Bonuses and variable pay in a Lithuanian pay system: how to write them

By 31 December 2026 an employer must adopt a pay system or, if one already exists, review it and amend it where needed (Article 23(4) of Law No. XV-969). If a collective agreement sets the system, it need not be adopted separately (DK Article 140(3)), but, in our view, the duty to review an existing system applies to that employer too (Article 23(4) of Law No. XV-969). The system must contain not only pay ranges but also the grounds, amounts and procedure for allowances, supplements and bonuses (DK Article 140(3)). A bonus a manager grants “by feel” becomes the hardest difference to explain in a dispute. So describe variable pay in a way that makes four things clear from the text: who can get it, for what, how much, and who decides. Below is a clause you can copy, two worked examples and mistakes to avoid. For an overview of all the duties, see “Pay transparency in Lithuania: what employers must do, and by when”.

What the law says

The law: pay consists of base pay plus additional parts: an additional part set by agreement or under the pay system, qualification allowances, supplements for additional work, bonuses for work done and bonuses the employer grants on its own initiative (DK Article 139(2)).

The law: the Labour Code distinguishes two kinds of bonus (DK Article 142(1)):

1. Contractual bonus. Paid in the cases, amounts and procedure set by the employment contract, the pay system or other labour law rules. If employment ends, the employer must still pay a bonus proportionate to the time worked in the bonus period, unless the parties agreed a different period (DK Article 142(3)).
2. Incentive bonus. Granted on the employer’s initiative for good work or results. It may be withheld if the employee breached work duties in the last six months (DK Article 142(2)).

The Supreme Court of Lithuania, in its ruling of 16 April 2026 in civil case No. e3K-3-66-1249/2026 (paragraph 73), held that clear indicators for calculating the amount of a bonus and for paying it are a required feature of a bonus for work done. Without clear indicators, there is no basis to treat the bonus as part of pay.

The law: non-discriminatory pay includes all additional earnings in cash or in kind (DK Article 140(6)). In an equal pay dispute any remuneration is compared, including pay in kind (DK Article 26(4)(1)). So bonuses, a car for private use or extra health insurance are compared just like salary.

Both kinds of bonus must be described in the system. Even an incentive bonus needs at least grounds, amount limits and a procedure: who proposes, who approves, which indicators count.

Five rules for objective variable pay

1. The indicator must be measurable. “Sales target met”, “number of errors”, “projects finished on time” work. “Loyalty” or “positive attitude” do not.
2. Same job, same rules. Bonus rules may be set by job group or by job (DK Article 140(3)). Different jobs in the same group may have different indicators if they are objective and the bonus caps are equivalent. Different bonuses in different offices or shops with no objective reason create an unjustified gap. VDI says a unit’s turnover may be a ground for an allowance if the system describes it (VDI FAQ, question 3.2).
3. Variable pay does not hide base pay. VDI says pay can be changed only with the employee’s written consent, and allowance grounds must be clearly described (VDI FAQ, question 3.13). Do not cut base pay and “cover” the difference with a bonus.
4. Missed targets reduce only the variable part. A breach or missed indicators may justify withholding or reducing an allowance if the system clearly says so. Base pay is not reduced (VDI FAQ, question 7.8). Our recommendation: tie a breach to the incentive bonus, not the contractual one (see “…an employee committed a breach?” below).
5. Leave is not penalised. An employee returning from childcare leave must receive the positive pay change they would have received by simply working (VDI FAQ, question 3.7). State in the bonus rules how the bonus is calculated for a period of leave.

Our recommendation: set a variable pay cap for each group as a percentage of base pay. Base and variable pay then stay within the logic of the system, and a lower-group employee does not overtake a higher group only because of an unexplained bonus.

Benefits in kind: what to include

The rules: the gross pay reported to Sodra covers pay in cash and in kind (Order A1-433, Description points 4.4 and 4.5). Additional pay in kind may be left out when all employees of the same job group, without any exception, receive the same benefit, with no possibility of different terms or of different pay in kind (Order A1-433, Description point 4.4; see also VDI FAQ, question 5.1). VDI gives examples of pay in kind: a gym membership, extra health insurance, a company car (VDI FAQ, question 5.1).

The test is simple. If everyone in the group gets the benefit equally, describe it in the system as a common benefit. If only part of the group gets it, it is remuneration: describe who gets it and why, and value it in money (VDI FAQ, question 5.2). Income on which no state social insurance and compulsory health insurance contributions are paid is left out of the Sodra data (Description points 4.4 and 4.5 of Order A1-433); check the contribution status with your accountant. But in an equal pay dispute any pay in kind is compared (DK Article 26(4), point 1), so you must still justify such a benefit.

A clause you can put into your system

> Bonuses and allowances > > 1. Employees receive a quarterly bonus. The maximum bonus as a percentage of the employee’s quarterly base pay: group I – up to 5%, group II – up to 10%, group III – up to 15%. > 2. The bonus is granted on these indicators: [indicator 1, e.g. quarterly target met]; [indicator 2, e.g. number of customer complaints]. Indicators and their weights for each job group are set out in [Annex No. X] to this system and announced to employees before the quarter starts. The bonus is calculated under the formula in [Annex No. X]: [e.g. group cap × indicator achievement weighted by the indicator weights]. > 3. Within 10 working days after the quarter ends, the line manager assesses the indicators and the CEO approves the bonus by order. The order states the indicator results and the calculated bonus. > 4. The bonus is paid with the salary for the month following the quarter. > 5. If employment ends mid-quarter, the bonus is calculated in proportion to the time worked. > 6. Annual, maternity and paternity leave do not reduce the bonus: that time counts as time worked for the bonus. Where the employee spent part of the period on childcare leave, the indicators are assessed only for the time worked, and the bonus is calculated in proportion to the time worked. > 7. Where the indicators are not fully met, the bonus is calculated under the formula in point 2 and may be zero. The quarterly bonus is not reduced on any other ground. Base pay is not reduced. > 8. A one-off incentive bonus may be granted for an exceptional result that can be verified (e.g. a project completed, a new customer won). The order states the result and the amount, which may not exceed the quarterly bonus cap of that group.

