Salary Calculation in Estonia
Complete guide to Estonian gross-to-net salary calculations — income tax with the tapering basic exemption, employer and employee social tax, unemployment insurance, II pillar pension contributions, partial-month proration, and worked examples at every salary level.
Estonian Salary Calculation — The Components
The gross salary (brutopalke) is the amount stated in the employment contract. It is the starting point for all calculations. From this gross, employee-side deductions are withheld (income tax, employee UI, II pillar) to arrive at the net salary the employee receives in their bank account.
The employer pays social tax (sotsiaalmaks) at 33% of gross and employer unemployment insurance at 0.8% of gross as additional costs on top of the gross salary. These are not deducted from the employee’s pay — they are extra costs for the OÜ. For a €2,000 gross salary, the OÜ spends €2,676 in total.
Income tax (tulumaks) is withheld by the employer at 20% of the gross salary above the basic exemption (€654/month in 2024). The employer withholds this amount from the employee’s gross and remits it to EMTA. The employee never receives or handles this tax — it is deducted before the net payment.
The employee contributes 2% of gross salary to their personal II pillar pension fund (withheld from gross). Additionally, the state contributes 4% (funded from the employer’s 33% social tax). Together, 6% of gross goes into the employee’s pension fund. Employees who have opted out pay no II pillar contribution.
Both employer (0.8%) and employee (1.6%) pay unemployment insurance contributions. The employee’s 1.6% is withheld from gross; the employer’s 0.8% is an additional cost on top of gross. Both are declared on TSD Annex 1. These fund the Töötukassa (Unemployment Insurance Fund) for redundancy payments.
Net salary (netopalke) = Gross − Income tax − Employee UI (1.6%) − II pillar (2%). This is the actual bank transfer amount. For a €2,000 gross salary with full basic exemption and II pillar participation: €2,000 − €269.20 − €32 − €40 = €1,658.80 net.
The gross-to-net formula: Net = Gross − [(Gross − Basic Exemption) × 20%] − [Gross × 1.6%] − [Gross × 2%]. The employer additionally pays 33% social tax and 0.8% employer UI on top of the gross, making the total employer cost = Gross × 1.338. For a €2,000 gross salary: total employer cost = €2,000 × 1.338 = €2,676.
Section 1 — Worked Calculation Examples
Step-by-step gross-to-net at three common salary levels
Example 1 — Minimum Wage €820/month (2024)Gross Salary: €820/month — Full Basic Exemption Applies
Employee-side deductions (withheld from gross):
Basic exemption: €654.00/month (full exemption applies; €820 < €1,200)
Taxable income: €820 − €654 = €166.00
Income tax (20%): €166.00 × 20% = €33.20
Employee UI (1.6%): €820 × 1.6% = €13.12
II pillar pension (2%): €820 × 2.0% = €16.40
Total deductions: €33.20 + €13.12 + €16.40 = €62.72
Net salary to employee: €820 − €62.72 = €757.28
Employer costs (on top of gross, not deducted from employee):
Employer social tax (33%): €820 × 33% = €270.60
Employer UI (0.8%): €820 × 0.8% = €6.56
Total employer cost: €820 + €270.60 + €6.56 = €1,097.16/month
EMTA payment (TSD Annex 1 by 10th):
Income tax: €33.20
Social tax: €270.60
Employer UI: €6.56
Employee UI: €13.12
II pillar (transferred to fund): €16.40
Total to EMTA/funds: €339.88/month
* Minimum wage ensures Haigekassa health insurance coverage
* Social tax minimum base for health insurance = current minimum wage
Example 2 — Mid-level Salary €2,000/monthGross Salary: €2,000/month — Full Basic Exemption Applies (€2,000 < €2,100)
Employee-side deductions:
Basic exemption: €654.00/month (full; €2,000/month = €24,000/year < €25,200)
Taxable income: €2,000 − €654 = €1,346.00
