Starting from January 1, 2024, the minimum wage in Estonia will increase to 820 euros per month. This is a significant rise compared to the current minimum wage of 725 euros – an increase of 95 euros or 13.1%. Additionally, the hourly wage will rise to 4.86 euros.
What does the minimum wage increase mean for employers and employees?
The rise in the minimum wage affects everyone earning it. Let's examine how it impacts both the employer's costs and the employee's net salary.
Employer Cost Overview
Total Employer Cost (Wage Fund): 1097.16 euros
Social Security Tax: 270.60 euros
Unemployment Insurance Contribution (employer's part):
Gross Salary: 820.00 euros
Employee Salary Calculation
Gross Salary: 820.00 euros
Pension Fund Contribution (2nd pillar, 2%): 16.40 euros
Unemployment Insurance Contribution (employee's part): 13.12 euros
Income Tax (considering a tax-free allowance of 654 euros): 27.30 euros
Net Salary: 763.18 euros
Key Points on Minimum Wage Rise
- No Need to Change Employment Contracts: Since the increase in the minimum wage is mandated by law, salary increases will adjust automatically.
- Tax Calculation: Employers need to account for increased social security and unemployment insurance contributions. Employees should understand how the rise affects their net salary and tax-free income.
- Pension Fund Impact: Note that the pension fund (2nd pillar) slightly reduces the net salary but is an important part of securing the future.
- Income Tax Calculation: The tax-free allowance is calculated at the maximum rate of 654 euros, affecting the net salary.
Important other aspects of employment contracts and ensuring health insurance
In addition to the effects of the minimum wage increase already discussed, it's important to emphasize other critical aspects of working under an employment contract:
Importance of the social security tax minimum
When working under an employment contract with a 1.0 full-time equivalent position, the employer is obligated to pay the minimum social security tax. The social security tax rate is 33%. Therefore, in 2024, the minimum social security tax amount, based on a minimum wage of 820 euros and a 33% tax rate, is approximately 270.60 euros.
This is a critical point not to be overlooked, as it ensures:
- Health Insurance Coverage: Paying the minimum social security tax ensures health insurance for the employee. This is vital for protecting the employee's health and for complying with legal requirements. Legal Obligation: Failure to pay the minimum social security tax rate can lead to legal sanctions.
- Employment Contract and Registration of Employment Signing the Employment Contract: A written employment contract must be made with each employee. This documents the employment relationship and sets out the terms, rights, and obligations of work. Registration of Employment in the Employment Register: The employer must register the employment with the Tax and Customs Board's Employment Register. This is an essential step that ensures the employee's official rights and protection.
- Health Insurance Coverage: Based on the registration, the employee receives health insurance coverage, which is vitally important for both the employee and their family members.
In summary, the increase in the minimum wage brings several considerations for both employers and employees. Employers must carefully monitor their wage fund and taxes to ensure they are correctly calculated. They also need to be aware of their obligations regarding the payment of the social security tax minimum and registration of employment. These steps ensure health insurance for the employee and contribute to a safe working environment. By following these procedures, we protect the rights of employees and comply with legal requirements. Employees, however, should be aware of their net salary and how various taxes affect it.
Stay informed of all changes. Keep these important aspects of employment contracts in mind and ensure that all procedures are correctly completed!
We wish everyone success and stability with the implementation of the new minimum wage!
