The components
A salary payment in Estonia generates obligations in two directions. Some amounts are withheld from the employee's gross pay; others are paid by the employer on top of it.
Withheld from the employee
- Income tax at 22%, applied to gross pay after the basic exemption (if the employee applied for it) and after deducting the employee's unemployment insurance and funded pension contributions.
- Unemployment insurance contribution at 1.6%.
- Funded pension contribution at 2%, 4% or 6%, depending on the individual's own election.
Paid by the employer on top
- Social tax at 33% of gross pay.
- Unemployment insurance contribution at 0.8% of gross pay.
The minimum social tax obligation
This is the rule that surprises small employers. The employer's social tax is calculated on a statutory minimum monthly base of €886, even where the actual salary is lower - producing a minimum monthly social tax payment of €292.38 per employee. Limited exceptions exist, for instance where an employee works for several employers or is employed for only part of a month, but the default is that a part-time or low-paid employee still triggers the minimum.
For a company paying one person €400 per month, the social tax is not €132. It is €292.38. That single line item has ended more "let's hire someone part-time" plans than any other rule in Estonian payroll.
The basic exemption in 2026
From 1 January 2026 the basic exemption is a flat €700 per month and €8,400 per year for working-age people, and €776 per month for people of retirement age. It no longer tapers away as income rises. Critically, it can only be applied where the employee has given the employer a written application.
Board member fees
A board member is not an employee. Their remuneration is subject to income tax and social tax, but not to unemployment insurance contributions, and there is no employment contract or employment register entry in the same way. Board member fees paid to non-residents raise treaty questions and go on a separate TSD annex.
Fringe benefits
Non-cash benefits provided to employees - a company car available for private use, a paid mobile phone, accommodation, certain health and sports costs beyond the tax-free limits - are taxed as fringe benefits at the employer's expense, with both income tax and social tax calculated on the grossed-up value and declared on the TSD annex.
Deadlines
- TSD declaration and payment: the 10th day of the month following payment.
- Employment register entry: before the employee starts work.
- Payroll taxation is cash-based - a December salary paid in January falls under the new year's rules.
The minimum wage
The national minimum wage rises to €946 per month from 1 April 2026, up from €886. Note the April start date: the first quarter of 2026 runs on the previous figure.
Sickness benefit
From 1 January 2026 a daily cap of €126.87 applies to temporary incapacity benefit paid from the ninth day of illness. The employer's obligation for the earlier days of a sickness period is unchanged.
Frequently asked questions
How much does an employee cost the employer in Estonia?
Gross salary plus 33% social tax plus 0.8% unemployment insurance. So a €2,000 gross salary costs roughly €2,676 in total employer cost, before any fringe benefits.
What is the minimum social tax in 2026?
€292.38 per month per employee, calculated on a minimum monthly base of €886, with limited exceptions.
When is the TSD due?
By the 10th day of the month following the month in which the payment was made.
General information, not tax advice
This article reflects Estonian law as it stands on the date shown. Rules change and individual circumstances differ - confirm your own position with us before acting.