Reduction in Net Salary
Starting January 1, 2025, the income tax rate in Estonia will increase, directly impacting employees' December paychecks. Employees will receive less net salary than usual. Employers must account for this change to avoid surprises and maintain employee motivation.
If you want your employees to continue receiving the same net salary as before, you’ll need to increase their gross salaries in employment contracts. This adjustment will help offset the higher tax deduction and prevent a decrease in employee income.
Example
An employee’s gross salary under the employment contract is €1,000. They did not have a mandatory pension contribution or a claim for a tax-free allowance. In 2024, they received €787.20 net into their bank account. In 2025, with the same gross salary, they will receive only €767.52 net.
Increase in Minimum Wage
Additionally, note that as of January 1, 2025, the minimum wage in Estonia will rise to €886 per month or €5.31 per hour (gross). If you have employees earning minimum wage, their January salary payout will also change.
Example
An employee had a gross salary of €820 under their employment contract, with a tax-free allowance applied and a 2% mandatory pension contribution. For December, paid in January, the employee would have received €760.45 net, less than their usual net salary in 2024, which was €763.18. This reduction is due to the increased income tax rate from January 1, 2025. By February, they would receive €810.08 net.
If you’re a client and encounter difficulties calculating the new salary amounts for your employees, feel free to reach out to us through the Nola Accounting support system. We’ll assist you with the calculations.