How do you terminate an employee in Estonia in 2026?

These periods come from the Employment Contracts Act. They are calendar days, not working days. A contract can set longer notice than the law, but it cannot go below these floors.

Notice the employee gives back

An employee who resigns by ordinary cancellation gives 30 days after probation finishes. The figure does not change with their length of service. The probation figure of 15 days applies equally to both sides while the trial period runs.

Paying out the notice

You can release the employee from working the notice and pay it out instead. The payment covers the wages they would have earned across the notice window. It is ordinary taxable income, processed through Estonian payroll with income tax and social tax handled in the normal way.

The Employment Contracts Act draws a line between ordinary cancellation, which needs a valid reason and notice, and extraordinary cancellation for a serious breach, which can be immediate. An employer cannot cancel an open-ended contract at will. The reason has to be real and provable.

Grounds the Act recognises

1. Redundancy, where the role genuinely disappears, triggering the layoff compensation process
2. Poor performance or a lack of capacity, where the employee cannot meet reasonable, communicated standards
3. Breach of duties, including repeated lateness, refusal to work, or ignoring lawful instructions
4. Serious misconduct, such as theft, dishonesty, or breach of trust, which can support immediate extraordinary cancellation
5. Mutual agreement, where both sides sign to end the contract on agreed terms

Cancelling because someone is pregnant, on maternity or parental leave, an employee representative, or raising a workplace complaint is unlawful. These protections apply from the first day. For a protected person such as a pregnant employee or one on maternity leave, the Act sets compensation at twelve months of average wages, separate from the ordinary figure.

What it costs to get the reason wrong

If a court or the labour dispute committee finds the cancellation had no legal basis, the employer pays 3 months of average wages. The committee or court can set a different amount where the law allows. The claim runs alongside any notice and final pay you already owe.

1. Fix the legal basis

   Tie the cancellation to a ground the Employment Contracts Act recognises, such as redundancy, poor performance, breach, or mutual agreement. A cancellation with no valid basis is unlawful however much notice you pay.

2. Put the reason in writing

   Give the employee the reason in a written cancellation notice. Let them respond before the decision is final. The written trail is what defends the termination later.

3. Serve the right notice

   Match the notice to the service band, or pay it out. The probation figure applies during the trial period and rises with length of service after that.

4. Calculate every terminal sum

   Add the employer redundancy payment, accrued leave, and any contractual extras. Redundancy pay is based on average wages and is due at the end of employment.

5. Notify the Fund and Inspectorate

   Claim the Unemployment Insurance Fund top-up for longer-serving staff and notify the authorities where the layoff is collective. Missing this leaves the employee out of pocket and the round exposed.

When you cancel an open-ended contract for redundancy, the Employment Contracts Act sets the employer payment at 1 month of average wages. That part is yours regardless of how long the person has worked. It is separate from notice and from accrued leave.

The two layers of a redundancy payment

Average wages are worked out from the employee's recent earnings under the Government rules on calculating average pay. The Fund's share is claimed and paid by the state, not by you, but the employee only sees the full figure if you run the redundancy process correctly and report it.

Final pay and accrued leave

All unused annual leave is paid out on the last working day. The law grants 28 days of paid leave per year for most employees. Any balance left at termination becomes a cash payment, whatever the reason for leaving.

No statutory thirteenth-month pay

Estonia has no statutory thirteenth or fourteenth month salary. Any year-end or holiday bonus is voluntary and set by the contract, so it does not add to a redundancy bill unless you have promised it in writing.

A collective redundancy is triggered when a set number of employees lose their jobs within a 30-day window, scaled to the size of the workplace. The exact thresholds sit in the Employment Contracts Act and depend on headcount, so confirm the count for your site before you start.

The process runs in a fixed order. You give the employee representatives the reasons, the numbers, the selection method, and any alternatives you considered. You notify the Unemployment Insurance Fund. Only after consultation can the notice periods, from 15 days up to 90 days, start to run for each person.

What the notification must cover

• The reasons for the redundancies
• The number and roles of employees affected
• The criteria used to select who goes
• The timetable for the redundancies
• Any alternatives to redundancy that were weighed

Skip the consultation or the notification and the whole round is exposed to unlawful cancellation claims, each one worth 3 months of average wages. The cost multiplies across the group, which is why the process order matters more than any single payment.

Estonian law recognises ending a contract by agreement between the parties. The agreement should be in writing and should record the final working day, the full payment breakdown, and any waivers the two sides have settled. It sidesteps the tenure-based notice table because both sides have agreed the date.

A typical Estonian mutual exit covers:

• Notice or a payment for it, replacing the 30 days or longer notice the service band would otherwise require
• Accrued annual leave, all unused days from the 28 days yearly entitlement, paid at the daily rate
• An agreed extra payment, where you want to settle above the legal floor for a clean break
• Confidentiality terms, where they make commercial sense
• A reference, with wording agreed in advance
• A waiver of claims, which heads off a later unlawful cancellation complaint

On timing of final pay, Estonian practice settles all terminal sums on or around the last working day, including wages, the leave payout, and any redundancy amount you owe. Sign the agreement before the last day so there is no dispute about what was due or when. Teamed processes the final run on the payroll cycle that closes after the leaving date.

Real HR and legal experts handle your Estonia hires, from the first contract through every monthly payroll run and statutory deduction. An actual person, not a chatbot or a pooled queue. There is no setup fee and no exit fee, and employer cost passes through at cost, itemised on every invoice.

The split of responsibilities under EOR for Estonia terminations:

Estonia's redundancy bill has two payers and a real notification step. Miss the Fund claim and your employee is short-changed. Teamed tracks both layers on every redundancy so the full amount lands.

EOR, contractors, and entity employees all live on one platform. An employee hired through Teamed's Estonia network can graduate to your own Estonian entity when headcount makes that the right call, until it isn't. Run the Crossover Calculator to see when the model flips. Start from the Estonia hiring overview.

Key sources: Employment Contracts Act guidance, Estonian Tax and Customs Board, and the Labour Inspectorate.