Payroll & Employment Guide Estonia

Employment contracts in Estonia are regulated by the Employment Contracts Act (ECA), which requires them to be in written form. Contracts must also include essential employment terms such as job description, salary, working conditions, and others. In Estonia, the local currency is the Euro (EUR), and all contracted amounts must be denominated in euros; payments cannot be made in foreign currency.

Notice periods: From 15 to 90 days.

Termination of employment: Termination can occur through mutual agreement, resignation, or dismissal by the employer.

Employers who hire in Estonia must provide mandatory employment benefits in compliance with the country’s labour laws. Many of them also offer extra benefits to stay competitive in the job market. Understanding both of them is essential to attracting and retaining talent.

• Mandatory benefits: Health insurance, pension contributions, and unemployment insurance.
• Common perks: Meal vouchers, transport reimbursements.
• Leave policies: Paid annual leave, sick leave, maternity/paternity leave, parental leave.

Estonia has a transparent and straightforward tax system where employers are responsible for withholding personal income tax and paying social security on behalf of their employees.

An individual is considered a tax resident in Estonia if they have a permanent place of residence in the country, stay in the country for at least 183 days within any 12 consecutive months, or are an Estonian diplomat abroad. Tax residents are taxed on worldwide income, while non-residents are generally taxed only on Estonian-sourced income.

Personal income tax:

A flat 22% personal income tax applies to employment income, capital gains, and most other types of individual income. Besides a flat PIT rate, the Estonian tax system also includes:

• Tax-free allowance: €700 per month (€8,400 annually); for pensioners €776 per month (€9,312 annually).
• Deductions: Up to €1,200 annually for training and donations.
• Employers pay a total of 33.8% (consisting of 33% social tax and 0.8% unemployment insurance). The minimum monthly social tax base for 2026 is €886 (minimum payment of €292.38).
• Employees pay 1.6% unemployment insurance and a contribution to the funded pension (Pillar 2) of 2%, 4%, or 6% (depending on the individual's choice; the default is 2%).

Tax is typically withheld monthly by employers and reported through the Estonian Tax and Customs Board.

Withholding and contributions:

• Dividends: Generally, 0% personal tax for individuals, as taxation occurs at the corporate level (Estonian companies pay corporate income tax on distributed profits).
• Interest: 22% PIT, usually withheld at source unless using an investment account (tax deferred).
• Capital gains: 22% PIT on gains, declared by the individual

Tax allowances and non-taxable benefits:

• Health and sports expenses: Up to €400 per year per employee tax-free for massage, dental care, and psychological therapy.
• Gift allowances: Tax-free if the value does not exceed €21 (excluding VAT) per gift.
• Employee gifts: Treated as a fringe benefit and taxed similarly to salary at the employer level.
• Pension contributions (III pillar): Contributions up to 15% of the gross annual income, capped at €6,000 per year.
• Business trip daily allowances (foreign): Up to €75 per day tax-free for the first 15 days of the month; up to €40 per day tax-free for the subsequent days.
• Using a personal car for business purposes: €0.50 per km, caped at €550 per month per employer - a formal driving log (sõidupäevik) is mandatory.
• Domestic trips: No tax-free daily allowance for business trips within Estonia. Only actual documented expenses (transport, accommodation) can be reimbursed tax-free.

Deductions and tax reliefs:

• Standard basic exemption: €700 per month (€8,400 per year), applying to every individual regardless of the total income.
• Pensioners: €776 per month (€9,312 per year).

Salaries in Estonia must be paid at least once per month, unless otherwise agreed in the employment contract. Employers are required to provide a detailed payslip with each payment, outlining the gross salary, deductions, and net amount received. Salaries are calculated based on the working days within the month, and employees are typically paid over a period of 12 months.

There are no provisions for 13th or 14th salary payments. According to payroll rules and regulations in Estonia, companies must process payroll on the last working day of each month.

Funded pension (II pillar): Employees can now choose a contribution rate of 2%, 4%, or 6% of their gross salary (default is 2%). Employers must withhold the correct rate based on the employee's choice.

Salary payment deadline: On the last working day of each month.

Taxes and contributions payment deadline: By the 10th of the month following the payroll run.

Payroll declarations deadline: By the 10th of the month following the payroll run.

Payroll currency: EUR

Estonia’s labour regulations are governed by the Employment Contracts Act and other related laws, which cover aspects such as employment contract types, wages, working conditions, termination, and others. Employers must adhere to all the labour law rules to ensure full legal compliance.

Total employment cost:

• Employer social tax: 33%
• Employer unemployment insurance contribution: 0.8%

Social tax minimum obligation: The monthly minimum is €886, meaning the minimum social tax payment is €292.38 per employee per month, even for part-time workers (exceptions apply).

Minimum wage: EUR 886 per month.

Probation period: Up to four months.

With EOR services, you can legally employ individuals in Estonia without setting up your own legal entities. Your EOR will take over all the legal responsibilities as an official employer, including:

• Legal employment and contracts
• Payroll processing
• Tax withholding
• Benefits administration
• Onboarding/offboarding employees

PEO services provide HR and administrative support while you remain the legal employer for your employees in Estonia. As such, they’re beneficial for employers who already have legal entities in the country but need support to manage:

• HR and workforce administration
• Payroll and benefits management
• Compliance and local labour law guidance
• Employment contracts assistance

Native Teams provides payroll calculators that are adapted to 85+ countries’ local labour laws, including Estonia. Using them, you can easily estimate net/gross salaries, contributions, and other mandatory deductions in the country.

Here is a list of public holidays in Estonia: