Hire in Estonia
Here’s where you get started with human resources best practices and hiring in Estonia.
Key Country Facts
Estonia HR at a Glance
The relationship between employer and employee is mainly regulated by the Employment Contracts Act (Töölepinguseadus). Employment relations are also regulated with the Law of Obligations Act (Võlaõigusseadus), the Individual Labour Dispute Resolution Act (Individuaalse töövaidluse lahendamise seadus), and the Occupational Health and Safety Act (Töötervishoiu ja tööohutuse seadus).
Generally speaking, Estonian labour laws are quite liberal. However, the principle of protection is applied towards the employee. This means that as a rule, agreements which include disadvantageous clauses towards employees, compared to what is set forth in legislation, are likely considered void.
An Employment Agreement must be concluded in written form. An employment contract shall be entered into in writing. An employment contract shall also be deemed entered into if an employee commences work which, under the circumstances, can be expected to be done only for remuneration.
An agreement on a condition harmful to the employee or related to the validity of the employment contract, which is contingent upon an uncertain event (resolutive condition), is void. An employment contract may be amended only by agreement between the parties.
A written document of an employment contract shall contain at least the following information:
- 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), 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 working time of the employee;
- 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.
The employer shall preserve the written employment contract during the term of validity of the employment contract and for ten years after the expiry of the employment contract.
It is presumed that an employment contract is entered into for an unspecified term. An employment contract may be entered into for a specified term of up to five years if it is justified by good reasons arising from the temporary fixed-term characteristics of the work, for example, a temporary increase in work volume or performance of seasonal work.
If an employee and employer have, on more than two consecutive occasions entered into an employment contract for a specified term for the performance of similar work or extended the contract entered into for a specified term more than once in five years, the employment relationship shall be deemed to have been entered into for an unspecified term from the start. Entry into employment contracts for a specified term shall be deemed consecutive if the time between the expiry of one employment contract and entry into the next employment contract does not exceed two months
Probation Period / Trial Period
The averaged working time must not exceed on 48 hours per a period of seven days over a calculation period of up to four months, unless a different calculation period has been provided by law.
An agreement by which an employee is left over a period of 24 hours with less than 11 hours of consecutive rest time is void, unless otherwise provided by law.
An agreement by which an employee is left over a period of seven days with less than 48 hours of consecutive rest time is void, unless otherwise provided by law.
It is presumed that the weekly rest time is granted on Saturday and Sunday
An overtime work agreement with an employee who comes into contact with hazards in the working environment and whose working time has therefore been shortened pursuant to law is not allowed.
In line with the principle of good faith, an employer may demand that an employee work overtime due to unforeseen circumstances pertaining to the enterprise or activity of the employer, in particular for prevention of damage.
Working overtime cannot be demanded of a minor, a pregnant woman or an employee who has the right to pregnancy and maternity leave.
An employer shall compensate for overtime work by time off equal to the overtime, unless it has been agreed that overtime is compensated for in money.
If compensated for overtime work in money, an employer shall pay an employee 1.5 times the wages. If the working time falls on a public holiday, the employer shall pay 2 times the wages for the work.
- An employee may ordinarily cancel an employment contract entered into for an indefinite term at any time.
- An employee may not ordinarily cancel a fixed term contract.
- It is presumed that cancellation is ordinary, unless the employee proves that cancellation is extraordinary.
- An employer may not cancel an employment contract ordinarily.
Extraordinary cancellation of employment contract by employer
1. The employer must cancel an employment contract within a reasonable time after they learnt or should have learnt of the circumstance serving as the basis for the cancellation.
