Redundancy pay in Estonia: notice periods and compensation when a job ends

When an Estonian employer makes an employee redundant, it owes notice of 15 to 90 days depending on the length of service, and redundancy pay of one month's average wage (Employment Contracts Act § 97(2), § 100(1)). After at least five years with the same employer, the Unemployment Insurance Fund adds one or two months' pay (Unemployment Insurance Act § 14¹-14²). If the notice is shorter than required, the employer pays the average working-day pay for each working day missing.

This page is part of the guide termination, leave and working time.

When redundancy is allowed

Redundancy is a termination because continuing on the agreed terms has become impossible: less work, a reorganisation, or another end of the work. The end of the employer's activity and bankruptcy also count (Employment Contracts Act § 89(1)-(2)).

• A share sale alone is no ground. In a share deal the company stays the employer. And a termination because of a transfer of the business is banned (§ 112(3)).
• Other work first. Before giving notice, the employer offers other work where possible, with training or changed terms if the cost is not disproportionate. Employee representatives and parents of a child under three have preference to stay (§ 89(3), (5)). These two rules do not apply when the activity ends, on a declaration of bankruptcy, or when bankruptcy proceedings end without a declaration.

Check protected employees first. A pregnant employee, a woman entitled to maternity leave, and a person on paternity, adoption or parental leave can be made redundant only when the employer's activity ends, when bankruptcy is declared and the activity ends, or when bankruptcy proceedings end by abatement (§ 93(1)). An employer in bankruptcy whose business continues cannot rely on that exception. The protection applies if the employee tells the employer of the pregnancy or the leave before the notice or within 14 calendar days after receiving it (§ 93(3)).

Notice periods

The notice depends on how long the employment with this employer has lasted (Employment Contracts Act § 97(2)):

The notice must be in a form that can be reproduced in writing (e-mail is enough) and must state the reason (§ 95). During the notice period, the employee gets reasonable time off to look for work (§ 99). A collective agreement may set other notice periods (§ 97(4)).

What the employer pays

Redundancy pay and short-notice compensation are calculated as average working-day pay under the Government regulation on average wages (regulation § 3). Everything falls due on the last day of employment (§ 84(1)).

A fixed-term contract ended early

If the employer ends a fixed-term contract early for economic reasons, it does not pay the one month. It pays instead the wages the employee would have earned until the end of the term (Employment Contracts Act § 100(3)). That is usually more than a month's pay, but less when the term ends soon. This rule does not apply on bankruptcy, or when bankruptcy proceedings end by abatement without a declaration, nor when the contract ends because of force majeure (§ 100(3), § 89(2) clause 2).

The Unemployment Insurance Fund benefit

An employee whose employment with the employer lasted at least five years and who is made redundant gets an extra benefit from the Unemployment Insurance Fund (Unemployment Insurance Act § 14¹):

The Fund does not use the employer's average wage. It takes the pay this employer paid in the nine months before the last three months of work, from its own records, and divides it by 270 to get a calendar-day average (§ 14²).

The employer applies to the Fund within five calendar days after the end of employment. If it misses that deadline, the employee may apply himself (§ 14³).

The employee's own unemployment insurance benefit then starts later than usual: 30 calendar days after the end of employment with 5 to 10 years of service, 60 days with more than 10 years (Unemployment Insurance Act § 6(4), § 6¹).

How the payments are taxed

Redundancy pay, short-notice compensation and the compensation to the end of a fixed term are compensation the law provides on a termination by notice. They are declared on the TSD as payment type 33: income tax, social tax and funded pension, but no unemployment insurance (Unemployment Insurance Act § 40(2); TSD regulation, annex 1). Do not declare the fixed-term compensation as ordinary wages because it is measured by wages.

Holiday compensation and the final wages are ordinary wages, payment type 10.

A severance payment agreed in a termination agreement is different: it is not compensation provided by law, so it is type 10 with every payroll tax, unemployment insurance included. See ending the contract by agreement.

Collective redundancy

A collective redundancy has its own procedure, for example at least 5 employees within 30 days in a company of up to 19 employees. The employer consults the employees and informs the Unemployment Insurance Fund, and the notices take effect at the end of the notice period, but no earlier than 30 days after the Fund receives the data; the Fund may shorten that term or extend it to up to 60 days (Employment Contracts Act § 90, § 101-103).

The register entry

Register the end of work in the employment register within ten days, with the ground "redundancy" (Taxation Act § 25²(4)). The Unemployment Insurance Fund reads the ground from the register. A wrong ground, such as "resigned", blocks the employee's income-based unemployment benefit and the Fund's redundancy benefit until it is corrected (Unemployment Insurance Act § 6(2), § 14¹). The company can correct its own entry for three months (Taxation Act § 25⁶). See the employment register.

A checklist for the employer

1. Confirm a real economic reason, and that no other suitable work can be offered.
2. Ask in writing whether the employee is pregnant, on or planning family leave, or an employee representative.
3. Give written notice with the reason, respecting the notice period.
4. On the last day, pay the wages, the unused holiday, the redundancy pay and any short-notice compensation.
5. Register the end of work within ten days with the ground "redundancy".
6. After five years of service, apply to the Unemployment Insurance Fund within five calendar days.
7. Declare the payments on the TSD by the 10th of the following month, with the right payment types.

General information, not advice for your situation. The law as in force on 30.09.2026.