Adapt the clause to your business. Three things must stay: a cap for each group, measurable indicators and a written decision with a reason.

Example: a 12-person service company

The company has three groups. Group I: an administrator and two customer service specialists. Group II: five project staff. Group III: two project managers and the deputy CEO. The CEO’s pay is set by the shareholders or the board, so the CEO’s bonus is described separately, but the CEO’s position is still placed in a group in the system.

| Group | Quarterly bonus cap | Indicators | |—|—|—| | I | up to 5% of base | response time to customers, number of complaints | | II | up to 10% of base | projects finished on time, number of errors | | III | up to 15% of base | project profitability, projects finished on time |

All employees get the same lunch vouchers. That is a common benefit, described in the system in one sentence. The project managers have company cars they may also use privately. That is pay in kind: the system states which jobs get a car and why. In VDI’s view, only the share for private use is reported to Sodra (VDI FAQ, question 5.3).

Example: a 45-person production company

Production has 32 workers on two shifts. They get a monthly productivity allowance of up to 8% of base pay if the shift meets the output norm and the defect rate stays under the set limit. The whole shift gets it under the same formula. Warehouse and logistics staff are in another group, with an on-time order fulfilment indicator.

Office and management staff get an annual bonus of up to 20% of annual base pay, based on company results and personal goals. The manager and the employee agree personal goals in writing at the start of the year. As its average headcount is below 50, the company may leave out pay increase criteria and procedure, but it must set indexation criteria and procedure (DK Article 140(3); VDI FAQ, question 1.7). It must also describe its bonus rules.

Mistakes to avoid

• “Bonus at the manager’s discretion” with no criteria. In a dispute the employer cannot explain why one person got it and another did not.
• Different rules in different offices. Employees of the same group in Vilnius and Kaunas get different bonuses with no written reason.
• Base pay cut, the difference paid as an “allowance”. That changes base pay and needs the employee’s consent.
• Leave reduces the bonus without clear, objective rules. Especially risky where one sex takes more leave, as it may be indirect discrimination.
• Benefits not described. A car or insurance for only part of a group is remuneration that must be justified.
• No written decision. Keep the order or other document with the indicator results.

What to do if…

…a manager wants a one-off bonus for one employee? You may, if the system provides for an incentive bonus. Write down in the order a specific, verifiable result and an amount within the system’s cap. If another employee in the group achieves a similar result, apply the same logic.

…sales managers are paid commission? Commission is variable pay. State the formula in the system: what it is calculated on, the percentage, and whether there is a cap. Apply the same formula to all sales managers in the group.

…a bonus is paid only to staff of one office? Write down an objective reason, such as that office’s seasonal workload or turnover, and describe it in the system as a ground for the allowance (VDI FAQ, question 3.2). If there is no reason, extend the bonus to the whole group or drop it.

…an employee committed a breach? You may withhold an incentive bonus if the breach happened in the last six months (DK Article 142(2)). Reduce a contractual bonus only on grounds clearly set in the system. In VDI’s view, a disciplinary breach or missed indicators are a lawful ground to withhold or reduce the variable part of pay if the pay system clearly sets out that procedure, but base pay may not be cut below the agreed amount because of a breach (VDI FAQ, question 7.8). The Supreme Court of Lithuania, in its ruling of 16 April 2026 in civil case No. e3K-3-66-1249/2026 (paragraphs 73 and 77), held that where the employer sets indicators for calculating and paying a bonus but also sets a rule that the bonus may be reduced or withheld in cases the employer defines, including for breaches of work discipline, the employee acquires no right to claim the set bonus and the employer has no duty to pay it. In our view, such a bonus then risks being treated as an incentive bonus, and the pro-rata rule in DK Article 142(3) on termination may not apply to it. So do not make a breach a ground for reducing a contractual quarterly bonus; for breaches, use the incentive bonus rule (DK Article 142(2)).

Checklist for this week

1. List every bonus, allowance and benefit paid today: who gets it, how much, why.
2. Classify each as a contractual or incentive bonus, an allowance or a benefit.
3. Set a variable pay cap for each job group as a percentage.
4. Choose 1–3 measurable indicators for each group.
5. Decide who assesses, who approves and within what time.
6. Add pro-rata payment on leaving and the leave rule.
7. Check that no employee gets a bonus you cannot explain under these rules. If someone does, write down the reason or plan a change.

Related articles

• Job evaluation found unjustified pay gaps: how to fix them
• Can you pay a new hire more than a long-serving employee?
• Small employers: a minimum pay system by 31 December 2026
• Pay transparency in Lithuania: what employers must do, and by when

How to start

Send us your current pay system and a list of every bonus, allowance and benefit you pay now. We will prepare bonus and allowance rules that fit your job groups and pay ranges.

Linden’s full solution, from the pay system to informing employees, is at atlygis.linden.lt. Check which requirements apply to you: atlygis.linden.lt/en/self-check.

Phone +370 5 212 1506, email info@linden.lt

More about this service: drafting labour law documents.