2. An employer may extraordinarily cancel an employment contract with good reason, as outlined below and by adhering to the terms for advance notice if the employee has:
- for a long period been unable to perform his or her duties due to his or her state of health which does not allow for the continuance of the employment relationship (decrease in capacity for work due to state of health, which is presumed if the situation continues for over four months). Before cancelling the contract, the employer shall, if possible, offer other work to the employee unless the changes cause disproportionately high costs for the employer
- for a long period been unable to perform his or her duties due to his or her insufficient work skills, non-suitability for the position or inadaptability, which does not allow for the continuance of the employment relationship (decrease in capacity for work). Before cancelling the contract, the employer shall, if possible, offer other work to the employee unless the changes cause disproportionately high costs for the employer
- in spite of a warning, disregarded the employer’s reasonable instructions or breached his or her duties;
- in spite of the employer’s warning been at work in a state of intoxication;
- committed a theft, fraud or another act bringing about the loss of the employer’s trust in the employee;
- brought about a third party’s distrust in the employer;
- wrongfully and to a significant extent damaged the employer’s property or caused a threat of such damage;
- violated the obligation of maintaining confidentiality or restriction of trade.
Extraordinary cancellation of employment contract by employer for economic reasons
- An employer may extraordinarily cancel an employment contract if the continuance of the employment relationship on the agreed conditions becomes impossible due to a decrease in the work volume or reorganization of work or other cessation of work (lay-off). Before cancellation due to lay-off, an employer shall, where possible, offer other work to the employee, unless the changes cause disproportionately high costs for the employer;
- upon cessation of the activities or bankruptcy of employer;
- Upon cancellation of an employment contract, the employer shall take into account the principle of equal treatment.
- Upon cancellation of an employment contract due to lay-off, the employees’ representative and an employee who is raising a child under three years of age have the preferential right of keeping their job.
Collective cancellation of employment contracts
1. Collective cancellation of employment contracts means cancellation, within 30 calendar days due to lay-off, of the employment contract of no less than:
- 5 employees in an enterprise where the average number of employees is up to 19;
- 10 employees in an enterprise where the average number of employees is 20–99;
- 10 per cent of the employees in an enterprise where the average number of employees is 100 to 299;
- 30 employees in an enterprise where the average number of employees is at least 300.
Extraordinary cancellation of employment contract by employee
- An employee may cancel an employment contract extraordinarily with good reason, in particular, if taking into account all circumstances and mutual interests, continuance of the contract cannot be reasonably demanded.
- An employee may cancel an employment contract extraordinarily due to a fundamental breach of the employer’s obligation.
- An employee may cancel an employment contract extraordinarily due to a reason arising from the employee, in particular if the employee’s state of health or family duties do not allow him or her to perform the agreed work and the employer does not provide him or her with suitable work.
- An employee may cancel an employment contract only within a reasonable time after he or she learnt or should have learnt of the circumstance serving as the basis for the cancellation.
- less than one year, the employer must give a minimum of 15 calendar days’ notice;
- one to five years, the employer must give a minimum of 30 calendar days’ notice;
- five to ten years, the employer must give a minimum of 60 calendar days’ notice;
- ten year or more the employer must give the employee a minimum of 90 calendar days’ notice.
Employees who wish to terminate the employment contract must give the employer a minimum of 30 calendar days’ notice.
Employment contracts may be cancelled during the probationary period by giving no less than 15 calendar days’ notice. An employee does not have to notify the employer of extraordinary cancellation if, considering any and all circumstances and mutual interests, it cannot be reasonably demanded that the performance of the contract be continued until the expiry of the agreed term or term of advance notice.
Severance amount depends on years of service:
- 5 years or less – 1 month
- 5-10 years – 2 months
- >10 years – 3 months
Employer can pay severance in lieu of giving notice.
Upon terminating a fixed-term employment contract for economic reasons, an employer shall pay employees compensation equal to the salary due for the remainder of the contract.
If an employee terminates the employment contract extraordinarily because the employer has committed a fundamental breach of the contract, the employer shall pay the employee compensation of three months’ average wages.
