At some point, many growing e-resident companies reach the same milestone: it is time to hire someone. Maybe it is a part-time assistant, a developer, or your first full-time team member. Whatever the role, the moment you move from “just me” to “me plus an employee” changes your Estonian company’s obligations significantly.
Paying yourself a director’s fee or dividends is one thing. Employing another person is a different category entirely, with its own registration steps, its own monthly filing requirements, and real employer costs that go beyond the salary itself.
This guide walks through exactly what changes when your Estonian OÜ hires its first employee, what it actually costs, and where founders most commonly get it wrong.
Before you hire: what counts as an employee
Estonian law treats different types of working relationships differently, and getting this distinction right matters before you sign anything.
- An employee works under an employment contract, follows your direction on how and when work is done, and is entitled to protections under the Employment Contracts Act, including minimum wage, holiday leave, and notice periods.
- A contractor provides services under a service agreement, generally controls their own working methods and schedule, and is not entitled to the same employment protections. Many e-resident founders work with contractors precisely because the relationship is simpler to administer.
If the working relationship in practice looks like employment, regardless of what the contract is called, EMTA can reclassify it as employment and apply the associated tax obligations retroactively. This is one of the more common compliance issues for growing companies, so the distinction is worth getting right from the start, not assumed away.
This guide covers the employee scenario specifically, since it is the one with the most new obligations.
Step 1: Register the employee before their first working day
Every employee, Estonian or foreign, working for an Estonian company must be registered in the Employment Register (Töötamise register), maintained by EMTA. This registration must be completed before the employee’s first working day. There is no grace period.
Registration is done electronically through the e-Tax Board (e-MTA). If you do not yet have direct access or are not comfortable navigating the Estonian system, an accountant or payroll provider can be authorised to handle this on your behalf.
This applies regardless of where the employee is physically located, although the tax consequences differ significantly depending on whether they work from Estonia or elsewhere, covered below.
Step 2: Draft a compliant employment contract
Estonian law requires a written employment contract for every employee. The contract can be written in English or any language agreed by both parties, but Estonian employment law governs the relationship regardless of the contract language.
At minimum, the contract must specify:
- The role and main duties
- Remuneration (gross salary or wage)
- Working hours
- Notice periods
- Place of work
- Start date and, if applicable, duration
The Employment Contracts Act sets minimum standards that cannot be contracted away. For example, statutory minimum notice periods and minimum holiday leave apply regardless of what the contract says.
Step 3: Understand who pays what
This is where most first-time employer founders get surprised. Estonian payroll involves contributions from both employer and employee, and the employer’s real cost is meaningfully higher than the gross salary figure.
What the employee pays (withheld from gross salary)
- Income tax: 22% on income above the tax-free allowance. From 2026, every resident employee gets a flat tax-free allowance of €700 per month (€8,400 per year), regardless of how much they earn. This replaced the previous system where the allowance shrank as income increased.
- Unemployment insurance: 1.6% of gross salary.
- Funded pension (if enrolled in the second pillar): 2% of gross salary, sometimes 4% or 6% depending on the employee’s chosen contribution rate.
What the employer pays (on top of gross salary)
- Social tax: 33% of gross salary. This is the largest employer cost and funds state health insurance and pension contributions.
- Employer unemployment insurance: 0.8% of gross salary.
The minimum social tax obligation
Even for part-time or low-salary employees, there is a minimum monthly social tax obligation. For 2026, the minimum monthly rate the social tax calculation is based on is €886, producing a minimum employer social tax liability of €292.38 per month per employee, regardless of how few hours they actually worked that month. This catches founders who hire part-time staff expecting proportionally lower costs.
A worked example
If you pay an employee a gross salary of €2,000 per month:
- Income tax withheld (22% above the €700 allowance): approximately €286
- Unemployment insurance withheld from employee: €32
- Net salary to employee: approximately €1,682 (depending on pension contribution choices)
- Employer social tax (33%): €660
- Employer unemployment insurance (0.8%): €16
- Total employer cost: approximately €2,676
The gap between what the employee receives and what the company actually pays is the single most common surprise for first-time employers.
Step 4: File the TSD every month
The TSD (tulu- ja sotsiaalmaksu deklaratsioon) is Estonia’s combined monthly tax return covering income tax, social tax, unemployment insurance, and funded pension contributions. If you employ anyone through your Estonian OÜ, you are filing a TSD every month you pay salary, in addition to any TSD filing already triggered by director’s fees or dividends.
The TSD is filed and the associated taxes paid by the 10th of the month following payment. Estonian payroll taxation is cash-based: the rates that apply are determined by when the payment is made, not when the work was performed. If December’s salary is paid in January, January’s rates apply, and it is declared on the January TSD, due 10 February.
Missing this deadline is treated the same as any other late TSD: penalties and interest accrue, and consistent lateness draws attention from EMTA.
Hiring an Estonian resident vs a non-resident vs someone working from abroad
The tax picture changes depending on where your employee actually works, not just their nationality.
