Globalization Partners provides employer of record services for customers that want to hire employees and run payroll without first establishing a branch office or subsidiary in Estonia. Your candidate is hired via Globalization Partners’ Estonia PEO in accordance with local labor laws and can be onboarded in days instead of the months it typically takes. The individual is assigned to work on your team, working on your company’s behalf exactly as if he or she were your employee to fulfill your in-country requirements.
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Our solution enables customers to run payroll in Estonia while HR services, tax, and compliance management matters are lifted from their shoulders onto ours. As a Global PEO expert, we manage employment contract best practices, statutory and market norm benefits, and employee expenses, as well as severance and termination if required. We also keep you apprised of changes to local employment laws in Estonia.
Your new employee is productive sooner, has a better hiring experience and is 100% dedicated to your team. You’ll have peace of mind knowing you have a team of dedicated employment experts assisting with every hire. Globalization Partners allows you to harness the talent of the brightest people in more than 185 countries around the world, quickly and painlessly.
Estonia is a small country located in the Baltic region of Northern Europe. The country borders the Gulf of Finland and the Baltic Sea and includes more than 2,000 islands. Estonia is a very highly developed country and a member of the EU. Its small population of 1.3 million people is considered to be the one of the most internet savvy in Europe. The Estonian workforce is highly educated and creative. International meetings tend to be held in English, but contracts and business documents should also be translated into Estonian.
When negotiating terms of an employment contract and offer letter with an employee in Estonia, it may be useful to keep the following in mind:
Hiring in Estonia
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.
Employment Contracts in Estonia
It is legally required to put a strong employment contract in place in Estonia, in the local language, which spells out the terms of the employee’s compensation, benefits, and termination requirements. An offer letter and employment contract in Estonia should always state the salary and any compensation amounts in Euro rather than a foreign currency.
A work contract is required to include some specific terms, in the absence of which the contract is defective.
The following terms are mandatory:
- the identities of the parties (name, personal identification code or registration number, residence or seat);
- 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 legal consequences;
- the agreed pay payable for the work (wages), including other benefits, if agreed upon;
- wages payable based on the economic performance and transactions;
- the manner of calculation;
- the procedure for payment and the time of falling due of wages (pay day);
- taxes and payments payable and withheld by the employer;
- the time when the employee performs the agreed duties (working time);
- the place of performance of work;
- the duration of holidays;
- a reference to, or the terms of, advance notification of cancellation of the employment contract;
- the rules of work organization approved by the employer;
- a reference to a collective agreement, if a collective agreement is applicable to the employee.
A contract is considered to be expired on the following grounds:
- by agreement of the parties;
- end of the contract period;
- the initiative of the employee;
- the initiative of the employer;
- demands on third parties and conditions not depending on the parties involved.
The notice of a contract termination by either party should be presented in writing.
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.
Holidays in Estonia
- New Year’s Day
- Independence Day, anniversary of the Republic of Estonia
- Good Friday
- Easter Sunday
- Spring Day
- Victory Day
- Midsummer Day
- Day of Restoration of Independence
- Christmas Eve
- Christmas Day
- Boxing Day
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.
Vacation Days in Estonia
In general, most Estonians receive 28 paid calendar days of vacation, including working and non-working days.
Estonia Sick Leave
Employees are allowed up to 182 calendar days of paid sick leave. Employers are responsible for paying for sick leave from the fourth through the eighth day of leave, and the state pays from the ninth day forward. Sick pay is at 70% of the employee’s last year’s average salary.
Maternity/Paternity Leave in Estonia
Women are entitled to 140 days of maternity leave which must start between 30 and 70 days before the due date. The state pays a maternity benefit.
Fathers are entitled to up to 30 working days of paternity leave from 30 days prior to the due date until the child turns three years old. Paternity leave is paid for by the state and is based on income.
Parental leave is allowed up until the child’s third birthday and is paid by the state. The maternity and parental paid benefits, together are capped at 575 days.
Health Insurance in Estonia
Health insurance is paid for through a social tax, see rates above.
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.
Estonia Supplementary Benefits
Commonly negotiated benefits include:
- Company car
- Mobile phone
- Share options
Annual bonuses can be negotiated as part of the salary package.
Termination/Severance in Estonia
Probationary periods of up to four months are common in Estonia.
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.
If an employee is terminated due to redundancy, the employer must pay compensation of one month’s average wage.
If a fixed term contract is cancelled early due to redundancy, the employer must pay what the employee would have been entitled to.
If an employer gives advance notice of cancellation later than provided by law or a collective agreement, the employee has the right to receive the compensation that s/he would have received had the employer adhered to the advanced notice terms.
If the employer wishes to terminate the employment contract with immediate effect, the employer may choose to provide payment instead of notice.
Employees with between five to ten years of service are entitled to an additional one month’s salary from the Unemployment Insurance Fund. Employees with ten or more years of service are entitled to two months’ additional salary from the Fund.
These provisions apply to individual as well as collective dismissal cases.
Paying Taxes in Estonia
Employers are required by the law to pay a social tax of 33% of gross salary, up to a limit set by the state, for all employees, 20% of which is allocated for pension insurance and 13% for health insurance.
The social security system of Estonia comprises seven benefits:
- Health insurance (contributory)
- Unemployment insurance (contributory)
- State unemployment allowances (non-contributory)
- State family benefits (non-contributory)
- Social benefits for disabled people (universal, non-contributory)
- State funeral benefits (universal, non-contributory)
- Pension insurance (contributory)
Unemployment insurance is 2.4% of the wage. The employer pays 0.8% and employees pay 1.6%.
Unemployment benefit: those who are out of work are eligible to receive an unemployment benefit, as of 1 January 2021 a minimum of EUR 9.73 per day for a period of up to nine months provided they have registered themselves with the Unemployment Office.
This information is provided as generally accepted information and is not intended as advisory services.
Why Globalization Partners
Establishing a branch office or subsidiary in Estonia to engage a small team is time-consuming, expensive and complex. Estonian labor law has strong worker protections, requiring great attention to detail and an understanding of local best practices. Globalization Partners makes it painless and easy to expand into Estonia. We can help you hire your candidate of choice, handle HR matters and payroll, and ensure that you’re in compliance with local laws, without the burden of setting up a foreign branch office or subsidiary. Our Estonia PEO and Global Employer of Record solution provides you peace of mind so that you can focus on running your business.
If you would like to discuss how Globalization Partners can provide a seamless employee leasing or PEO solution for hiring employees in Estonia, please contact us.