Layoffs in Estonia: the real costs founders need to plan for

Letting someone go is never easy. But in Estonia, it’s not just about paperwork — layoffs come with real financial obligations you need to plan for. Let’s break them down clearly so you can avoid surprise bills and keep your cash flow predictable.

 

Employer obligations when laying off an employee

When you terminate employment after the trial period (which normally lasts four months), here’s what you must pay:

• Final salary for all days worked
• Unused vacation compensation
• Statutory severance — one month’s average pay according to law

From the employer’s perspective, salary and vacation pay come with 33% social tax and 0.8% unemployment insurance on the gross salary, while severance pay comes with only the 33% social tax.

 

When laying off employees, it is also important to keep in mind the notice periods required by law.

Employee service length	Minimum notice period
< 1 year	15 calendar days
1–5 years	30 calendar days
5–10 years	60 calendar days
10+ years	90 calendar days

If you fail to give enough notice, you pay in lieu of notice — essentially, the employee’s average wages for the missing days, taxed like normal salary. Additionally, all payments must be made no later than the last working day. If you delay, the employee can demand interest at ECB rates on unpaid amounts.

NB! You must declare and pay all tax obligations by the 10th of the month following the month in which you make the final salary and severance payments to the employee. Unlike regular salaries, these obligations cannot be spread over several months.

 

Departure gifts

Giving the departing employee a laptop or phone as a thank-you? It’s a fringe benefit. The company pays:

• Income tax: 22/78 of the gift’s value
• Social tax: 33% of the gift’s gross value

Example:

• Laptop market value €400.
• Income tax: €400 × 22/78 = €112.82
• Social tax: (€400 + €112.82) × 33% = €169.23
• Total taxes = €282.05 paid by the company on top of giving away the laptop.

 

Non-compete payments after termination

If you pay a post-employment non-compete, each monthly payment is taxed like salary:

• Social tax 33%
• Unemployment insurance 0.8%

Example: Six months of €1,000/month (gross payment) → each month, €1,000 + €330 social tax + €8 unemployment contributions = €1,338 total.

 

Final word

Layoffs are tough — but they don’t have to become financial shocks. A good accountant can model the full cost before you make the decision so you can protect both your team and your runway.

At Magrat, we don’t just book your numbers. We talk to you, explain your options, and help you budget for the hard choices so you can focus on growing your business with confidence.

 

Thinking about a layoff? Let’s run the numbers together. It’s best to have a professional at your side.