Haiguspäevade hüvitamise muudatus alates 01.07.2023

It's known that the compensation for sick leaves has returned to the pre-COVID system. As we recall, starting from January 1st, 2021 and initially until April 30th, 2021, a new sick leave compensation order was introduced, stipulating that if an employee fell ill, as usual, the first day remained unpaid (employee's own responsibility), the employer paid for the 2nd to 5th day (70% of the average daily calendar wage over the last 6 months), and from the 6th day onward, the Health Insurance Fund began paying the sick pay. This system was extended due to the ongoing COVID pandemic until June 30th, 2023, and starting from July 1st, 2023, the old system was reinstated. Therefore, the state’s mandatory compensation system from July 1st, 2023, is that sick days 1-3 are unpaid (employee's own responsibility), the employer must pay to the employee for sick days 4-8, and from the day 9, the Health Insurance Fund compensates the employee.

Next, we present options for employers how to compensate earlier sick days, if desired, and how to do it according to the law.

If an employer wishes to compensate the first sick day, they can certainly do so. It is important to note that all employer taxes (social tax 33%, employer's unemployment insurance 0.8%) and employee taxes (income tax 20% withheld from gross salary, employee's unemployment insurance 1.6%, pension fund 2%) must be paid to the state. Therefore, the payment for this day is treated as regular wages. In practice, it is seen that if an employer decides to compensate the first sick day, the most common option is to maintain the regular daily wage for it. Alternatively, compensation can be based on the average daily calendar wage over the last 6 months. By compensating sick pay from the second day, employers can also reimburse the second and third sick day up to 100% of the average daily calendar wage over the last 6 months social tax-free, i.e., only income tax must be paid on such compensated sick pay (Social Tax Act § 3 para 3 and Unemployment Insurance Act § 40 para 2).

It is not mandatory for the employer to compensate the 1^st to 3^rd sick days, but in practice, this already is quite common. This is to ensure that people can recover and not come to work while being sick. Working while ill can further weaken one’s health and may lead to colleagues getting sick, too. By providing their employees with greater sick pay, it is the company owner's decision to what extent to compensate sick days, as in any case, it is an additional organization granted benefit. However, if the employer's intention is to compensate, e.g., 120% of the average wage, the part exceeding 100%, i.e., 20%, must be taxed with all employer and employee taxes, as it is considered wages in the eyes of the law.

In case the employers wish to provide and compensate a bit more than the legal minimum, they can change their way of compensating sick leaves to their employees at all times. Different approaches and program settings are familiar to BDO Estonia Payroll team, and we encounter them daily. If you want to know more about this topic or have other questions regarding payroll, contact our specialists and ask for a consultation today.