Income tax (20%): €1,346.00 × 20% = €269.20
Employee UI (1.6%): €2,000 × 1.6% = €32.00
II pillar pension (2%): €2,000 × 2.0% = €40.00
Total deductions: €269.20 + €32.00 + €40.00 = €341.20
Net salary to employee: €2,000 − €341.20 = €1,658.80
Employer costs:
Employer social tax (33%): €2,000 × 33% = €660.00
Employer UI (0.8%): €2,000 × 0.8% = €16.00
Total employer cost: €2,000 + €660 + €16 = €2,676.00/month
EMTA/fund payments (TSD by 10th):
Income tax + Social tax + UI (both) + II pillar = €1,017.20/month
* Employee keeps 82.9% of gross (€1,658.80 ÷ €2,000)
* Employer pays 33.8% more than gross (€2,676 ÷ €2,000 = 1.338×)
Example 3 — Senior Salary €4,000/monthGross Salary: €4,000/month — NO Basic Exemption (€4,000/month = €48,000/year > €25,200)
Employee-side deductions:
Basic exemption: €0 (annual income > €25,200 — full taper; no exemption applies)
Taxable income: €4,000 − €0 = €4,000.00
Income tax (20%): €4,000.00 × 20% = €800.00
Employee UI (1.6%): €4,000 × 1.6% = €64.00
II pillar pension (2%): €4,000 × 2.0% = €80.00
Total deductions: €800 + €64 + €80 = €944.00
Net salary to employee: €4,000 − €944 = €3,056.00
Employer costs:
Employer social tax (33%): €4,000 × 33% = €1,320.00
Employer UI (0.8%): €4,000 × 0.8% = €32.00
Total employer cost: €4,000 + €1,320 + €32 = €5,352.00/month
Employee keeps 76.4% of gross at €4,000 level
Employer pays 33.8% more than gross (same multiplier — 1.338×)
* The 1.338× employer cost multiplier is constant regardless of salary level
* Employee’s effective tax rate increases with income due to taper of exemption
Section 2 — Quick Reference Salary Table
All key figures from €820 to €6,000 gross
Gross-to-Net Reference — 11 Salary Levels
The table below shows the complete payroll calculation at 11 gross salary levels from minimum wage to senior professional. The net salary column is highlighted in green. Row for minimum wage (€820) is highlighted in blue. All figures assume II pillar participation and the applicable basic exemption for each level.
| Gross Salary | Employer Social Tax 33% | Employer UI 0.8% | Income Tax 20% | Employee UI 1.6% | II Pillar 2% | Net Salary to Employee |
|---|---|---|---|---|---|---|
| €820.00 | €270.60 | €6.56 | €33.20 | €13.12 | €16.40 | €757.28 |
| €1000.00 | €330.00 | €8.00 | €69.20 | €16.00 | €20.00 | €894.80 |
| €1200.00 | €396.00 | €9.60 | €109.20 | €19.20 | €24.00 | €1047.60 |
| €1500.00 | €495.00 | €12.00 | €169.20 | €24.00 | €30.00 | €1276.80 |
| €2000.00 | €660.00 | €16.00 | €269.20 | €32.00 | €40.00 | €1658.80 |
| €2500.00 | €825.00 | €20.00 | €369.20 | €40.00 | €50.00 | €2040.80 |
| €3000.00 | €990.00 | €24.00 | €469.20 | €48.00 | €60.00 | €2422.80 |
| €3500.00 | €1155.00 | €28.00 | €569.20 | €56.00 | €70.00 | €2804.80 |
| €4000.00 | €1320.00 | €32.00 | €669.20 | €64.00 | €80.00 | €3186.80 |
| €5000.00 | €1650.00 | €40.00 | €869.20 | €80.00 | €100.00 | €3950.80 |
| €6000.00 | €1980.00 | €48.00 | €1069.20 | €96.00 | €120.00 | €4714.80 |
Section 3 — The Tapering Basic Exemption
How the maximum income tax exemption applies and tapers
The Basic Exemption (Maksuvaba Tulu) — How It Works
The basic exemption (maksuvaba tulu) is a monthly deduction from the income tax base. In 2024, the maximum exemption is €654/month. However, the full exemption only applies if the employee’s annual gross income is €14,400 or below (€1,200/month). For higher incomes, the exemption tapers linearly to zero at €25,200 annual gross (€2,100/month). Above €25,200, no exemption applies.
The taper formula: monthly exemption = €654 − (annual gross − €14,400) × (654 ÷ 10,800). For an employee earning €1,800/month gross (€21,600/year): monthly exemption = €654 − (€21,600 − €14,400) × (654 ÷ 10,800) = €654 − €7,200 × 0.0606 = €654 − €436 = €218. Income tax = (€1,800 − €218) × 20% = €316.40.
