Acvian’s EOR in Latvia review shows the significant factors employers should consider when hiring talents in this state. Even though the Baltic country is an EU member, it still has its specifics, which you should take into account
After the Soviet Union collapsed, it seemed casual to consider the Baltic region and their relatively small countries as a source of cheap and low-skilled labor for Western Europe. But the time has changed, and we may just see it coming through the numbers. In this material from partner PEO, you’ll see the crucial arguments on why it is worth bringing your recruiting attention to Latvia. According to European Commission economic forecast, after the 2020 pandemic fall of GDP (-3,6%), Latvia fully recovered losses in 2021 (+4,7%), and sees a bright future in the ongoing 2022 (+4,4%) and following 2023 (+3,8%) years.
Compared to the West, Latvia still has a low-waged economy, giving 500 euros as its minimum wage (the smallest number in the EU). Compared to its neighbors, the average one is higher, though still the lowest in the region (1300 euros). If you want to quickly estimate the payroll for your employees in Latvia, Acvian’s payroll cost calculator is a handy thing to use straight away.
Government statistics show a tendency for Latvia among other Baltic countries to be with the highest working proposal rate (25.5k vacancies in 2021) – way more than in Estonia and Lithuania. The most significant part of these are placed in the administration sphere (5,5%), hospitality (4%), processing (3,9%), real estate, and construction (both slightly above 3%), according to the state’s Central Statistical Bureau.
Population in Latvia (1,9 mln), is considered one of the most hard-working in all of Europe, relating to the work-hours rate. The number of working-aged Latvians varies to almost half of the population.
Local Labor Law
Whether you are a domestic employer or international working with partner PEO, local Latvian employment rules apply to you equally. If parties wish to begin a professional relationship, a contract must be signed. Among the possible options for a time-framed proposal and indefinite, you have to know that any agreement exceeding 2 years automatically becomes the indefinite one, according to The Employment Law. There are also substantial mandatory social benefits for workers the employer should be aware of (minimum and maximum limits for statutory working hours, annual paid leaves, employee rest time, and many more).
Details on Latvian Labor Specifics:
If it is not indicated in the contract, the working period begins without probation. The latter should not exceed 3 months.
Cannot be shorter than 4 calendar weeks, not including public holidays.
Maternity leave lasts 56 calendar days, and the same term for childbirth leave is given and not included in the paid annual leave. Paternity leave should not exceed 10 days and be conducted no later than 2 months after childbirth.
Typically 8 hours per day. A working week consists of 5 days. The 6-day week may be introduced upon agreement with the employee, and so is overtime work. However, these are followed by law with additional requirements from the employer to be fulfilled.
Employers pay 75% of the earnings for the second and third day of absence, and 80% from the fourth to tenth. After that employees should receive payments from the state insurance agency.
Without prior contractual agreements, an employee has the right to terminate the employment in the form of 1-month prior written notice. Generally, possible periods are the subject of change given to an agreement between both parties.
Social tax 23.59%
Business risk fee 0.36 (fixed)
Personal income tax 20-23%
Social tax 10.5%
Also, there are differences in how the Latvian government considers independent contractors and full-time employees. Let’s take a brief look:
- It may be more efficient for short-time projects to hire contractors, as thus you avoid some additional expenses, such as few statutory payments, payroll taxes, and benefits. But the failed classification for contract type will ruin these advantages with the possible penalties.
- If you’d like to go long-term, full-time hiring is needed. Although dealing with the expenses mentioned above, it gives the employer the right amount of liability and responsibility from the worker’s side.
By closing the general partner PEO overview, it is mandatory to mention the overall business environment in Latvia and how risky it is to invest now. The country has risen significantly in most major ratings regarding financial attractiveness, skills, and availability (20th place according to Global Services Location Index). As for 2019, it has been ranked 19th in the World Bank’s Ease of Doing Business and stays high in the top 50 of the Global Competitiveness Index Ranking. The perspective for digital innovations in the public sector also attracts possible investments in local workers and creating new vacancies.
Although all the benefits of the cheap but high-skilled Latvian labor market, it’s crucial to note that Labour Laws and regulations in Latvia are strict with penalties for non-compliance. Acvian as a global employment organization (partner PEO) takes care of complex employment solutions such as payroll, benefits, compliance, taxes, and administers the hiring processes so that the employer can focus on the business.