Estonia is an ideal destination for expanding businesses, offering a skilled workforce and a supportive business environment. When it comes to hiring in Estonia, partnering with an Employer of Record (EOR) can be useful. EORs in Estonia ensure compliance with local labor regulations, protecting businesses from legal complexities. 

Embracing the opportunities in Estonia requires leveraging the expertise of an EOR service provider.

Tapping into the Estonian labor market requires a comprehensive understanding of its labor laws. Estonia boasts a unique employment landscape, and may present challenges for inexperienced foreign employers. Estonia's labor market is known for its flexibility. The regulations are designed to protect employees while giving employers the ability to adapt quickly to changing economic conditions. This is different from many markets like the USA, Singapore where laws are designed to be employer-friendly. For example:

• Estonia’s laws mandate employers to offer annual leaves, maternity leaves, etc. However, employers in the USA aren’t obliged to provide any leaves as such.
• Social security is fully funded by employers unlike other countries where employees also share a certain percentage of their salary.
  
  

Gloroots’ Estonia EOR/PEO brings invaluable expertise in navigating Estonian labor laws, ensuring legal compliance for your business. They handle crucial aspects such as employee contracts, payroll processing, tax obligations, and administrative tasks in adherence to Estonian regulations. By partnering with an Estonia EOR/PEO, you gain access to local knowledge, networks, and cultural insights, facilitating business establishment and growth in Estonia.

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The cost of Estonia EOR/PEO services may differ based on the number of employees, the extent of services needed. The pricing structure for Estonia EOR/PEO services usually involves a monthly fee per employee or a percentage of the employee's salary. Extra charges may apply for additional services or customization.

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Key Metrics For Foreign Employers

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Estonia has a talented pool of professionals, particularly in technology and entrepreneurship. The country's favorable government policies, streamlined bureaucracy, and startup-friendly ecosystem make it an attractive destination for career growth. 

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The table below depicts key indicators from the Global Talent Competitiveness Report for employers wishing to hire from Estonia.

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Source: The Global Talent Competitiveness Index 2023

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Through the Gloroots' Recrew platform, you can discover amazing talent in Estonia and grow your team effectively.

Estonia treats contractors, sole proprietors, self-employed individuals and full-time workers differently and there are significant risks associated with misclassificatiThe issue of "employee misclassification" also exists in Estonia and refers to the incorrect categorization of workers by employers. It occurs when an employer wrongly classifies a worker as an independent contractor, depriving them of the employment rights and benefits that should be provided to a regular employee, even if the worker performs duties similar to those of a permanent employee.

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Partnering with a PEO/EOR in Estonia can assist in properly distinguishing worker classifications and preparing accurate employment agreements. By entrusting employment-related responsibilities to knowledgeable professionals, businesses can focus on their core operations while maintaining compliance with Estonian labor regulations.

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The Employment Contracts Act is the source of all employment regulations. Employers need to prepare contracts, pay employees, plan work hours according to the stipulations in this Act.

Employment Contract

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Employment contracts in Estonia can be either permanent or fixed-term, based on the nature of the work. The Estonian Employment Contract Act requires employment agreements to be in writing.

Essential information that must be included in employment contracts:

•   Identification of both parties involved.
•   Start date of employment (and duration for temporary contracts).
•   Workplace location.
•   Clear job description, duties, and responsibilities.
•   Basic salary and details of other compensation or benefits.
•   Payment details, including frequency and method of payment.
•   Working hours.
•   Total number of holidays.
•   Notice periods for termination of employment.
•   Reference to any applicable collective agreements.

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This might sound overwhelming, but it doesn't have to be. Gloroots eliminates these barriers for you. With Gloroots' Employer of Record offering, hiring and managing employees globally is a piece of cake.

Get an overview of what you need to know when hiring in Estonia. Contact us.

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Working Hours 

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In Estonia, the regular workweek usually comprises 40 hours, with employees working 8 hours per day for five days a week.

