Hiring the first employee changes the accounting model immediately. Based on my work with Estonian small companies, the first payroll month goes wrong when contract data, tax settings, cut-off time, and approval logic are scattered across emails instead of one routine.
I recommend treating the first employee as a process setup project, not as a single salary calculation. Once the workflow for TÖR, payroll input, payment approval, TSD filing, and archiving is stable, the next months become much easier to control.
What must be clear before the contract is signed
The accountant needs the employee's identity data, start date, workload, salary terms, payment date, tax-free allowance statement, and the person who will approve exceptions. If even one of these items arrives late, the first payroll run turns into correction work.
The legal frame should also be checked early. I usually ask owners to review the Employment Contracts Act (TLS) together with the business decision, so payroll setup does not depend on assumptions made after work has already started.
How to build the first payroll cycle
The cleanest first month is a fixed sequence: collect inputs, lock the payroll data, calculate the draft, approve the result, release the bank payment, file TSD, and archive the supporting documents. A repeatable calendar matters more than software branding.
If the company expects bonuses, hourly work, unpaid leave, or reimbursements, those input rules should be written down before the first payday. That is also the point where a company should decide whether it will handle payroll internally or through a payroll service in Estonia.
What the owner should approve every month
The owner does not need to recheck every posting, but they do need to approve the items that change cost, tax, or legal meaning. In my experience, this short approval list prevents most first-month payroll mistakes:
- start date, salary amount, and payment date
- working-time changes, unpaid leave, sick leave, and bonuses
- tax-free allowance statement and any non-standard payroll treatment
- final payroll draft before payment and TSD submission
A visible approval step protects both sides. The accountant is not guessing, and the owner can see the full employer cost before money leaves the company.
A practical setup table
| Step | Input | Result |
|---|---|---|
| Employment start | Contract, workload, start date | Basis for TÖR registration and payroll setup |
| Tax data | Tax-free allowance statement and residency details | Correct net-pay calculation |
| Payroll cycle | Payment date, approver, variable-pay rules | Stable monthly rhythm |
| Filing | TSD data, payroll entries, archive discipline | Compliant reporting and clear audit trail |
Checklist before the first payday
- Confirm the employment start date before the first working day.
- Send the accountant the contract terms and payroll conditions in one package.
- Define who confirms hours, absences, reimbursements, and bonuses.
- Check the first payslip against both net pay and full employer cost.
- Archive the payroll support together with the month's accounting documents.
Common mistakes
- TÖR registration is remembered only after the employee has already started.
- Bonus or time-sheet data reaches accounting after payroll day.
- Vacation liability is ignored until it appears in the balance sheet.
- TSD is filed before management has confirmed the final payroll draft.
The first employee usually exposes whether the company has a real monthly finance routine or only a collection of good intentions.
Frequently asked questions
What does the accountant need before the first payroll run?
Employee identity data, start date, salary terms, tax-free allowance statement, working-time logic, payment date, and the person who approves exceptions.
When must employment registration be handled?
The exact rule should be checked against EMTA guidance, but in practice the registration should be completed before work starts.
Do small companies need a formal payroll routine?
Yes. A one-person payroll process still needs a cut-off, approval step, TSD filing owner, and archive discipline, otherwise errors repeat quickly.
What should the owner approve every month?
Working-time changes, bonuses, unpaid leave, reimbursements, and the final payroll draft before payment and TSD filing.
Official sources
Confirm current payroll rules, rates, and filing instructions against official sources before acting: Related topic: Board Member Salary vs Dividends in Estonia.
If you want the first payroll setup checked before salary day, compare it with our accounting services in Estonia or contact us. A clean first month usually saves much more time than the correction work it prevents.