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Country Guide

Estonia

Hiring employees in Estonia a glance

CURRENCY
Euro
WORKING HOURS
40 hours
paid PUBLIC/BANK HOLIDAYS
12 days
CAPITAL
Tallinn
LANGUAGE
Estonian
REMOTE WORKERS
123,000
MINIMUM monthly SALARY
€725
TAX YEAR
1st Jan - 31st Dec
DATE FORMAT
DD/MM/YYYY
MISCLASSIFICATION PENALTIES
Fines up to €32,000 for not registering a worker as an employee.
FUN FACT
Estonia is renowned for innovation in government systems, and they offer e-residency to citizens of other countries.

Employer tax: 

33.8%

Pension 20%

Health insurance 13%

Employee tax: 

23.6%

Pension 2%

Unemployment insurance 1.6%

Income tax: 20% flat income tax

Estonia Employment Cost Calculator

Use our handy calculator to understand what are all the employment costs you have to consider in Estonia

Provide us with some extra details and we will send you a full breakdown of the salary costs.

Employer of Record in Estonia

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An Employer of Record is the legal employer of a worker in Estonia. As such, the Employer of Record takes care of all Estonia compliance aspects of employment, including payroll, taxes, statutory benefits, employment contracts and more.

the employer of Record is responsible for:

Ensuring their employment is compliant with local laws
Processing local payroll
Filing employment related taxes and returns
Issuing payslips to the employee
Distributing salary payments

How Employer of Record works

COMPANY

Maintains a direct relationship with the employee, allocates them work tasks, and manages their performance.

BOUNDLESS

Takes care of payroll, taxes, benefits, ensuring the employee and the company are compliant with all legal regulations.

EMPLOYEE

The third party to the employment contract, the employee, fulfils all of their obligations as a worker for the company.

Statutory Benefits in Estonia

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Government healthcare
Business travel allowance
Unemployment insurance

Common Non-mandatory Benefits in Estonia

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Supplementary pension
Paid sick leave
Private healthcare
Wellness
Cash bonus
Flexible working
Telephone costs
Gym membership
Stock options

Employee Rights and Protections in Estonia

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Written employment contract
Payslip
Equal opportunity
Health & Safety
Unemployment benefits
Protection from discrimination
Protection against dismissal
Rights to certain working conditions during pregnancy
Union membership

Paid time off: 28 days + bank holidays

Pade paternity leave: 30 days

Paid sick leave: 240 days

Parental leave: 435 days to be shared between the two parents

Paid maternity leave: 20 weeks

Probationary Period

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The maximum probationary period, according to local labour laws, is four months.

Payment Frequency

The payment frequency in Estonia is at least once a month.

End of Employment

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Employers must have a reason to dismiss employees and present the employee with a written declaration of termination (e-mail, scanned or pdf copies are accepted) stating the reasons for termination and respect the notice period according to the employment duration.

In the event of gross misconduct, the employer may terminate the employment immediately.

Upon termination, all the employer's items under the employee's possessions must be returned on the last day of employment at the latest. The employer must deregister the employee from the Working Register administered by the Estonian Tax and Customs Board within ten days of termination.

Employers must warn employees before dismissing them because of a breach of their obligations or a decrease in their work capacity.

According to local regulations, the employer has the right to terminate the employment contract for economic reasons /due to redundancy in case of any cessation of work (e.g. due to decrease in the work volume or reorganisation of work; in case of liquidation or bankruptcy of the employer).

Frequently Asked Questions

What are my options if I want to hire a worker in Estonia?

While there are generally four ways of employing people across borders, not all are legal or sensible. Here is an overview of each way to employ a worker in Estonia, outlining the potential cons.

 

HQ country employment & payroll

While the person is in Estonia, they are employed and payrolled directly by the company’s HQ entity.
Cons: This may appear attractive, but it generally isn't legal in the long term. HQ payroll won't be possible if the person is not a tax resident in the HQ country.

 

Independent contractor agreements

People are locally registered as sole traders or limited liability company owners in Estonia and invoice for their work. There is no direct employment relationship.
Cons: In Estonia, this is not a compliant or legal way to engage full-time workers who work solely for your company. There will be challenges in attracting and retaining talent.

 

Direct local employer setup

The company sets up as a fully-compliant local employer. This often involves setting up a legal entity and local tax registration.
Cons: Expensive, time-consuming, high-level of complexity. Unknowns around how obligations and costs will evolve over time. There will be a need to stay on top of legal compliance changes.

 

Availing of an Employer of Record services /full-service Professional Employer Organisation

Employment is handled by a platform that specialises in employing people on behalf of customer companies. The Employer of Record helps to hire and pay employees.
Cons: For some countries, the ongoing costs may be higher than direct employment. Some education is needed to inform employees about how the employment relationship will work.

