Net salary
Net salary is gross salary after withholding the funded pension contribution (II pillar), the employee unemployment insurance contribution and income tax. Net salary — the “take-home pay” — is what lands in the employee’s bank account. The calculation is based on the Income Tax Act (TuMS), the Unemployment Insurance Act and the Funded Pensions Act.
How net salary is calculated
The employer withholds the following from gross salary:
- Funded pension (II pillar) – 0%, 2%, 4% or 6% of gross at the employee’s choice. The selected rate can be verified in the Pension Centre lookup.
- Employee unemployment insurance – 1.6% of gross. The employer adds another 0.8%; see Unemployment insurance.
- Income tax – 22% of taxable income. Taxable income = gross − II pillar − unemployment insurance − tax-free allowance. See Income tax.
Full worked example
Input: gross salary €1500, II pillar 2%, tax-free allowance €700/month.
| Line | Calculation | Amount |
|---|---|---|
| Gross salary | – | €1500.00 |
| Funded pension (2%) | 1500 × 2% | −€30.00 |
| Unemployment insurance (1.6%) | 1500 × 1.6% | −€24.00 |
| Taxable income | 1500 − 30 − 24 − 700 | €746.00 |
| Income tax (22%) | 746 × 22% | −€164.12 |
| Net salary | 1500 − 30 − 24 − 164.12 | €1281.88 |
You can reproduce this in the calculator. The total employer cost for this example is €2007 (gross + 33% social tax + 0.8% employer unemployment insurance).
Tax-free allowance
Each employee decides whether and how much of the tax-free allowance to apply. It can be used at only one payer at a time and requires a written application from the employee. TuMS § 42
Every employee has the same €700 per month tax-free allowance regardless of income. For people of old-age pension age it is €776 per month. More detail: Tax-free allowance.
What is not part of the standard net salary calculation
The following are not part of the statutory payroll taxes and contributions the employer withholds automatically each month:
- Child support and enforcement officer claims – when an enforcement order exists the employer may withhold these from pay separately, reducing the amount actually paid out, but they are not part of the regular payroll tax calculation
- III pillar (voluntary pension) – the employee usually contributes personally, e.g. by bank transfer
- Trade union fees, voluntary donations – personal obligations, not statutory withholdings
In the ordinary payroll calculation the employer withholds only income tax, unemployment insurance and the funded pension contribution.
Net salary and holiday pay
Holiday pay is taxed by the same rules as ordinary salary: II pillar, unemployment insurance and income tax are withheld. The tax-free allowance is monthly — when holiday pay and regular pay are paid in the same calendar month, the allowance applies once to the combined total.
Self-employed (FIE) vs employee
Taxes for a sole proprietor (FIE, füüsilisest isikust ettevõtja) differ substantially from an employee’s:
- The FIE pays their own social tax (at least the minimum), income tax and funded pension
- The FIE does not pay unemployment insurance and is not eligible for Töötukassa unemployment benefit
- The FIE’s taxable income is calculated as annual business revenue minus business costs, not monthly
An employee’s net pay is predictable and withheld automatically; a FIE pays most taxes themselves and files an annual tax return. See the FIE taxation guide on emta.ee.