- Estonian tax resident, working in Estonia: All payroll taxes are paid in Estonia, exactly as outlined above. This is the standard scenario.
- EU or non-EU resident, physically working in Estonia: Generally treated the same as an Estonian resident for payroll tax purposes, since the work is physically performed in Estonia, with income tax and social tax both payable there.
- Employee working remotely from another country: This is where it gets more complex. If the employee is working from, say, Portugal or the Philippines, the tax obligations may shift partly or entirely to where they are actually working and tax resident, not where your company is registered. Social security treaties (or the lack of one) between Estonia and the employee’s country determine how this is handled. This scenario commonly requires professional guidance rather than a generic answer, since the right structure depends on the specific countries involved.
- Foreign employer hiring an Estonian tax resident without an Estonian entity: A different scenario entirely (a foreign company hiring someone physically in Estonia without forming a local entity), which triggers separate non-resident employer registration obligations and is outside the scope of this guide.
Minimum wage matters too
If you are hiring for a full-time role at or near minimum wage, note that Estonia’s minimum wage is set annually and changed mid-year in 2026. From 1 April 2026, the national minimum wage rose to €946 per month (€5.67 per hour) for full-time work, up from €886 per month in the months before. If your contract was signed before the increase, it still needs to comply with the new minimum from the effective date.
What most first-time employer founders get wrong
Underestimating the real cost. Founders often budget based on the gross salary figure and are caught off guard by the additional 33.8% in employer contributions on top.
Missing the registration deadline. Registering the employee on or after their first working day, rather than before, is a compliance gap that EMTA can flag.
Treating a contractor relationship as employment, or vice versa. Getting this classification wrong creates retroactive tax exposure if EMTA reclassifies the relationship later.
Assuming part-time means proportionally lower employer tax. The minimum social tax obligation of €292.38 per month applies per employee regardless of hours worked, which changes the economics of hiring someone for a few hours a week.
Not accounting for cash-based timing. Paying a December salary in January means January’s tax rates and deadlines apply, which occasionally catches founders making year-end payments.
Hiring a remote employee abroad without checking the cross-border tax picture first. This is the scenario most likely to need a tailored answer rather than a general one.
When hiring makes the Lite plan insufficient
If you have been managing your own accounting with Unicount’s Lite plan at €29 per month, hiring your first employee is one of the clearest signals that it is time to move to a managed accounting plan. Payroll registration, monthly TSD filing covering salary alongside any director’s fee or dividend activity, and correctly tracking taxable fringe benefits are not within the scope of self-managed software. Unicount’s Micro, Standard, and Premium accounting plans include payroll tax return preparation and filing as part of the service, so your monthly TSD obligations are handled correctly from the first payroll run.
View Unicount accounting plans with payroll support →
Not sure which plan fits once you start hiring? Chat with us on unicount.eu and we will help you figure out what your specific situation requires.
Frequently asked questions
Do I need an Estonian bank account to pay an employee’s salary?
No. Estonian companies are not required to hold an Estonian bank account. Salary can be paid from any EU/EEA bank account or licensed payment institution, provided the payment is correctly documented and reported.
Can I hire someone as a contractor instead to avoid payroll taxes?
You can use a contractor relationship where it genuinely reflects the nature of the work, but classifying what is actually an employment relationship as a contractor arrangement to avoid payroll taxes is not permitted and can be reclassified by EMTA with retroactive consequences.
What if my employee lives outside Estonia and works remotely?
The tax treatment depends heavily on the employee’s country of residence and any applicable social security agreement with Estonia. This is one of the more complex scenarios in Estonian payroll and usually requires a case-specific review rather than a general answer.
Is there a minimum number of hours I need to hire someone for?
No, but be aware that the minimum employer social tax obligation of €292.38 per month (2026) applies regardless of how few hours the person works, which affects the cost-efficiency of very low-hour arrangements.
Do I need to register as an employer separately from registering my company?
Your OÜ does not need a separate employer registration the way some foreign employers without an Estonian entity do. You do need to register each employee in the Employment Register before their first working day and have access (directly or through an authorised accountant) to e-MTA for monthly TSD filing.
Has the income tax rate changed for 2026?
No. Estonia’s personal income tax rate remains at 22% for 2026. A previously planned increase to 24% was cancelled by the Riigikogu in December 2025.
Further reading on Unicount:
- Monthly accounting obligations for your Estonian OÜ →
- Salary, director’s fee or dividends: how to take money out of your Estonian company →
- VAT for your Estonian OÜ: the complete 2026 guide →
- Full accounting plans and pricing →
This article is for informational purposes only. Employment law and payroll tax obligations depend on the specific circumstances of the employment relationship, including where the employee is tax resident and where work is physically performed. Cross-border employment situations in particular should be reviewed with a qualified advisor before hiring. All rates reflect information available as of June 2026 and are subject to change. Contact Unicount via chat on unicount.eu for guidance specific to your situation.