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Overtime

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Any work that surpasses an employee's regular working hours is classified as overtime and necessitates mutual agreement between the employer and employee. In such cases, employees who are required to work overtime are entitled to either extra time off or compensation at a rate of 150% of their normal hourly wages. It is important to note that working beyond a maximum of 48 hours per week, including overtime, is not permitted.

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Minimum Wage

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As of January 2023, the minimum wage in Estonia increased to EUR 725 per month or EUR 4.30 per hour.

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Maternity Leave and Paternity Leave

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Female employees in Estonia have a maternity leave entitlement of 140 calendar days, which can be extended to 154 days for multiple births. 70 days of their maternity leaves can be taken before the expected due date. During this period, female employees are paid from the Estonian health insurance fund.

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As of 1 July 2020, fathers are eligible for up to 30 calendar days of paid paternity leave. During this period, the employer continues to pay the father's regular salary and can later seek reimbursement from the state. 

Adoptive parents are granted 70 calendar days of leave for each adopted child as long as the child is under the age of ten.

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Annual leave

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Every employee in Estonia is entitled to a minimum of 28 calendar days of annual leave.

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Sick Leave

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If an employee is unable to work due to illness or injury, they are eligible for sickness benefits starting from the fourth day of absence. From the fourth to the eighth day, the employer is responsible for providing the employee with their regular pay. 

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For any additional days of sickness, up to a maximum of 182 calendar days, the health insurance fund covers 70% of the employee's normal wages.

INCOME TAX 

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The individual income tax rate is 20%.

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Other Taxes and Social Security contribution

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Termination Process

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An employment relationship can be terminated in situations involving severe employee misconduct, voluntary resignation by the employee, or as specified in the employment agreement when the relationship comes to an end.

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Notice Period

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The length of advance notice for terminating an employment relationship varies based on the employee's duration of service with the employer. The notice should be provided in writing and adhere to the following guidelines:

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Severance Pay

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For fixed-term employees, if their contract is terminated prematurely, the employer must pay them the wages they would have received for the remaining duration of the contract.

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For permanent employees, the conditions that trigger severance pay are as follows: 

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• In cases of redundancy, the employee is entitled to six months' salary
• Employees with a tenure of five to 10 years receive an extra month of gross salary, while those employed for 10 years or more are entitled to two additional months of gross salary.
  
  

Probation Periods

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The duration of a probation period in Estonia can be up to four months, for permanent employees.

For fixed term employees, the probation period cannot exceed half of the total term of the employment contract. For example, if the employment contract is for 12 weeks , the probation period cannot exceed six weeks. However, even for fixed term employees, this period cannot last for more than 4 months.

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If an employer wishes to terminate an employment contract during the probation period, they must provide at least 15 days' notice before the termination takes effect.

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When it comes to global hiring, ensuring compliance can be a complex endeavor. Employers must navigate through employment laws, payroll procedures, DE&I compliance, GDPR, and other data protection regulations to ensure a smooth and legally compliant onboarding process. Setting up the necessary infrastructure and staying up-to-date with the ever-evolving compliance landscape can add significant complexity to the hiring process.

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At Gloroots, we are here to simplify this journey for you. Our comprehensive solutions offer a centralized platform to efficiently manage all aspects of hiring in Estonia. With our in-house experts, you can confidently navigate cross-border employment and payroll compliance risks. We provide support in generating employment contracts, ensuring timely payments, and offering compliant benefits, allowing you to focus on screening and selecting the right talent.

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Our promise is to provide you and your employees with a seamless global employment experience.

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Contact our experts today to kickstart your global hiring campaign in Estonia.

Employers in Estonia must establish a local legal entity and leverage local resources to ensure compliance with employment regulations, payroll management, tax obligations, and benefits administration. The intricacies of employment laws in Estonia require employers to navigate a complex landscape to ensure compliance. By partnering with local experts, businesses can streamline their operations and effectively manage their workforce, ensuring adherence to Estonian employment regulations and optimizing their business operations.

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With Gloroots' global Employer of Record (EoR) service, you can let Gloroots handle the heavy lifting of payroll, tax, benefits, and compliance, allowing you to concentrate on what matters most: your employees and company growth.

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