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.

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

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. 

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

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.

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

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.

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.

Working Hours 

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

Overtime

On average, employees must not work more than 48 hours per week, calculated over a rolling four-month period. Any time spent beyond this limit is considered overtime and must either be compensated at a rate of 1.5 times the regular salary or balanced out with equivalent paid time off.

Minimum Wage

In Estonia, the legally mandated minimum monthly wage stands at €886. This sets the baseline earnings for full-time employees across the country, ensuring a standardized floor for compensation.

Maternity Leave

In Estonia, pregnant employees are entitled to 140 calendar days of fully compensated maternity leave. This leave can begin as early as 70 days before the expected due date, with a mandatory minimum of 30 days.

Maternity leave is paid at 100% of the employee’s average income, calculated based on earnings from the previous calendar year, and there is no cap on the amount received. For mothers who did not work during the previous calendar year but had some employment prior to giving birth, the minimum wage of €654 per month is applied as the compensation baseline.

This benefit is fully funded through health insurance contributions, ensuring comprehensive coverage regardless of income level. The payment model ensures equity by providing full wage replacement for most, while still guaranteeing a safety net for those with limited work history.

While childcare allowance is no longer granted for children born after August 31, 2019, other benefits such as child allowance and family-related payments continue to be available to eligible families.

Paternity Leave

In Estonia, fathers are granted two distinct periods of paternity leave. Initially, they are entitled to 10 working days, which can be taken within two months before or after the child's due date. Following the birth, fathers are eligible for an additional two months of paternity leave.

During both leave periods, fathers receive 100% of their average wages, calculated based on their employment history. However, this payment is capped at three times the national minimum wage, ensuring generous, but not unlimited, support during the leave.

This structure aims to encourage active fatherhood while balancing economic sustainability.

Annual leave

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

Sick Leave

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. 

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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Other Taxes and Social Security contribution

Employer Payroll Contributions

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Employee Payroll Contributions

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Termination Process

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.

Notice Period

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

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.

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

• 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

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.

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.

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.

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.

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

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.

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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