Post-Termination Restraints / Restrictive Covenants
- it is necessary for protecting the employer’s special economic interest
- it is limited reasonably and recognizably for the employee in terms of space, time and objects
- it has been made in writing
- it is made for up to one year maximum, starting from the expiry of the employment contract
- The employer pays the employee a reasonable monthly compensation for adherence to the agreement
The operations of trade unions in Estonia are governed by the Trade Unions Act and the Collective Agreements Act. The first Act provides for the general rights of and bases for the activities of trade unions, and their relations with state and local government authorities and employers, while the latter determines the legal base of concluding and performing the collective agreements. Employees have the right to freely establish, join or not to join trade unions. Both trade union membership and density have been decreased in recent times.
Tax and Social Security
PERSONAL INCOME TAX
Employment income for resident and non-resident taxpayers is subject to flat income tax rate of 20%.
A resident has to pay income tax on all income derived by them in Estonia and worldwide. (NB. Employment income for residents is also subject to unemployment insurance premiums at rate of 1.6% and mandatory funded pension contributions 2%.)
A non-resident must pay income tax on all income derived by them in Estonia. Income derived from certain activities such as artistic and sports activities, fees from professional services & royalties is eligible for a discounted rate of 10%.
Social Security Contributions
Employers operating in Estonia must pay social tax on payments to employees at the rate of 33% (not subject to any cap).
Unemployment Insurance Contributions
Employers are also required to pay and withhold unemployment insurance contributions. Employers must pay 0.8% and employees must pay 1.6%.
The employer is obliged to calculate and withhold all payroll taxes monthly.
*The above rates serve as a broad guideline. Actual rates charged will differ.
An employer shall pay wages to an employee once a month, unless a shorter term has been agreed upon for payment of remuneration. If the pay day falls on a public holiday or a day off, it shall be deemed that the pay day is the working day preceding the public holiday or day off. The employer shall transfer the employee’s wages and other remuneration to the bank account indicated by the employee, unless agreed otherwise
There are no statutory requirements for employee payslips in Estonia. However, the Employment Contracts Act states that if the employee makes a request for it, the employer is obliged to disclose information about calculated and paid monthly salary, additional fees, bonuses, average salary calculation or indeed any other notices connected with the employment relationship. The parties may agree on how the payslip is disclosed – whether on paper or via email.
Carry Over RulesAn unused part of holiday shall be transferred to the next calendar year but expires without compensation within one year of the end of the calendar year for which the holiday was calculated.
Maternity & Parental Leave
A female employee is granted 100 days of pregnancy and maternity leave, which may commence at least 70 days before the estimated birth date of the child and 30 days after the birth. The maternity benefit is paid by the state. It is recommended for pregnant employees to discuss taking maternity leave with their employer at least 30 calendar days before the start of maternity leave. Once maternity leave has commenced, it has to be used consecutively.
If the female employee chooses to take the maternity leave 30 days before the estimated birth date, the total duration of the leave will be at least 60 days and up to 40 days will remain unused. This can be carried over to the total days for shared parental leave which can be used flexibly by both the mother and father.
If the female employee chooses to take the maternity leave less than 30 days before the estimated birth date, the total duration of leave will be at least 30 days and the unused days will not be transferred to shared parental leave. Therefore, it is recommended for a pregnant employee to take maternity leave at least 30 days before the expected date of birth.
A father has the right to paternity leave of 30 calendar days. This may be taken in one part or in several parts during the period of time from 30 days before the estimated date of birth until the child attains three years of age.
A mother or a father shall be granted parental leave at her or his request for raising a child of up to 3 years of age. The parental benefit is paid by the state. Together the maternity benefit and the parental benefit are paid for a period of 575 days.
If a child has a disability, the parents have an additional leave of one day per month until the child turns 18.
Adoptive parent leave
An adoptive parent of a child under 10 years of age has the right to adoptive parental leave of 70 calendar days, effective for 6 months from the date of entry into force of the court judgement approving the adoption. There is a right to obtain compensation for such a period in accordance with the Health Insurance Act. The leave has to be taken for at least 7 days each time.
