It is very simple. When you want to assign a salary, you just have to make one or two transfers from your company account to a personal account (in your name) with a specific format.

The first thing you need to know is what salary you are going to assign yourself, board member salary (director of the company or administrator), employee salary (employee), or both. You must also decide on the amount. Check out this page where we explain, in addition to VAT and taxes, how salaries work. Go to the “Monthly Salary” section and make sure you understand how salaries work before continuing reading here.

When you have read it, you basically have three possibilities:

  • If you are the only member of the company, and you work as a “freelance” or “freelancer”, that is, you do a very technical job in which you charge for your working hours, and you have no employees, you can assign yourself employee salary only.
  • Otherwise, if you do a highly technical job (as a developer, designer, or online marketing) you can assign yourself an 80% employee salary and 20% board member salary.
  • If your work is not very technical (management, administration, consultancy, human resources, etc.), we recommend a distribution of 30% board member salary and 70% employee salary.

Now that you know the amount of salary and percentages, you just need to make a transfer or two from your business account to your personal account. Every month that you want to pay yourself a salary, of course. Important: You must indicate a concept of “Board member salary” for the board member salary and “Employee salary” for the employee salary. All banks allow you to set this concept or subject for the transfer. The concept will allow us to identify the type of salary and calculate taxes accordingly.

It is important also that you make a contract as an employee and another as a board member for each salary if you have them. This contract should simply indicate that the company hires you as an employee, in what concept (employee or member of the board of directors), and other details such as salary, hours to work, schedules, etc. At the bottom you have contracts ready to download and fill in. When you write and sign these contracts, send them to us.

Let’s see an example:

Ana is a web designer and the only member of her company. Although she would be able to pay herself only an employee salary, she decided to pay some board member salary to qualify for the Daily Allowance. Since she works in a highly technical job, a 20/80 distribution is appropriate. Her monthly salary is 2500 euros, so she makes two bank transfers from her corporate Transferwise account to her personal account in N26:

  • A € 500 transfer with “Board member salary” concept (20% of 2500)
  • A € 2000 transfer with the concept “Employee salary” (80% of 2500)

As she is thinking of assigning a lower or higher salary at times, between € 2,000 and € 3,000 per month, Ana prepares a couple of contracts:

  • One where it is specified that Ana works for her company as a member of the board of directors and receives a salary of € 400 to € 600 per month (with a variable bonus of € 200).
  • Another where it is specified that it performs an employee’s job, as a web designer and developer, with a variable salary (according to productivity) of 1600 to 2400 € per month.

Note that this variability allows her to assign a salary between 2000€ (400€ board member + 1600€ employee) and 3000€ (600€ board member + 2400€ employee), with the right distribution of 20/80 always. Once she writes those contracts, she sends them to us.

Ana’s boyfriend, Paul, also has a company and works as a web developer, but chooses to pay himself employee salary only, thus not benefiting from Daily Allowance. His salary is not variable, always 1200 euros per month, so he writes a contract as an employee, describing his work as a web developer, sends it to us, and every month he orders a transfer from his corporate account to his personal one for € 1200 specifying an “Employee salary” transfer concept.

The concepts of transfers are important to help us understand the type of salary paid.

Let’s look at another example:

Erick is the CEO and principal administrator of a three-member startup. His work, although intense, is not especially technical. As the company has several members, and he is not taking care of highly technical activity, his best option is a 30/70 distribution. He opts for a salary of € 1000, so he will make two transfers from the corporate account of the company in Transferwise to his personal bank account:

  • A € 300 transfer with “Board member salary” concept
  • A € 700 transfer with “Employee salary” concept

Erick will always receive the same salary, so he writes a pair of contracts for himself with these amounts. Then, he meets the other two members of his startup to make similar contracts for them.

Here is a sample employment contract.

And here is a sample of board_member_contract_simple.

If you don’t know how to fill in these contracts, or what is the best salary distribution for you, do not hesitate to contact us.

in Running your company

3 Comments

  1. D.
    February 27, 2020 at 10:49 pm – Reply

    If you pay yourself a salary from your Estonian company – as a non-resident of Estonia, and therefore not under obligation to pay any social security or income tax in Estonia – do you need to report such salary payments to the authorities somehow? Monthly, or just yearly in the annual report? Thanks!

  2. Jose
    May 9, 2020 at 8:46 pm – Reply

    How do you pay a salary and tax if your company doesn’t have a bank account and uses financial provider like Payoneer for all the transactions?

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