Estonia

Estonia PEO & Employer of Record

WeHG provides an International PEO and global Employer of Record service in Estonia to companies willing to enter the Estonian market or hire local/emigrant employees in this country.

Traditional approach requires establishing a subsidiary in Estonia.  However our solution allows you to start the operations in Estonia within days therefore save time and money.  WeHG would hire candidates on your behalf while you maintain full operational control of their work. So legally they would be our employees, on our local payroll, 100% compliant but will work on your behalf. 

Estonia fast facts

Population, million: 1,326,535
Land area: 45,227 km²
Capital: Tallinn
Local currency: Euro (EUR)

GDP per capita:$ 17500.00
GDP in currency:$ 25 billion

Estonia officially the Republic of Estonia (Estonian: Eesti Vabariik), is a sovereign state in Northern Europe.It is bordered to the north by the Gulf of Finland with Finland on the other side, to the west by the Baltic Sea, to the south by Latvia (343 km), and to the east by Lake Peipus and Russia (338.6 km). Across the Baltic Sea lies Sweden in the west and Finland in the north.

Several important amendments have entered into force in the Estonian Aliens Act during the past years. As a result, recruiting from abroad is now much easier:

  • as an employer you can now fill one or several workplaces with foreign employees (where employees with respective skills and qualifications cannot be found in Estonia).
  • as an employer, you can now also hire foreign employees through recruitment agencies as a temporary workforce.
  • the approval of the Estonian Unemployment Insurance Fund (EUIF) to apply for a residence permit for working in Estonia is no longer personalised.
  • for startup companies a special startup visa programme has been set up to make it easier to hire foreign talents. For more information, please see Startup Estonia’s website.

Hiring, Negotiating and Doing Business in Estonia

Necessity of written employment contract

A written document of an employment contract shall contain at least the following data:

  • the name, personal identification code or registry code, place of residence or seat of the employer and the employee;
  • the date of entry into the employment contract and commencement of work by the employee;
  • a description of duties;
  • the official title if this brings about a legal consequence;
  • the agreed remuneration payable for the work (wages), including remuneration payable based on the economic performance and transactions, and the manner of calculation, the procedure for payment and the time of falling due of wages (pay day), also taxes and payments payable and withheld by the employer;
  • other benefits if agreed upon;
  • the time when the employee performs the agreed duties (working time);
  • the place of performance of work;
  • the duration of holiday;
  • a reference to the terms for advance notice of cancellation of the employment contract or the terms for advance notice of cancellation of the employment contract;
  • a reference to the rules of work organisation established by the employer;
  • a reference to a collective agreement if a collective agreement is applicable with regard to the employee.

Different forms of engagement: employment, contracting, work with private entrepreneur

Most employees in Estonia are engaged under employment contracts, and independent contractor status is rarely used. Companies are responsible for ensuring that employees are eligible to work in Estonia. Citizens of the EU have a right to work in Estonia if they have been granted a right of residency. Temporary residents must have work permits. Hiring employees that do not have proper permission can result in civil and criminal sanctions.

Estonia Employment Contract

Types of employment agreements

Employment contracts may be: non-term; fixed-term, temporary, seasonal; on additional work, secondary job; with home workers; on the supply of services and other. As a rule, an employment contract is concluded for an indefinite period of time (non-term).

Estonia working hours

The standard work day is eight hours with a 40 hour week, but businesses often close early on Fridays and executives often work longer hours.

Overtime

An employer and employee may agree that the employee undertakes to do work over the agreed working time (overtime work). In the case of calculation of the summarised working time, overtime work means work exceeding the agreed working time at the end of the calculation period.

An overtime work agreement with a minor is void.

Upon compensation for overtime work in money, an employer shall pay an employee 1.5 times the wages.

If the working time falls on night-time (from 22:00 to 6:00), the employer shall pay 1.25 times the wages for the work, unless it has been agreed that the wages include remuneration for working at night-time.

Vacation leave in Estonia

It is presumed that an employee’s annual holiday is 28 calendar days, unless the employee and the employer have agreed on a longer annual holiday or unless otherwise provided by law.

Estonia Maternity Leave

A woman has the right to pregnancy and maternity leave of 140 calendar days.

Paternity leave

A father has the right to receive total of ten working days of paternity leave during the two months before the estimated date of birth determined by a doctor or midwife and during the two months after the birth of the child.

