EMCC European Monitoring Centre on Change

Guarantee Fund

Lithuania
Phase: Management
Type:
  • Income support for workers
Last modified: 03 August, 2021
Native name:

Garantinis fondas

English name:

Guarantee Fund

Coverage/Eligibility

In cases of the employer’s insolvency the claims of the employee relating to employment relationship shall be met by the Guarantee Fund. According to the Law on guarantees for employees in the event of insolvency of the employer and long-term work benefits No XII-2604, a guarantee fund is a fund of state resources intended to ensure guarantees for employees in the event of the insolvency of their employer (article 4). Allowances are paid to all employees in spite of their type of employment contract (i.e. part-time employees, fixed-term employees, temporary agency workers, etc.). Allowances from the Guarantee Fund are not paid to public employees, as budgetary/public institutions do not pay contributions to the Guarantee Fund.

According to the labour code No XII-2603 (article 149), an employer shall be deemed insolvent when a bankruptcy procedure is used in respect of him and in other cases provided by law.

In compliance with Law No XIII-2221 on insolvency of legal entities of the Republic of Lithuania, insolvency of a legal entity is a condition where the legal entity is unable to fulfil its property obligations in a timely manner, or the legal entity’s liabilities exceed the value of its assets.

According to the Law No XII-2604, the protection of employees is guaranteed in the event of the insolvency of their employer, irrespective of whether the employment relationships continue or have ceased upon termination of the employment contract in accordance with legislation regulating employment relationships, and also irrespective of the type of the employment contract (article 3).

Main characteristics

According to the labour code (article 62), if the enterprise in insolvency has the necessary funds to discharge its obligations to employees, upon termination of the employment contract, the dismissed employee shall be paid severance pay in the amount of his/her two average monthly salaries (or half of the average monthly salary if the employment relations lasted for less than one year). The average work pay for employees shall be calculated on the basis of their remuneration over the last three calendar months prior to their dismissal in accordance with the procedure laid down in Resolution No 496 of the government of the Republic of Lithuania of 21 June 2017.

If the enterprise in insolvency lacks the necessary funds and fails to discharge its obligations to employees, the administrator shall apply to the Guarantee Fund. However, it should be noted that only limited amounts of compensations could be paid from the Guarantee Fund. According to the Law on guarantees for employees, in the event of employer insolvency and long-term service allowances (article 7), employees can claim for the unpaid amount which is due in relation to employment relationships and on which state social insurance contributions are calculated, within the limits of minimum monthly wage (MMW) for 6 months (in 2020, MMW in Lithuania is €607). Were the amount claimed by an employee does not exceed the limit of 6 MMWs, the employee is paid an allowance in the amount of the approved claim. Were the amount claimed by an employee exceeds the limit of 6 MMWs, the employee is paid an allowance equal to 6 MMWs.

The main source of the Guarantee Fund are the employers' contributions (equal to 0.16% of the gross wage of the insured employee). In addition, the Guarantee Fund is also financed through other sources, such as the state budget and other funds. The Guarantee Fund is administrated by the State Social Insurance Fund Board under the Ministry of Social Security and Labour and supervised by the Guarantee Fund Council, consisting of representatives of employee and employer organisations and state institutions. If the employer had failed to provide the contibutions to the Guarantee Fund, the employees are nevertheless eligible to receive an allowance from this fund.

Funding

  • National funds
  • Companies

Involved actors

National government
Legal framework; funding.
Employer or employee organisations
Social partners are members of the Guarantee Fund Council.
Other
The fund is mainly financed by enterprises' contributions. The Guarantee Fund is administrated by the State Social Insurance Fund Board under the Ministry of Social Security and Labour.

Effectiveness

In 2019, the total number of applications for payments from the Guarantee Fund was 748 (in 2018 - 820). Benefits from the Guarantee Fund in 2019 were paid to 6,816 employees (in 2018 - 7,461). The requested sum of benefits for employees in 2019 amounted to €16.3 million (in 2018 - €14.3 million).

Strengths

This is seen as the last resort for the workers of bankrupt enterprises. It provides income support for workers of these companies.

Weaknesses

The benefits paid by the Guarantee Fund are rather low. However, they tend to grow every year. According to the information provided by the State Social Insurance Fund Board, in 2019 approximately €16.3 million were paid for 6,816 employees. The average support was thus approximately €2,391 per person (in 2017, the average support constituted €1,847 per person).

 

Examples

No information available.
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