How much is redundancy pay in Estonia and who pays it?

When an employee is made redundant (koondamine) under an open-ended employment contract, the employer pays compensation equal to one month’s average wages, regardless of how long the employment lasted. If the employment with the same employer lasted at least five years, a redundancy benefit from the Unemployment Insurance Fund (Töötukassa) is added. If a fixed-term contract is terminated early for redundancy, a special rule applies to the employer’s compensation, and it can be considerably higher.

How much is redundancy pay?

You will often hear that redundancy pay is one, two or three months’ salary. This combines two separate payments: the employer’s compensation and the Unemployment Insurance Fund benefit, which depends on the length of employment. Under an open-ended contract, the total is usually as follows:

• employment under 5 years: 1 month’s average wages from the employer, no benefit from the Unemployment Insurance Fund. Total 1 month.
• employment of 5 to 10 years: 1 month from the employer, 1 month from the Unemployment Insurance Fund. Total 2 months.
• employment over 10 years: 1 month from the employer, 2 months from the Unemployment Insurance Fund. Total 3 months.

To receive the Unemployment Insurance Fund benefit, the employment must have lasted at least five years with that particular employer. Previous jobs are not added together.

How are average wages calculated?

The employer pays compensation on the basis of the employee’s average wages, which are usually calculated from the wages for the six calendar months before the payment. The Unemployment Insurance Fund calculates its benefit differently: it uses the average wages for nine months earned before the last three months of work. This is why the two payments may differ slightly.

When is redundancy pay paid?

The employer pays the compensation together with the final settlement. When the employment contract ends, all claims arising from the employment relationship fall due, so the money must be paid no later than the day the contract ends.

To claim the benefit, the employer submits an application to the Unemployment Insurance Fund within five calendar days after the employment ends. If the employer does not do so, the employee may submit the application. The Unemployment Insurance Fund decides within 14 calendar days of receiving a proper application. For good reason, it may extend this deadline by a further 14 calendar days. The benefit is paid no later than on the fifth calendar day after the decision.

What else must the final settlement include?

Redundancy pay is only one part of the final settlement. The employer must also pay:

• wages up to the last working day
• compensation for unused holiday for all unused basic holiday days that have not expired
• compensation for insufficient notice if the employer gave less notice of the redundancy than the law requires. Average daily wages are paid for each working day of missing notice

The notice period (etteteatamise tähtaeg) also depends on the length of employment:

• less than 1 year of employment: at least 15 calendar days
• 1 to 5 years of employment: at least 30 calendar days
• 5 to 10 years of employment: at least 60 calendar days
• 10 or more years of employment: at least 90 calendar days

Example: if an employee has worked for seven years, the employer must give at least 60 days’ notice of the redundancy. If the employer gives 40 days’ notice, it must also pay average daily wages for the working days within the missing 20 calendar days.

What happens with a fixed-term contract?

If the employer terminates a fixed-term employment contract for economic reasons before it expires, it must usually pay compensation equal to the wages the employee would have earned until the end of the term. This can be considerably more than one month’s salary.

This special rule does not apply if the contract is terminated because the employer has been declared bankrupt or because bankruptcy proceedings were terminated by abatement without a declaration of bankruptcy (raugemine). No compensation is paid if the contract is terminated because of force majeure.

Is tax withheld from redundancy pay?

Yes. Income tax and the mandatory funded pension contribution (II pillar), if the employee has joined it, are withheld from the employee’s compensation. The employer pays social tax from its own funds, and this does not reduce the amount the employee receives. No unemployment insurance contribution is withheld from redundancy pay.

How does redundancy affect unemployment insurance benefit?

If a redundant employee registers as unemployed and is entitled to the income-based unemployment insurance benefit, the start of the benefit depends on the length of employment.

If the employment with the same employer lasted 5 to 10 years, the right to the benefit arises 30 calendar days after the employment ends. If it lasted more than 10 years, the right arises after 60 calendar days. In this way, the redundancy benefit and the unemployment insurance benefit are linked in time.

What if the employer does not pay?

Send the employer a written claim stating the amount and how it was calculated. If the employer still does not pay, you can turn to the Labour Dispute Committee (töövaidluskomisjon) or a court. A claim for redundancy pay and for compensation for insufficient notice must be filed within four months from when the employee learned or should have learned of the violation of their rights. So do not wait if the final settlement has not been paid.

If the employer is insolvent, the Unemployment Insurance Fund pays the employee the statutory compensation not received on termination of the employment contract up to two months of the employee’s average gross wages, but in total no more than one average gross monthly wage in Estonia for the quarter before the employer was declared insolvent.

Can a redundancy be challenged?

Yes, but the deadline is short. An application to the Labour Dispute Committee or a claim to the court must be filed within 30 calendar days of receiving the notice of termination. If the deadline passes and is not restored, the termination is deemed valid.

A redundancy may be challengeable, for example, if the economic reason given by the employer did not actually exist, if the employer did not offer other work where this was possible, or if it breached the principle of equal treatment. Redundancy does not always require a reduction in the volume of work, as it is also permitted when work is reorganised or other work ends. Employee representatives and employees raising a child under three have a preferential right to keep their jobs.

What to do when you receive a redundancy notice

1. Check the dates. Write down when you received the notice and on what date the contract ends. Compare this with the notice period.
2. Ask for the reason for the redundancy in writing if it is not clearly stated in the notice.
3. Mark the 30-day deadline in your calendar if you are considering challenging the redundancy.
4. Check the final settlement: wages, unused holiday, redundancy pay and, where applicable, compensation for insufficient notice.
5. Check the application to the Unemployment Insurance Fund if the employment lasted at least five years. If the employer does not submit it within five days, submit it yourself.
6. Register as unemployed if needed. Bear in mind that after longer employment, the income-based unemployment insurance benefit starts only 30 or 60 days after the employment ends.

When to contact a lawyer

Legal advice is worth seeking if the reason for the redundancy seems like a pretext, if the employer does not pay the compensation or final settlement on time, or if a larger sum is at stake when a fixed-term contract is terminated early. As the deadline for a challenge is only 30 days and the deadline for claiming unpaid compensation is four months, it is important to act quickly. The attorneys of Law Firm NAMM advise and represent clients in employment law and workplace disputes.

The limits of ending an employment relationship are also discussed in the Law Firm NAMM case does criticism of an employer justify dismissal.

Frequently asked questions

Do I get redundancy pay if I agree to leave by mutual agreement?

No. If the employment contract is ended by agreement of the parties, the employer has no statutory obligation to pay redundancy pay. Compensation can be agreed separately in the agreement. Before signing, it is worth comparing what you would receive if made redundant.

Can the employer pay redundancy pay later or in instalments?

Not without the employee’s consent. All claims arising from the employment relationship fall due when the employment contract ends.

Do I have to apply for the Unemployment Insurance Fund benefit myself?

Usually not. The employer submits the application within five calendar days after the employment ends. If the employer does not do so, the employee can submit the application.

Is redundancy pay due to an employee who worked for less than a year?

Yes. Under an open-ended contract, the employer’s compensation of one month’s average wages does not depend on the length of employment. The Unemployment Insurance Fund benefit is added only after at least five years of employment.

This article reflects the law in force as of 14 January 2026.