Estonian Severance Laws

Under the ECA, an employer can terminate an employment contract (referred to in the law as “extraordinary cancellation”) only for a good reason as provided for in this Act and in accordance with the statutory prior notice requirements (art. 87 ECA).

The ECA provides a list of valid reasons for termination of employment by the employer which fall within 2 categories: reasons relating to the employee personally (art. 88 ECA) and economic reasons (art. 89 ECA).

Reasons relating to the employee personally:

  • decrease in capacity for work due to the state of health,
  • decrease of capacity for work due to insufficient work skills, – breach of duties,
  • appearance at work in a state of intoxication,
  • commission of a theft, fraud or an act bringing about the loss of the employer’s trust in the employee,
  • bringing about a third party’s distrust in the employee,
  • wrongfully causing damages to the employer’s property,
  • violation of the obligation to maintain confidentiality or violation of the restraint of trade clauses.

Economic reasons:

  • if the continuance of the employment relationship on the agreed conditions becomes impossible due to a decrease in the work volume, reorganisation of work or other cessation of work (lay-off).

The minimum periods of termination notice vary from 15 to 90 calendar days, depending on the employee’s length of service, and employers must have grounds for termination.

Estonia Tax

The income tax is withheld by the paying entity at a rate of 20% or at a lower rate of 10% for some types of income, monthly. Since 2019, 7% of income tax is withheld from dividend payment to natural person.

Taxes that must be withheld by the employer when paying wages:
Old-age pension saving contributions (only for residents of Estonia) – 2% of gross salary, unemployment tax on employee’s salary (only applicable for residents of Estonia) – from 0.5% to 2.8% of gross salary and income tax 20% of gross salary.

Taxes that must be paid by the employer in connection with the payment of wages to the employee:
Mandatory unemployment insurance contribution (from 0.25% to 1.4% of gross salary) and social tax (33% of gross salary and occurs in the case of payroll and is subject to transfer by the enterprise to the Fund). These taxes are payable by the employer in addition to the payment of wages (i.e. the taxes that the employer withholds from the employee when paying wages are included in the “tax base” from which the social tax and the employer’s mandatory unemployment insurance contribution are paid).

Health Insurance Benefits in Estonia

Health insurance is paid for through a social tax.

The purpose of health insurance in Estonia is to:

  • cover the costs of health services provided to insured persons;
    prevent and cure diseases;
  • finance the purchase of medicinal products and medicinal technical aids;
  • provide the benefits for temporary incapacity for work and other benefits.

Additional Benefits in Estonia

Annual bonuses can be negotiated as part of the salary package.

General market practice benefits/additional allowances

The working day directly preceding New Year’s Day, Anniversary of the Republic of Estonia, Victory Day and Christmas Eve is reduced by three hours.

Estonia Holidays

Public holidays:

  • New Year’s Day
  • Independence Day, anniversary of the Republic of Estonia
  • Good Friday
  • Easter Sunday
  • Spring Day
  • Pentecost
  • Victory Day
  • Midsummer Day
  • Day of Restoration of Independence
  • Christmas Eve
  • Christmas Day
  • Boxing Day

Why Choose WeHireGlobally

WeHG takes care of all the onboarding hurdles, payroll, compensation and benefits, tax filing, and termination of employment. Our Employer of Record solution allows you to manage your overseas teams efficiently while minimizing cost and risk.

 

FAQ Estonia

  • Working hours in Estonia

    The standard work day is eight hours with a 40 hour week, but businesses often close early on Fridays and executives often work longer hours.

  • What are the main holidays in Estonia?

    Public holidays:

    • New Year’s Day
    • Independence Day, anniversary of the Republic of Estonia
    • Good Friday
    • Easter Sunday
    • Spring Day
    • Pentecost
    • Victory Day
    • Midsummer Day
    • Day of Restoration of Independence
    • Christmas Eve
    • Christmas Day
    • Boxing Day
  • What are payroll taxes in Estonia?

    The income tax is withheld by the paying entity at a rate of 20% or at a lower rate of 10% for some types of income, monthly.

    Mandatory unemployment insurance contribution (from 0.25% to 1.4% of gross salary) and social tax (33% of gross salary and occurs in the case of payroll and is subject to transfer by the enterprise to the Fund).

  • Subscribe to blog post updates