Taxes and payrolls: analyzing the labour market in Estonia
Each labour market has some peculiarities. It may be tricky for foreigners to understand fully the payment methods, the taxes and other benefits related. In TalentUp we are starting a series of different blog articles, one for each country. This article analyses the labour market in Estonia.
General data about the Estonian labour market
|Minimum wage||654€/month and 3.86€/hour.|
|Payment||Must be paid by the last working day of the month.|
|Maximum working hours a day||8h|
|Maximum working hours a week||40h|
|Maximum overtime hours a day||No maximum.|
Payroll taxes in Estonia
|Type of Insurance||Employer %||Employee %|
|Pension||20||0 – 2 (only for those born after December 31, 1983)|
There is usually a minimum obligation for the social tax to be paid 192.72 EUR monthly, even if there were no salary payments to employees.
Once contributions are paid, employees need to pay an income tax that is established at a 20% flat rate.
The tax-free minimum of which no deduction of income tax takes place is up to 500 EUR in a month but decreases depending on the total income amount.
Contingencies from self-employees
- Self-employed persons must pay social tax at a rate of 33% on their net business income, subject to a maximum amount of annual income equal to 10 times the sum of the minimum monthly wages for the tax year (maximum amount of 64,800€ for 2019).
- Self-employed persons must make quarterly advance payments of social tax to the Tax and Customs Board by the 15th day of the third month of the second, third and fourth quarters.
Example of net salary in Estonia
As a reference, we use the average salary of a software engineer. In Estonia, on average, software engineers earn annually 39,100€.
|Gross salary (annually)||39100|
|Pension||20||7820||0 – 2||0 – 782|
|Total||33.8||13215,8||1.6 – 3.6||625.6 – 1407.6|
|Income tax||20||7538.48 – 7694.9|
|Net salary (annually)||30153.92 – 30799.5|
The employer contributes 13,215.8€ to social security and the employee fro 625.6€ to 1,407.6€.
After paying the income tax, the employee has a net salary of around 30,590€ coming from a gross salary of 39,100€.
Unemployment regulation in Estonia
To claim unemployment insurance benefits in Estonia there are requirements:
- you must be involuntarily unemployed (you were made redundant at your last place of employment);
- the organisation was wound up;
- your employment contract was terminated during a probationary period;
- your employer cancelled your employment contract due to your long-term incapacity for work;
- your fixed-term employment contract expired, etc.
|Years of employment||Severance payment|
|Less than 5||180 calendar days|
|5 to 10 years||270 calendar days|
|10 years or more||360 calendar days|
Employers can terminate a fix term contract for the following reasons – business, personal, or worker misconduct. It requires notice and a written explanation for the termination. If the reason is misconduct, a warning needs to be given, and the employee gets a chance to explain their actions.
The notice period depends on the years worked:
- Less than one year – 15 days’ notice
- 1-5 years of employment- 30 days’ notice
- 5-10 years- 60 days’ notice
- 10+ years- 90 days’ notice
Different kinds of leaves in Estonia
Estonian employees are entitled to 28 calendar days of paid leave and there are 12 public holidays. However, the employee and the employer can agree on a longer annual leave or unless otherwise provided by law. For example, government officials are entitled to 35 days of annual leave, and academic and research staff receives 56 days of paid leave.
The Estonian sick paid leave consists of 70% of the regular wage, for up to 182 calendar days. An employer must pay an employer for their sickness until the 9th day of sickness. The health insurance pays any sick leave in excess of 9 days.
Paid parental leave
The maternity leave consists of 100% of the previous year’s regular wage and it lasts for 140 days, which can start at the earliest 70 days before the due date and has a minimum of 30 days. The minimum wage of 584 EUR per month is paid to mothers who had not worked in the last calendar year but then worked before the child’s birth.
When a child is born, an allowance of 320 EUR is granted; if triplets are born, the amount is 1,000 EUR per child.
Fathers can take 10 days off within two months of the due date. After the birth, the father is entitled to 2 months paternity leave. The pay is also based on 100% of the previous year’s average pay. However, even if for the mother there is no maximum, the father’s pay is capped at three times the minimum wage.
Parental leave starts at the time of birth until the kid is 3. The mother or father can take 435 days of consecutive or non-consecutive leave. However, only one parent can take this leave at a time.
Other leaves available are:
- Adopter’s leave: a person who adopts a child under the age of 10 is entitled to pay leave based on the employee’s average salary.
- Childcare leave: a mother or father can take paid leave (pay is equal to the minimum wage) and varies based on the age of the child:
- Up to 2 children under the age of 14 – 3 days of leave.
- 3+ children under the age of 14- 6 days of leave.
- For parents with a disabled child- the mother or father can take off an additional day of work each month until the child reaches the age of 18. This leave is also compensated based on the minimum wage.
- Study leave: An employee has the right to 30 days of study leave as prescribed in the Adult Education Act. 20 of the 30 days are compensated at the rate of the employee’s average salary.
Common benefits offered by Estonian companies
|Benefit||% of companies with this benefit|
How to employ an Estonian worker
The main work authorization category is the Residence Permit for Employment, suitable for foreign workers with skills not locally available. Estonia also offers a Short-Term Employment Program for work activities for up to 12 months and a Digital Nomad Visa for remote work for up to 12 months.
Some platforms (Papaya Global among them) offer the Employer of Record (EoR) service helping companies hire countries where they do not have any office.
Follow TalentUp on LinkedIn and subscribe to our newsletter to get our latest articles!