| Annual Income (Gross) | Monthly Exemption Applies | Monthly Income Tax Saving | Notes |
|---|---|---|---|
| €0 – €14,400/year (≤ €1,200/month) | Full €654/month exemption | €654 × 20% = €130.80/month saved | Maximum exemption; applies to all low-income employees |
| €14,401 – €25,200/year (€1,200–€2,100/month) | Tapering: reduces linearly from €654 to €0 | Reduces from €130.80 to €0 over this range | Taper formula: €654 − (annual income − €14,400) × 654/10,800 |
| Above €25,200/year (above €2,100/month) | €0 — no basic exemption | No income tax saving from exemption | Full 20% income tax applies to entire gross salary |
| Minimum wage €820/month (€9,840/year) | Full €654/month exemption applies | Employee pays: (€820 − €654) × 20% = €33.20/month income tax | Net income tax on minimum wage is very low due to high exemption ratio |
The Taper in Practice — Three Income Levels
Tapering Basic Exemption — Effect at Three Salary LevelsEmployee A: €1,000/month gross (€12,000/year — below taper start of €14,400)
Annual gross: €12,000 < €14,400 → Full exemption: €654/month
Income tax: (€1,000 − €654) × 20% = €69.20/month
Employee B: €1,500/month gross (€18,000/year — in taper zone)
Taper: €654 − (€18,000 − €14,400) × (654 ÷ 10,800)
Taper: €654 − €3,600 × 0.0606 = €654 − €218.15 = €435.85/month exemption
Income tax: (€1,500 − €435.85) × 20% = €1,064.15 × 20% = €212.83/month
Employee C: €2,500/month gross (€30,000/year — above taper, no exemption)
Annual gross: €30,000 > €25,200 → No exemption: €0/month
Income tax: €2,500 × 20% = €500.00/month
Employer social tax and UI are always 33.8% of gross — unaffected by exemption
Only income tax changes based on exemption
* Source: Tulumaksuseadus §23(1) — basic exemption schedule
* EMTA updates the taper thresholds annually — verify current year values at emta.ee
Section 4 — Holiday Pay Calculation
The average daily rate method — mandatory under the Töölepinguseadus
How Holiday Pay (Puhkusetasu) Is Calculated
Holiday pay in Estonia is calculated using the average daily earnings method under Töölepinguseadus §72. This is different from simply paying a regular salary for holiday days. The calculation uses the employee’s average daily gross earnings from the preceding 6-month reference period, multiplied by the number of calendar days of holiday.
Holiday pay must be paid at least one calendar day before the holiday begins. Failure to pay in advance is a violation of the Töölepinguseadus and can be raised as a labour dispute. The holiday pay is subject to income tax, social tax, UI, and II pillar contributions in the same way as regular salary.
| Calculation Step | Formula | Example (€2,000 gross) | Notes |
|---|---|---|---|
| Determine reference period | Last 6 calendar months of employment before leave | Months Jan–Jun if leave starts July | For new employees (< 6 months), use available months |
| Calculate total gross earnings in reference period | Sum of all gross salary, bonuses, and other taxable employment income | 6 × €2,000 = €12,000 total gross | Includes bonuses and commission paid in that period |
| Count calendar days in reference period | Number of calendar days in the 6 months | 184 calendar days (Jan 31 + Feb 28 + Mar 31 + Apr 30 + May 31 + Jun 30) | Count actual calendar days, not working days |
| Average daily rate (keskmise päevapalga) | Total gross ÷ Calendar days in reference period | €12,000 ÷ 184 = €65.22/calendar day | This is the official average daily rate per Töölepinguseadus §72 |
| Holiday pay amount | Average daily rate × Number of calendar days of holiday | 14 calendar days of leave: €65.22 × 14 = €912.96 | Must be paid at least 1 calendar day before leave begins |
| Tax treatment | Holiday pay treated as regular salary — same IT, UI, II pillar deductions | €912.96 is gross holiday pay; apply normal deductions | Social tax also due on holiday pay at 33% employer cost |
Partial Month — When an Employee Starts or Leaves Mid-Month
When an employee starts or leaves employment part-way through a calendar month, the salary is prorated by calendar days. The formula: Monthly gross salary ÷ Number of calendar days in the month × Number of calendar days worked in the month.
Partial Month Calculation — Employee Starts 15 MarchMarch has 31 calendar days. Employee starts on 15 March.
Days worked in March: 31 − 15 + 1 = 17 calendar days
Gross salary (full month): €2,000
Prorated gross: €2,000 ÷ 31 × 17 = €1,096.77
Calculate tax on prorated gross €1,096.77:
Basic exemption check: €1,096.77/month in March only — annualised € varies
For simplicity: apply monthly exemption €654 (employee below €2,100/month threshold)
Income tax: (€1,096.77 − €654) × 20% = €442.77 × 20% = €88.55
Employee UI (1.6%): €1,096.77 × 1.6% = €17.55
II pillar (2%): €1,096.77 × 2% = €21.94
Net for partial month: €1,096.77 − €88.55 − €17.55 − €21.94 = €968.73
Employer costs on partial gross:
Social tax (33%): €1,096.77 × 33% = €361.93
Employer UI (0.8%): €1,096.77 × 0.8% = €8.77
Total employer cost for partial month: €1,096.77 + €361.93 + €8.77 = €1,467.47
* Proration uses calendar days, not working days
* The same method applies when an employee exits mid-month