Payroll in Estonia

Hiring employees in Estonia requires setting up the payroll. This procedure must be completed as soon as the work contract is signed. We offer tailored payroll services through our accountants in Estonia. Read the article below and find out how we can help you.

Quick Facts
Employee/employer registration services (YES/NO)	Yes, our accountants in Estonia can assist with the registration for employment purposes.
Payroll setup services (YES/NO)	Yes, we can manage the payroll setup process.
Employee records setup and maintenance services (YES/NO)	Yes.
Employee remuneration computation	Yes, our Estonian accountants will handle the procedure.
Mandatory contributions for employees	Unemployment insurance and public pension.
Mandatory contributions for Estonian employers	– social tax, – state pension, – public healthcare, – unemployment insurance.
Payroll reporting requirements	Monthly.
Social security contribution for employees	3.6% of the gross salary.
Social security contribution for employers	33.8% of the gross salary.
Employment statutory filing requirements	Monthly filings must be made.
Special requirements applicable to foreign employees (YES/NO)	No.
Assistance in drafting labor contracts (YES/NO)	Yes, our local specialists can assist with the drafting of Estonian labor agreements.
Specific services for foreign companies (YES/NO)	Yes, we can assist foreign companies with the registration with the Estonian Tax and Customs Board and the Employment Register.
Assistance in employment regulations (YES/NO)	Yes, we can also assist in meeting employment compliance requirements.
Special requirements for foreign employers in Estonia (if any)	Foreign companies without a permanent establishment must register as non-resident employers.

Setting up the payroll for a company

Payroll setup in Estonia starts with the registration of the company as an employer. The procedure is completed with the Employment Register, which falls under the supervision of the Tax and Customs Board. Following that, each employee must be registered as soon as he/she signs a work agreement.

This procedure applies to both resident and non-resident companies, with the specification that the latter can appoint a local representative to handle payroll on their behalf. This is possible through the Employer of Record, a service available with our Estonian accountants.

The payroll process in Estonia

The Estonian payroll procedure is completed on a monthly basis and entails:

• wage computation;
• tax and social security contribution calculation and withholding;
• payslip issuance;
• salary payment;
• payroll reporting.

If you want to open a company in Estonia and need assistance with payroll procedures, you can rely on us for both procedures. Our Estonian company formation experts are at you disposal.

Social security contributions in Estonia

One of the most important parts of payroll in Estonia is making the mandatory social security contributions. Both employers and employees must make such payments, however, in this country, the main responsibility falls on the company.

Here are the contributions to be made:

• public pension and health insurances;
• unemployment insurance;
• payments to the second pillar pension schemes.

Payments and declarations must be made on a monthly basis with the Tax Authority.

Below, we have an infographic on this subject:

Here is how such contributions are made:

• the employer must pay a 33% social tax, which is made up of the 20% state pension insurance and 13% for health insurance;
• the employer’s contribution of 0.8% to the unemployment insurance scheme;
• the employee’s contribution of 1.6% for the unemployment insurance;
• the employee’s second pillar pension fund of 2%.

The last contribution is mandatory for employees born starting in 1983. Workers who must pay into this fund can now direct up to 6% of their gross salary to the Pillar 2 pension.

Payroll in Estonia is commonly used to denote the records of a company of its employees’ income and the withholding taxation. Payroll is important as Estonian payroll taxations greatly affect the net income of most businesses, and as is set by certain rules and regulations. It is a common practice for companies in this country to hire company formation specialists in Estonia to advise on the payroll procedures.

Income tax in Estonia

The income taxation in Estonia is considered proportional; it is levied at 22%. Therefore, employees have the opportunity to retain most of their salaries, unlike neighboring countries like Sweden or Finland. 

Employees can also deduct their following expenses:

• housing loan interest;
• training expenditures;
• donations and gifts;
• pension contributions;
• other expenses can be deducted. Our company formation advisors in Estonia can provide further details on what these other expenses consist of.

In Estonia, taxes are withheld from the gross wages by the employer monthly. Therefore, workers do not have to make any other payments or deposit any other monthly taxation returns.

Moreover, the employer based in Estonia is obliged to pay the 33% social tax from the employee’s gross wages. This tax is paid by the employer, being based on the employee’s gross wages, and not retained from his or her wages.

An employee who has been hired by an employer in Estonia has to be registered by the company with the Employment register, automatically being covered with social and health insurance in the country.

Income tax exemptions in Estonia

One of the reasons to work with our payroll specialists in Estonia is related to the tax exemptions that apply to employment income, of which you need to be aware. Here is what to consider in this sense:

• an employee can benefit from a general tax-free exemption of EUR 700 per month or EUR 8,400 per year, no matter the income;
• people reaching the retirement age can also benefit from an exemption of EUR 776 per month, or EUR 9,312 per year.

To obtain the tax exemption, the employee must file a written request with the employer. In case of having more than one job, the application must be filed with one employer only.

Payroll services we offer in Estonia

As Estonian company formation professionals, we offer the following payroll services in Estonia:

• we can help establish a person’s employment status;
• we can assist with the preparation of the monthly wage documentation;
• we are able to help register with the Employment register;
• we assist with tax registrations for businesses.

Payroll services for Estonian companies hiring foreign employees

EU membership has enabled free mobility between countries, and most foreign employees working in Estonia come from EU states. However, the free mobility system applies in terms of visas, or better said their lack, and not on the taxes they must pay. This is why our Estonian accountants offer tailored payroll solutions to domestic companies that hire overseas workers.

The first and most important thing to know is that there are two situations that apply to foreign workers, namely:

• the employee is a posted worker;
• the employee comes to Estonia for business.

In the posted worker category, we will find:

• a person who works in Estonia as a transferee from another country;
• a person who works in Estonia temporarily;
• a person who receives income in Estonia from a subsidiary company located abroad.

In the other category, the employees who come to Estonia on a business trip are people who do not stay here for more than 30 consecutive calendar days.

The taxation scenarios in these cases depend on whether the employer (the Estonian company) is a resident or non-resident. Here is how they apply:

• in the case of non-resident companies hiring business trip personnel, there is no tax liability, which is why they need to respect the legislation in their home country and that of the foreign employee;
• in the case of non-resident businesses hiring posted workers, the employer must register with the Tax Authority here and comply with all Estonian payroll requirements;
• in the case of resident companies, they need to comply with payroll conditions imposed in Estonia, no matter the status of the employee.

While our accountants can explain how payroll requirements work in these situations, our Estonian company formation agents can advise on the resident or non-resident status of a business. This way, you will benefit from complete and complex services offered by our specialists.

We also have a video on this subject:

Employment regulations in Estonia

Hiring employees in Estonia is based on work contracts, which must contain clear regulations about the activities to be undertaken and the rights and benefits of the employer and workers.

The Labor Code provides for the following rights for employees:

• an annual leave of 28 days;
• maternity leave of 140 days with full salary payment;
• paternity leave of 30 days;
• sick leave, where the first 3 days are not paid, days 4 to 8 are paid by the employer, and from the 9^th day, the pay is covered from the Health Insurance Fund at a 70% rate of the salary.

For more information on the payroll in Estonia, please get in touch with our company registration firm in Estonia.