"The goal of the legislative amendment is to make the entire system more efficient – fairer and to nudge people to return to work more quickly," said Ulla Saar, deputy secretary general for employment at the Ministry of Economic Affairs and Communications, on the "Terevisioon" morning show Thursday.

"Employers have long argued that Estonia's unemployment benefits system allows people to remain at home for extended periods," Saar noted.

"One of the biggest changes in this reform is that we currently have unemployment allowance, which lasts for 270 days, and unemployment insurance benefit, with a minimum duration of 180 days. We are combining these two. Previously, it was possible to move from unemployment allowance to benefits and back, which allowed a person to stay at home for nearly a year," Saar explained.

The legislative amendment will introduce two subcategories for unemployment insurance benefits: income-based unemployment insurance benefits and basic unemployment insurance benefits.

As is the case now, the first line of protection will be the income-based unemployment insurance benefit, which is determined by the insured person's previous earnings. The current unemployment insurance benefit, which is based on the insured's prior income, will be renamed the income-based unemployment insurance benefit.

If a person is not eligible for this benefit, they will be paid a basic unemployment insurance benefit at a standardized rate. Both benefits will have insurance tenure requirements.

According to Saar, this means that for people who have worked and paid unemployment insurance contributions, nothing will change upon being laid off under the new law.

"The important thing is that a person must have worked for at least one year within the last three years. In that case, they will receive exactly the same benefit they have always received. For the first 100 days, it's 60 percent of their last salary and then 40 percent until the end of the benefit period," Saar said.

At the same time, Saar gave an example regarding individuals who have been at home for an extended period following parental leave – five to ten years, for instance. These individuals will no longer be eligible for assistance from the Estonian Unemployment Insurance Fund but will need to turn to their local government, where they can apply for need-based subsistence benefits.

In this system, the number of household members, expenses and income will be taken into account, unlike the previous unemployment allowance, which was granted without assessing need.

Providing subsistence benefits will place additional responsibilities on local governments. "Their workload may increase by about 5 percent, and additional funds will be allocated from the state budget to support this," Saar said.

According to the bill's drafters, the reason for the change is that Estonia already has both a functioning unemployment insurance system and a social welfare system through subsistence benefits, so it no longer makes sense to maintain the unemployment allowance system.

Those who quit also eligible for support

The proposed legislative amendment will introduce a new type of benefit to the unemployment insurance system alongside the current unemployment insurance benefit – a basic-rate unemployment insurance benefit – while the existing unemployment allowance will be abolished.

This basic unemployment insurance benefit will be available to insured persons who have accrued at least eight months of unemployment insurance tenure within the 36 months prior to registering as unemployed. The base benefit will be €410, replacing the previous unemployment allowance of €362.

Additionally, the basic unemployment insurance benefit will be payable in cases of voluntary unemployment, similar to the current unemployment allowance. This means that all grounds for terminating an employment or service relationship will be covered. As a result, individuals will be guaranteed a minimum replacement income while searching for a new job even in cases where they left their job voluntarily or by mutual agreement with their employer.

The Social Welfare Act will also be amended to allow, in exceptional cases, students up to the age of 24 to receive subsistence benefits if their relationships with family members have broken down or if their parents are unable to provide financial support.

However, the explanatory memorandum states that the law will not extend insurance coverage to new forms of work. The ministry plans to address these topics gradually, and after the unemployment assistance reform, the next focus will be on insuring self-employed individuals, including those working in new forms of employment and those providing services via platforms.

Meelis Paavel: Unemployment insurance premium must grow

Currently, the €40 million required for unemployment allowance comes from the state budget, but following the reform, this money will need to come from the Unemployment Insurance Fund's budget.

"We have pointed out that absorbing an additional €45-50 million into the unemployment insurance budget will not be easy. The options to cover this have been discussed: cuts – operational cost cuts, reductions in funding for benefits, allowances and services or an increase in the premium rate," said Meelis Paavel, head of the Unemployment Insurance Fund, on Vikerraadio.

"In the long term, I definitely see that this magnitude, if not next year, then in the years to come, will lead to a situation where the unemployment insurance premium rate will have to rise," Paavel added.

The current unemployment insurance premium rate is 2.4 percent, with employees contributing 1.6 percent and employers 0.8 percent.

If passed, the amendments to the Unemployment Insurance Act would take effect on January 1, 2026.

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