomes.

Poland

In Poland, employee-paid deductions consist of three large components: social security contributions, health insurance, and personal income tax. Social security contributions are significant, totaling 13.71% of gross salary and covering pension, disability, and sickness insurance. Specifically: 9.76% pension insurance, 1.50% disability insurance, and 2.45% sickness insurance.

In addition, every Polish employee pays a 9% health insurance contribution, calculated on the gross salary after deducting social security contributions. Since 2022, this payment is fully non-deductible from personal income tax, which effectively increased the tax burden despite unchanged nominal PIT rates. These rates apply uniformly, regardless of whether the employment contract is fixed-term or indefinite.

Poland applies a progressive personal income tax (PIT) system. The lower rate of 12% applies to annual earnings up to PLN 120,000 (approximately EUR 27,907 at a fixed rate of 4.30 PLN/EUR). Income above this threshold is taxed at 32%. Taxpayers benefit from a tax-free allowance of PLN 30,000 per year, which translates into a monthly tax relief of PLN 300 (around EUR 70) for mid-income earners.

In addition to these two PIT brackets, Poland imposes a solidarity tax of 4% on annual income exceeding PLN 1,000,000 (approximately EUR 232,558).

Altogether, a typical Polish employee loses roughly 25–28% of gross salary to deductions, combining social security contributions, health insurance, and PIT. For high-income individuals, the combined burden, including solidarity tax, can significantly exceed 50%.

Lithuania

Lithuania structures its employment taxation differently from Poland and other EU countries. Employees bear almost the entire social insurance burden, while employers pay minimal contributions.  To summarize, below are employer and employee contributions (tax burden) for calculating gross-to-net salary.

Employer Contributions

For indefinite employment contracts, the employment contributions are 1.77% of gross salary, which includes 1.31% for unemployment insurance, 0.14% for accident insurance (I group), 0.16% for the Guarantee Fund, and 0.16% for the Long-term employment Fund. For fixed-term employment contracts, on the other hand, these contributions are 2.49% 

These rates are among the lowest in the EU, making Lithuania highly competitive for employer-side costs. This is the only structural difference between contract types, but it still slightly influences take-home pay and is relevant for sectors where fixed-term hiring is common.

Employee Contributions

Depending on whether the worker participates in the voluntary 3% pension accumulation system, the total employee-paid rate (for indefinite contract) is either 19.5% or 22.5% of gross salary.

The 19.5% rate applies to employees who do not opt into the additional pension savings scheme. For those who choose to build additional pension capital, the rate increases to 22.5%. This contribution covers mandatory pension insurance, sickness insurance, maternity and social insurance, and health insurance. In particular, the elements included are: 8.72% for pension insurance, 1.99% for sickness, 1.81% for maternity, and 6.98% for health insurance.

Personal Income Tax (PIT)

The PIT system in Lithuania is simpler in everyday application compared to Poland’s. In 2025, most employees fall under a single 20% PIT rate applied to annual income of up to 60 VDU (approx. EUR 126,533 in 2025), which is the national average wage multiplier used in Lithuania. Only the highest earners (those exceeding this threshold) pay the higher 32% PIT rate on income above 60 VDU.

From 2026, based on confirmed changes, PIT rates in Lithuania will be structured as follows:

• 20% on annual income up to 36 VDU (approx. EUR 82,962 in 2026)

• 25% on the portion of annual income from 36 to 60 VDU (approx. EUR 82,962 to EUR 138,270 in 2026)

• 32% on the portion of annual income exceeding 60 VDU (above EUR 138,270 in 2026)

The overall employee burden is broadly comparable to Poland in percentage terms, but structured entirely differently. 

In practical terms, for an average worker, both systems lead to broadly comparable employee-side burdens, although the allocation between tax and social insurance differs. Overall, net income/salary differences for average employees are modest, but Lithuania’s simpler structure and lower employer costs make it a competitive location for attracting talent.

Salary Scenarios and Cost Comparison

To make the implications of these rates concrete, three sample salary levels were modelled: the Polish minimum wage converted to EUR, the Lithuanian minimum wage, 2,000 EUR gross, and 5,000 EUR gross. The calculations focus on the total monthly employer cost related to permanent employment contracts, and ignoring voluntary 3% pension contribution in Lithuania.

The difference in employer costs grows with salary: for highly paid specialists (5,000 EUR gross), a Polish employer would pay almost 800 EUR more per month than a Lithuanian employer for the same gross salary (although the employee would earn only EUR 74.6 more (net) than their Lithuanian colleague).

Moving Onto the Corporate Profitability Scenario and Profit Sharing

While the overall take-home pay for employees is broadly comparable between the two countries, Lithuania’s lower employer contributions and simpler payroll system make it particularly competitive for businesses, especially in labor-intensive sectors.

In the next article in our series, we will focus on corporate profitability scenarios and methods for distributing profits to shareholders. This will provide insights into how business performance translates into net returns for owners in Poland and Lithuania, helping you optimize profit allocation strategies while navigating the tax landscape in both markets.