New Employment Regulation Updates – More Opportunities for Employee Motivation

Attracting and retaining skilled, engaged employees remains one of the biggest challenges for Latvian businesses and organisations. As work models evolve, employees no longer feel tied to a single workplace. They seek not only competitive salaries but also greater flexibility and additional benefits. To meet these expectations, employers need supportive legal framework that allows them to attract and motivate talent effectively.

A number of employment law and tax regulation changes have recently come into force, with more amendments on the horizon. Here’s what employers need to know.

Foreign Language Requirements – Now More Restricted

Amendments to the Labor Act, effective October 2024, significantly limit employers’ ability to require foreign language skills from employees. Under the new regulations, foreign language proficiency cannot be deemed necessary for performing job duties if the work is related to the domestic market, such as manufacturing or local services. Exceptions apply only if foreign language proficiency is an objective and justified requirement, such as roles involving cooperation with foreign business partners, clients etc.

The aim of these changes is to protect the Latvian language and prevent unnecessary foreign language requirements, especially in professions like retail workers, where knowledge of Russian has often been implicitly expected. However, determining when a foreign language is “objectively necessary” remains “a grey area”, potentially creating challenges for employers.

Many businesses in Latvia, especially international corporations, have foreign board members and executives. While these individuals frequently operate in an international setting, not all employees interact with foreign stakeholders. As a result, these amendments may complicate recruitment and operational processes for some companies.

Employers should carefully review internal policies, employment contracts, and job descriptions to ensure compliance with these new language restrictions.

Standardized Personal Income Tax Rate for salaries and increased Tax-Free Minimum

As of this year, a single Personal Income Tax (PIT) rate of 25.5% applies to salaries (previously 20% and 23%), simplifying tax calculations. For foreign employees, who are working in Latvia and paying State Social Security Contributions abroad, the PIT rate has been increased to 33% if their monthly salary exceeds EUR 8,775.

A positive change this year is the removal of the variable non-taxable minimum, which was previously calculated by the State Revenue Service (SRS) based on past income. As of 2025, a flat non-taxable minimum of EUR 510 applies to all employees. This threshold will increase to EUR 550 in 2026 and EUR 570 in 2027.

For employees earning up to EUR 4,000 gross per month, net salaries have increased due to these reforms. Additionally, employees no longer need to update their tax registration details—the non-taxable minimum is now automatically applied based on the employer’s records.

Another significant improvement for pensioners. The pensioner’s non-taxable minimum has been increased from EUR 6,000 to EUR 12,000 per year. Working pensioners can also split their tax-free allowance of EUR 1,000 per month between their pension income and employment income for better tax optimisation.

Increased tax benefits for employee’s expenses and allowances

One of the key tools for attracting and motivating employees is covering expenses such as transportation, meals, healthcare, and other expenses, along with various allowances.

From 2025, employers with a collective agreement can receive significant tax benefits for transport, accommodation, and relocation expenses, including public transport, fuel, and rent costs. These new benefits have been added to previously available PIT exemptions for meal and healthcare expenses.

The total tax-free limit for these benefits is calculated based on the average number of employees in the company, multiplied by EUR 700, the new annual benefit amount per employee (previously EUR 480 per year). This flexible approach allows employers to compensate higher expenses for employees who need it most, using the unused portion from those who do not utilize these benefits.

The previous conditions for applying the exemption have been retained in the law:

• The total tax-free benefits cannot exceed 5% of the company’s gross salary fund.
• The employer must have at least six employees.
• The employer must not have any tax debts.
• The company must have been operating for at least one year as of December 15 of the previous tax year.
• The employer must not have been found guilty of violations related to employee employment regulations.
• The employer must have been engaged in economic activity for at least one year.

Additionally, starting this year, a new requirement has been introduced stating that employers must retain external supporting documents providing the related expenses.

The employer must ensure that these expenses are included in the collective agreement, and the company must have clearly defined conditions for covering expenses (e.g., internal regulations on this matter). Expense reimbursement must be economically justified, and the company must be able to explain and prove it.

The company is required to record these expenses, retain supporting documents, and submit an individual report to the SRS for each employee. Additionally, the employer must monitor the total expense limit to ensure it is not exceeded.

Regarding allowances, the tax-free limits have been increased as follows:

• Tax-free employer gifts – increased from EUR 15 to EUR 100 per tax year.
• Childbirth allowance – increased from EUR 250 to EUR 500.
• Funeral allowance – increased from EUR 250 to EUR 500.

Childcare Leaves Rights Extended to Board Members

Effective from late 2024, amendments to the Commercial Act grant board members  leaves related to childcare. Previously, only employees were entitled to leaves related to childcare, leaving board members without legal protection.

Under the new amendments, board members can now take:

• Prenatal and Maternity a leave,
• A leave for a father, adopter and other person,
• Childcare leave,
• Child carer’s leave,
• As well as a leave without remuneration if an adopted child, foster child or ward needs to be cared for.

During eaves related to childcare, board members’ mandates will be suspended, and a temporary board member can be appointed. These amendments aim to improve work-life balance also for board members.

More Amendments on the Horizon

Additional Labor Act amendments are currently under discussion. Future updates may include:

• Mandatory remuneration payments via bank transfers
• Clarifications on overtime and idle time pay
• Adjustments to flexible work time tracking
• Reducing protectionism for trade union members
• The possibility of a four-day workweek for employees who accumulate additional work hours over four days working week.

These reforms aim to enhance employee well-being, while also giving businesses clearer regulatory guidelines and some flexibility.

How will these changes impact your business?

Reach out to Ellex in Latvia experts Irina Rozenšteina and Madlena Drozdova to ensure compliance and optimize your HR policies.