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Remuneration Agreement

Viimati uuendatud: 13.05.2019

Remuneration is a compensation that the parties have agreed upon and that the employer pays to the employee for performing the work. The remuneration must thus be included in the employee’s contract of employment, but may also be agreed in the collective agreement.

The employment contract determines the gross salary, meaning that the income tax, unemployment insurance premium and mandatory funded pension payment will be deducted from that amount. The net amount that the employee will receive can be calculated with the salary and taxes’ calculator.

Remuneration must be paid at least once a month and if parties have not separately agreed on cash payment, it shall be transferred to the employee’s bank account.

If a remuneration agreement is missing, remuneration is the compensation that is usually paid for a similar job on similar conditions. For example, if the cashier works without a written agreement and orally given promises cannot be proved, they are entitled to receive the medium remuneration of colleagues doing similar work, or the medium salary of the same field of activity.

Agreeing on the remuneration is directly in the interests of the employer as well because in the case of any disputes, the medium remuneration of the field could turn out to be higher than a written agreement with the employee.

Employment Contracts Act does not prescribe any mandatory remuneration components. This means that the parties are free to decide what the remuneration consists of and how it is calculated. For instance, remuneration might be calculated based on time (hourly wages, monthly pay) or work load (piecework pay).

When agreeing on the remuneration components and calculation principles it should not be forgotten that the salary paid to a full-time employee may not be lower than the minimum, agreed by the Estonian Trade Union Confederation and the Estonian Employers’ Confederation and enforced with a decree by the Government of the Republic. In 2019, the minimum hourly wage is 3.2 euros (gross) and minimum monthly wage 540 euros (gross). If the employee works part-time, the minimum decreases respectively.

Remuneration can only be changed on mutual agreement. One-sided change is only allowed when salary is decreased temporarily, when it is not possible to give work. This may also be used when the employer cannot give work nor does not have any financial means for paying the regular remuneration. Prior to decreasing the remuneration, employees must be informed and consulted. If the employee does not agree with the decrease, they are entitled to terminate the employment relationship. Like in the case of redundancy, a benefit must be paid in this case.

Remuneration decrease may only be applied if the employee has not fulfilled their tasks in the agreed manner or extent.

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