--- title: Gross salary vs net salary – why is this difference important? date: 2025-11-11T12:46:57Z modified: 2026-07-26T10:50:49Z permalink: "https://grow.ee/brutopalk-vs-netopalk/" type: post status: publish excerpt: Gross salary ensures clarity and stability, net salary brings risks and confusion. In Estonia, the gross salary is always agreed upon. wpid: 15147 featured_image: "https://grow.ee/wp-content/uploads/2025/11/Brutopalk-vs-netopalk-scaled.jpg" timestamp: 2026-07-26T10:50:49Z tags: - Taxes --- ![](https://grow.ee/wp-content/uploads/2025/11/Brutopalk-vs-netopalk-scaled.jpg) Wage agreements are the basis of every employment relationship. But did you know that in Estonia it is crucial to agree on _gross salary_, not _net salary_? Many employees do not understand the connection between the two - and this can cause confusion, surprises and misunderstandings for both the employer and the employee. **📌 What is gross salary and net salary?** - **Gross salary** is the salary before taxes and fees are deducted. - **Net salary** is the amount that is received into the employee's account after taxes are deducted. For example, if the gross salary is €1,500, the net salary depends on the amount of tax-free income, the employee's age, whether he or she receives a pension, whether he or she has children, etc. Therefore, the employer cannot guarantee a specific net salary, because it depends on individual tax calculations. **⚠️ Why shouldn't a net salary be agreed upon?** Section 29 of the Employment Contracts Act (TLS) states that wages are paid in cash and taxes and payments prescribed by law are deducted from the agreed wage. In practice, this means that **the law requires an agreement on gross wages**, not on a net amount. If the employer and employee agree on a net salary, the employer must calculate _retroactively_ each month how much gross wages need to be paid so that the employee receives the desired net amount. This means: - **Additional work for the accountant** - **Increased tax risks** - **Possible errors and misunderstandings** The gross salary is clear, transparent and unambiguous. This allows the employer to accurately estimate labor costs and the employee to understand how much of his salary is taxed. **📊 How does the difference in taxes arise for the employer?** If the agreement is for a net salary, the employer's total cost may _change from month to month_, because tax-free income and other factors affect the gross salary that needs to be paid to achieve the desired net amount. For example, for a net salary of €1,000, the employer's salary cost may differ by €364.02: | **🧾 Gross salary (€)** | **🧮 Employer's taxes (€)** | **💸 Employer's total cost (€)** | **📉 Difference (€)** | | | --- | --- | --- | --- | | **1. Income tax exemption + 0% funded pension** | €1,115.44 | €377.02 | 1492.46€ | | | **2. Income tax exemption does not apply + 6% funded pension** | 1387.50€ | 468.98€ | 1856.48€ | **+364.02€** | **🎓 We educate employees: why gross salary is fair and understandable** Many employees do not know how much taxes are deducted from their salary. If the salary is agreed gross, the employee can see exactly on the payslip: - How much taxes are - How much tax-free income is - How much goes to pension and insurance This helps the employee better understand the Estonian tax system and assess their income as a whole. 📣 **GROW recommendation:** Always agree on _gross salary_. It is transparent, fair, legal and helps avoid confusion. 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