State Labour Inspectorate Clarifies Rules on Wage Deductions for Shortages and Damages

The State Labour Inspectorate (VDI) has issued guidance emphasizing that damaged company property, inventory shortages, or employer losses do not automatically grant the right to unilaterally deduct amounts from an employee's salary. Article 150 of the Labour Code of the Republic of Lithuania sets out an exhaustive list of grounds under which deductions from wages are legally permitted.

Pursuant to Article 150, paragraphs 1 and 2, deductions without a labor dispute resolution procedure are restricted to specific circumstances: returning unspent and unreturned advances, correcting arithmetic calculation errors, recovering damages caused by employee fault, and reclaiming overpaid vacation pay when an employment contract is terminated at the employee's initiative without valid reasons (Article 55) or due to employee fault (Article 58). The concept of an accounting error strictly covers technical arithmetic miscalculations. Overpayments resulting from the misapplication of legal acts or internal company policies do not constitute arithmetic errors and cannot be recovered via unilateral payroll deductions.

VDI explicitly highlights that distributing inventory shortages across an entire shift or team without establishing individual liability is unlawful. The employer must prove the unlawful actions, direct causal link, and fault of the specific employee. Establishing mandatory internal "risk funds" deducted from paychecks or demanding signed promissory notes to cover potential future losses is likewise contrary to law.

To execute a deduction for damages by management order, strict statutory conditions apply. The written order must be issued no later than one month from the day the employer became aware or should have become aware of the grounds (Article 150, paragraph 3). The total damage amount deducted via a unilateral employer decision cannot exceed one average monthly wage (VDU) of the employee. If the claim exceeds this threshold, if the one-month deadline has passed, or if the employee disputes either liability or the evaluated amount, the employer must submit a claim to the Labour Disputes Commission rather than reducing wages independently.

When applying deductions, payroll departments must strictly observe the limits defined in Article 736 of the Code of Civil Procedure. Deductions from the portion of wages up to the statutory minimum monthly wage (MMA) cannot exceed 20 to 30 percent, while deductions from the portion exceeding the MMA cannot exceed 50 percent. Unlawful deductions are legally categorized as unpaid wages, exposing employers to late-payment interest, statutory penalties under Article 147 of the Labour Code, and administrative sanctions.