How long does it take to set up a company in Estonia?

Setting up a local company in Estonia is relatively straightforward. However, the difficult part comes after the initial setup when payroll needs to be calculated and run every month, taxes filed, benefits extended, change of rules and regulations followed. Here is an overview of everything you will find yourself needing to do.

Can I employ people as independent contractors in Estonia?

While many employers practice employing remote workers as independent contractors, it's a bad practice. If an individual is giving their full and undivided attention to your company in Estonia, treating them as an independent contractor is a likely breach of Estonian employment laws and of those in your country.
 
Your company could be liable for fines on owed holiday pay, sick pay, social welfare payments, paternity benefit, maternity benefit, or other legal measures. Since the individuals you are working with do not receive the benefit of local employment laws and protections that are often afforded to people working full-time hours.
 

What does HR compliance mean in Estonia, and why does it matter?

When you hire employees in Estonia, you have certain obligations as an employer. HR compliance is about ensuring your policies and procedures respect all applicable laws and regulations regarding employment and work practices. Complying with local employment law in Estonia is fundamental for the correct running of your business - not only because these laws are in place to protect employees and guarantee their rights are safeguarded, but to minimise your risk of liabilities as an employer. Being compliant means respecting and following all local labour laws, sick leave and illness benefits, annual leave, minimum wage, tax credits, working hours regulations.

How much does it cost to employ someone in Estonia?

As with every other country, there are certain costs associated with employing a worker in Estonia that come on top of the gross salary you are offering. An Estonian employer must contribute to a pension plan, health insurance and unemployment insurance. To view the exact percentages and amounts given the salary you are planning to offer, you can use our handy calculator tool.

What does Employer of Record mean in Estonia?

It means that Boundless is the legal employer of the individual, as far as the Estonian government, tax, and employment authorities are concerned. As such, it carries the local expertise to employ and is responsible for:
  • informing you about any pre-employment requirements
  • ensuring their employment is compliant with Irish employment law
  • informing you about the length of the maternity leave, paternity leave, public holidays, illness benefits, medical benefits
  • providing a locally compliant employment contract
  • processing local payroll
  • filing employment-related tax returns
  • issuing payslips to the employee
  • distributing salary payments
  • payments to the local tax authorities
Customers that work with an Employer of Record in Estonia are responsible for:
  • sourcing and recruiting their own workers
  • managing the employee’s day-to-day work load
  • contributing to the personal / professional development of the employee through their work
  • following any guidance we give on employment and HR best practices or legal obligations in Estonia, such as the employment contract, public holidays, annual leave, sick leave, maternity and paternity benefits, probationary periods, overtime pay, statutory redundancy payments, liability insurance and many others
  • ensuring that payroll bills relating to their team are paid to Boundless before the cut-off point in each pay cycle

Who is responsible for filing and paying employees' taxes and social insurance contributions in Estonia if employing through an Employer of Record?

Boundless as the Employer of Record Estonia files all pertinent taxes, and other contributions to the social system for the Estonia employee to be compliant.

How does Boundless as an Employer of Record Estonia ensure HR compliance in Estonia?

We carefully choose employment lawyers or advisories to partner with in each country we operate in, including Estonia. They ensure the Estonian employment contracts, and any other relevant documents required for new employees comply with the local jurisdiction. We have thorough discussions on specific norms such as payroll services, social protection, data protection, notice period or work-from-home regulations. Whenever a potentially sensitive issue arises in Estonia, our internal team contacts the relevant firm to ensure all steps are taken to resolve it promptly.

What are the legal responsibilities of a company when they use an Employer of Record service like Boundless in Estonia?

The company remains responsible and informs employees of the day-to-day management of the people and teams that are employed through Boundless, including any disciplinary or performance issues.
 
Boundless ensures compliance with Estonian-specific procedures, practices and labour laws while employing people and teams on behalf of the company.

Do employees get all their rights and benefits when employed through an Employer of Record in Estonia?

Any new employee that is locally employed through an Employer of record gets full employment rights and benefits as specified in Estonian employment law. They get a locally compliant employment contract, statutory maternity leave, annual leave, illness benefits, any relevant tax credit, and many more. All Estonia-based employees receive healthcare through the public healthcare system.

What taxes do I need to pay in Estonia?

In Estonia, both employers and employees have to pay taxes. Employers have to make contributions to the Unemployment insurance fund, as well as make pension and health insurance contributions. Employees pay taxes in the form of unemployment insurance and pension contributions, as well as income tax. To get a clear overview of both employee and employer taxes, use our salary breakdown calculator, submitting any additional data needed and get a downloadable pdf like this one.

Choose Boundless as your employment partner in Estonia
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