A mother and father (or guardian or foster parent) who is raising a child of up to 14 years of age or a disabled child of up to 18 years of age, has the right to child leave without pay of up to 14 days per year, and 30 days for multiple children.
An adult employee has the right to up to five working days of leave per calendar year for caring for an adult with a profound disability (carer’s leave) if he or she is: the spouse or registered partner, a parent, a sibling, the guardian or the appointed caregiver. Carer’s leave is compensated for according to the minimum wage established on the basis of subsection 29 (5) of this Act.
Estonia normally has 12 recognized public holidays each year which are considered non-working days. Additionally, an employer should shorten the working day preceding New Year’s Day, the anniversary of the Republic of Estonia, Victory Day and Christmas Eve by three hours
Benefits to the Employee in Estonia
In general, all employees working in Estonia, and from whose gross salary the employer has paid the social security contributions and whose employment is registered, are subject to and benefit from the Estonian Social Insurance scheme.
The Social Insurance scheme provides for universal:
- Health Insurance
- Unemployment Insurance
- Family Benefits
- Disability and Incapacity Benefits
- Old Age and Survivor’s Pension
It is quite common that international employers in Estonia offer some additional benefits whereas typically these would not be offered by local companies. The following perks are sometimes offered:
- supplementary private healthcare plan
- additional holidays
- company car (salespeople and senior executives)
- gym membership
- home working
- laptop and mobile phone
Visas and Foreign Workers
Citizens of the EU, the EEA (Iceland, Liechtenstein and Norway) and Switzerland, can enter Estonia without a visa.
If they wish to work and stay in Estonia for more than 3 months, they simply need to register for Estonian residency within the first 3 months of their stay.
Citizens of a non-EU country wanting to work in Estonia for a short time (up to 6 months in a year) should apply for a D-visa. Before applying for a D-visa, the employer should register the short-term employment with the Estonian Police and Border Guard Board.
Citizens of a non-EU country wanting to work in Estonia for a longer time (longer than 6 months) need to apply for a residence permit. Initially the application is for a temporary residence permit (for work up to 2 years with the first permit) and is renewable. Having lived in Estonia for 5 years on a temporary residence permit it is possible to apply for a long-term residence permit. Together with the application form and identification documents, a so called “Invitation by Employer” form, completed by the employer must be submitted to the Police and Border Guard Board.
Additionally, under the EU’s Blue Card system highly skilled non-EEA nationals may reside and work in Estonia. During the validity period of the EU blue card, an employer is obligated to pay to the employee a salary which is at least equal to the multiplication factor of 1.5 of the Estonian annual average gross monthly salary.
GETTING A TAX NUMBER
The Estonian identification code (Isikukood) is a unique 11-digit code. It is a number formed on the basis of the sex and date of birth of a person which allows the specific identification of the person. This number also functions as a Tax Identification Number. Everyone working and/or living in Estonia has the right to a personal identification code.
Citizens of the European Union, European Economic Area or Switzerland: will be provided with their personal identification code when registering their residence in Estonia at the local government office.
In general, citizens of other nations should obtain the code when once they have received their temporary residence permit at the Police and Border Guard Board. Note, a personal ID code is not required for signing an employment contract). However, persons on a D-visa should apply for the identification code in person at their local government office within five days of starting work.
Public Holidays in 2022
|1.||New Year’s Day||January 1st|
|2.||Independence Day||February 24th|
|3.||Good Friday||April 15th|
|4.||Easter Sunday||April 17th|
|5.||Spring Day||May 1st|
|6.||Whit Sunday||June 5th|
|7.||Victory Day||June 23rd|
|8.||Midsummer Day||June 24th|
|9.||Independence Restoration Day||August 20th|
|10.||Christmas Eve||December 24th|
|11.||Christmas Day||December 25th|
|12.||2nd Day of Christmas||December 26th|
Several other holidays are observed, either unofficially at a national level or by official local public observance.