A position disappears, the employee has six years of service and management wants to end the contract next month. Payroll cannot calculate that departure from salary alone. It needs the legal basis, service length, notice dates, contract term, unused leave and the result of the average-wage calculation. Each input changes either the amount, the deadline or the reporting code.
In more than 15 years of Estonian accounting, I have seen avoidable cost arise when a commercial decision reaches payroll only after the termination notice has been sent. This guide separates redundancy from an agreed exit, shows the statutory notice table and works through one six-year example. The ordinary wages and leave lines are covered separately in our final pay guide.
Confirm that the legal basis is redundancy before calculating
Redundancy under section 89 of the Employment Contracts Act is an extraordinary cancellation for an economic reason: the agreed work can no longer be provided because of reduced work volume, reorganisation, cessation of activity or another comparable circumstance. It is not a convenient label for every employer-initiated exit.
Before redundancy, the employer normally has to offer other work and, where reasonable, consider training or changed working conditions. The cancellation declaration must be in a form reproducible in writing and give the reason. Do not replace that basis with a mutual termination just to make the paperwork shorter: statutory compensation, the fund benefit and the Employment Register entry all depend on what actually happened.
| Exit basis | Payroll consequence | Evidence needed |
|---|---|---|
| Redundancy for an economic reason | Section 100 compensation may apply | Reasoned notice and alternative-work review |
| Termination by agreement | Only amounts agreed by the parties | Written agreement with payment terms |
| Reason related to employee conduct or capacity | Different compensation rules | Correct statutory basis and supporting facts |
Match notice and compensation to service and contract type
For an indefinite contract, the employer pays one average monthly wage regardless of whether service is eight months or eight years. Service length changes the notice period and access to the separate fund benefit. For a fixed-term contract, the employer generally compensates the wages the employee would have received until the term ended, unless the cancellation is caused by force majeure.
The notice period starts on the day after the employee receives the declaration. If the employer shortens it, compensation is added for each Mon–Fri working day missing from the statutory period. The formula uses the average working-day wage, not a rough monthly-salary division. Tööelu's average-wage guidance uses the preceding six calendar months and adjusts for relevant absences.
| Service with employer | Minimum notice | Employer redundancy pay | Separate fund benefit |
|---|---|---|---|
| Less than 1 year | 15 calendar days | 1 average monthly wage | None |
| 1–5 years | 30 calendar days | 1 average monthly wage | None |
| 5–10 years | 60 calendar days | 1 average monthly wage | 1 month |
| 10 years or more | 90 calendar days | 1 average monthly wage | 2 months |
The fund benefit is not part of the employer's bank payment, but the employer must submit the application within five calendar days after employment ends.
Work through a six-year employment example
Assume an employee has an indefinite contract and six years of service. Payroll's statutory average-wage calculation produces an average monthly wage of EUR 2,400. The employer gives the full 60 calendar days of notice. On the last day, EUR 1,200 of salary and EUR 600 of unused-leave compensation are also due.
The employer's gross final payment is EUR 4,200: EUR 1,800 of ordinary final pay plus EUR 2,400 of redundancy compensation. Because service exceeds five years, the employer also applies for a one-month fund benefit for the employee. That separate benefit is not added to the company's EUR 4,200 payment.
| Line | Calculation | Gross amount or action |
|---|---|---|
| Final salary | Approved payroll input | EUR 1,200 |
| Unused annual leave | Average calendar-day calculation | EUR 600 |
| Employer redundancy pay | 1 × average monthly wage | EUR 2,400 |
| Employer gross payment | EUR 1,200 + EUR 600 + EUR 2,400 | EUR 4,200 |
| Fund benefit | Employer applies within 5 calendar days | Separate 1-month benefit |
If only 30 days of the required 60-day notice were given and the missing period contained 21 Mon–Fri working days, an average working-day wage of EUR 111.63 would create another EUR 2,344.23 of compensation: 21 × EUR 111.63. Count the actual shortage period rather than assuming that one missed calendar month always equals one salary.
Close payroll, TSD and the fund application as one process
The final salary and unused-leave compensation use the normal employment-income treatment and TSD Annex 1 payment type 10. According to EMTA, statutory redundancy compensation under section 100 is subject to income tax, social tax and funded pension contribution where applicable, but not unemployment-insurance premium. It is reported with payment type 33.
Pay all due employer amounts on the last employment day. Then close the Employment Register entry with the correct legal basis and submit the fund application on time. Keep the notice, alternative-work assessment, service dates, average-wage worksheet, leave balance, payslip, TSD mapping and proof of payment together.
- Confirm the statutory ground, last day and date the notice was received.
- Calculate service, notice period and any shortage in working days.
- Calculate ordinary final pay and redundancy compensation on separate lines.
- Map payment types 10 and 33 before submitting TSD.
- Submit the fund application within five calendar days when service is at least five years.
I ask management for the proposed legal basis and last day before a notice is sent. A ten-minute payroll review at that point can reveal a 60-day notice obligation, a fixed-term exposure or a fund application that would otherwise be discovered only after the departure.
A defensible redundancy calculation starts with the legal basis, not a payroll label. Confirm the alternative-work review, count notice from the receipt date, use the statutory average-wage method and keep ordinary final pay separate from section 100 compensation.
If Accounting Resources handles your payroll, send the proposed notice, contract dates and planned last day before the decision is issued. For a calculation review, use our contact form.