Based on my 15+ years processing Estonian payroll at Accres, I can tell you that understanding salary calculations is crucial for both employers and employees in Estonia. The Estonian tax system is relatively straightforward, but small mistakes in payroll calculations can lead to compliance issues and unhappy employees.
In this guide, I'll break down exactly how to calculate net salary from gross in Estonia for 2026, including all taxes, social contributions, and allowances.
This guide explains payroll calculator Estonia 2026 step by step and highlights the practical decisions that reduce risk in 2026.
Estonian Payroll Structure 2026
The Estonian payroll system consists of three main components:
- Gross salary: The amount agreed in the employment contract
- Employee contributions: Deducted from gross salary (income tax, unemployment insurance, pension)
- Employer contributions: Paid on top of gross salary (social tax, unemployment insurance)
2026 Tax Rates and Contributions
Employee pays (deducted from gross):
- Income tax: 20%
- Unemployment insurance: 1.6%
- Funded pension (II pillar): 2% (optional, can opt out)
Employer pays (on top of gross):
- Social tax: 33%
- Unemployment insurance: 0.8%
Many employers are surprised that the total employment cost is approximately 37.8% higher than the gross salary. For example, a €3,000 gross salary actually costs the company €4,134. This is critical for budgeting — I've seen startups miscalculate their runway by 6+ months by forgetting employer contributions.
Tax-Free Allowance (Maksuvaba tulu)
Estonia has a monthly tax-free allowance of €654 in 2026. This means:
- If your monthly gross salary is €654 or less: no income tax
- If your monthly gross salary is €654 - €2,100: partial tax-free allowance applies
- If your monthly gross salary exceeds €2,100: no tax-free allowance
The tax-free allowance reduces gradually as income increases. The formula is complex, but essentially, higher earners don't benefit from it.
Payroll Calculation Examples
Example 1: Minimum Wage (€820/month)
Gross salary: €820
Tax-free allowance: €654 (full amount applies)
Taxable income: €820 - €654 = €166
Deductions:
- Income tax (20% of €166): €33.20
- Unemployment insurance (1.6%): €13.12
- Funded pension (2%): €16.40
- Total deductions: €62.72
Net salary: €820 - €62.72 = €757.28
Employer cost:
- Gross salary: €820
- Social tax (33%): €270.60
- Unemployment insurance (0.8%): €6.56
- Total employer cost: €1,097.16
Example 2: Average Salary (€2,000/month)
Gross salary: €2,000
Tax-free allowance: €654
Taxable income: €2,000 - €654 = €1,346
Deductions:
- Income tax (20% of €1,346): €269.20
- Unemployment insurance (1.6%): €32
- Funded pension (2%): €40
- Total deductions: €341.20
Net salary: €2,000 - €341.20 = €1,658.80
Employer cost:
- Gross salary: €2,000
- Social tax (33%): €660
- Unemployment insurance (0.8%): €16
- Total employer cost: €2,676
Example 3: High Income (€5,000/month)
Gross salary: €5,000
Tax-free allowance: €0 (exceeds threshold)
Taxable income: €5,000
Deductions:
- Income tax (20%): €1,000
- Unemployment insurance (1.6%): €80
- Funded pension (2%): €100
- Total deductions: €1,180
Net salary: €5,000 - €1,180 = €3,820
Employer cost:
- Gross salary: €5,000
- Social tax (33%): €1,650
- Unemployment insurance (0.8%): €40
- Total employer cost: €6,690
In my practice with over 200 payroll clients, the most common error is miscalculating the tax-free allowance for mid-range salaries (€1,500-€2,500). The gradual reduction is tricky — I recommend using payroll software like or Nola to automate this. Manual calculations often result in overpaying or underpaying income tax, both problematic for compliance.Merit AktivaEmta
Special Payroll Considerations for 2026
Fringe Benefits (Soodustused)
Certain benefits are taxed as income:
- Company car for personal use: 20% tax on benefit value
- Mobile phone: tax-free if business-justified
- Health insurance: subject to social tax and income tax
- Training: tax-free if work-related
- Meal compensation: up to €2 per workday tax-free
Bonuses and Overtime
Bonuses are taxed as regular income. Overtime pay follows the same tax treatment. The key is proper documentation — audits often focus on whether bonuses are properly justified and documented.Emta
Foreign Employees and 183-Day Rule
Foreign employees working in Estonia are subject to Estonian taxes. However, the 183-day rule determines tax residency:
- Less than 183 days in Estonia: May be taxed in home country (check tax treaties)
- More than 183 days: Estonian tax resident, subject to full Estonian tax
Based on my experience with 50+ e-resident clients, this is a complex area requiring professional advice to avoid double taxation.
Payroll Software and Tools
Manual payroll is error-prone and time-consuming. I recommend these tools:
- Merit Aktiva: Most popular in Estonia, integrates with e-MTA
- Nola Accounting: AI-powered, handles payroll + full accounting
- Directo: Enterprise solution for larger companies
- Taavi: Affordable cloud solution for small businesses
At Accres, we process 200+ payrolls monthly using a combination of Nola for automation and manual review for complex cases. This catches 99% of errors before submission.
Common Payroll Mistakes to Avoid
From my 15+ years of experience, these are the most frequent errors:
- Miscalculating tax-free allowance: Especially for salaries between €1,500-€2,500
- Forgetting employer contributions in budgets: Total cost is ~38% higher than gross
- Misclassifying fringe benefits: Leading to unexpected tax liabilities
- Late TSD (tax declaration) submission: Due by 10th of following month, penalties for delays
- Incorrect foreign employee taxation: Failing to apply tax treaties properly
FAQ: Estonian Payroll 2026
What is the income tax rate in Estonia for 2026?
The income tax rate in Estonia for 2026 is 20% on gross salary. Additionally, employers pay 33% social tax on top of gross salary.
How do I calculate net salary from gross in Estonia?
To calculate net salary: Gross salary - 20% income tax - 1.6% unemployment insurance - 2% funded pension (optional) = Net salary. The tax-free allowance of €654/month also applies for lower incomes.
What is the minimum wage in Estonia in 2026?
The minimum wage in Estonia for 2026 is €820 per month gross, which equals approximately €757 net after taxes.
Conclusion
Estonian payroll calculations are straightforward once you understand the structure. The key numbers for 2026:
- Income tax: 20%
- Social tax (employer): 33%
- Unemployment insurance: 1.6% (employee) + 0.8% (employer)
- Tax-free allowance: €654/month (for lower incomes)
- Total employment cost: approximately gross + 34%
For accurate calculations, I always recommend using payroll software or professional services. A single mistake can result in Emta penalties, unhappy employees, and compliance headaches.
Need help with payroll in Estonia? Accres handles complete payroll services including calculations, TSD submissions, and Emta compliance. Contact us for a free consultation.