Hire in Estonia
Here’s where you get started with human resources best practices and hiring in Estonia.
Key Country Facts
To its east, Estonia is bordered by Russia and to its south by Latvia. The country is surrounded by the Baltic Sea to both the west and north. The mainland, together with more than 2,000 small islands, cover a total area of approximately 45,000 square kilometers
The separation of church and state is guaranteed by the Estonian constitution. According to a recent survey, close to three quarters of the population express no religious affiliation. Christianity accounts for the vast majority of those who do adhere to a religion.
The official language of Estonia is Estonian, while Russian is the most widely spoken minority language. Most younger Estonians are fluent in English. Typically, English, German and Russian are taught as second languages
Estonia HR at a Glance
The relationship between an employer and employee in Estonia is mainly regulated by the Employment Contracts Act (‘Töölepingu Seadus’). Employment relations are also regulated by the Law of Obligations Act (‘Võlaõigusseadus’), the Individual Labor Dispute Resolution Act (‘Individuaalse töövaidluse lahendamise seadus’) and the Occupational Health and Safety Act (‘Töötervishoiu ja tööohutuse seadus’).
Generally speaking, Estonian labor laws tend to be more lenient. However, the principle of protection is applied towards the employee. This means agreements with disadvantageous clauses towards employees, compared to what is set forth in legislation, are likely considered void.
An employment agreement must be concluded in writing. However, an employment contract will also be considered to exist if work is being performed for remuneration.
An agreement on a condition harmful to the employee (or related to the validity of the employment contract) is considered void if the condition is contingent upon an uncertain event (resolutive condition). An employment contract may be amended only by agreement between the parties.
A written document of an employment contract must contain at least the following information:
- the name, personal identification code or registry code, place of residence or location of both the employer and the employee
- the date the contract begins and the start date of work by the employee
- a description of the position’s duties
- the official title
- the agreed remuneration payable for the work (wages), the procedure for payment and the timeline of wage payments (pay day)
- description of 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
- terms for the advance notice of cancellation of the employment contract
- a reference to organizational work rules as established by the employer
- a reference to a collective agreement if such a collective agreement applies to the employee
The employer must keep the written employment contract on file during the term of validity of the employment contract and for ten years following the expiration of the employment contract.
An employment contract in Estonia is presumed to be for an unspecified term. A fixed-term contract for up to five years can be entered into, so long as it is justified by good reasons arising from the temporary characteristics of the work. For example, this can apply in cases where there is a temporary increase in work volume or the performance of the work at hand is seasonal.
A fixed-term contract will be deemed to have been unspecified from the start if it is renewed more than twice consecutively or if it is extended more than once in five years. Entry into employment contracts for a fixed term will be deemed consecutive if the time between the expiration of one employment contract and entry into the next employment contract does not exceed two months.
Probation Period / Trial Period
The trial period in the Estonian labor contract must not exceed four months in the case of indefinite contracts. It must not exceed half of the contract period in the case of a temporary contract. The notice during the trial period is 15 days and this must be provided in writing.
It is presumed a full-time employee works 40 hours during a seven-day period at eight hours per day. Certain flexible options are available for applying a summarized working time calculation within a specified period up to four months. Overtime is normally permitted upon an agreement between the parties. However, certain limits must be observed.
The average working time must not exceed 48 hours per a period of seven days over a calculation period of up to four months. The exception to this is if a different calculation period has been provided by law.
An agreement in which an employee is granted less than 11 hours of consecutive rest time over a period of 24 hours is void, unless otherwise prescribed by law. The same principle applies for any agreement by which an employee is granted with less than 48 hours of consecutive rest over a period of seven days .
It is presumed an employee’s weekly rest time will be granted on Saturday and Sunday.
An employer and employee may agree for the employee to work beyond the agreed working schedule (overtime work). When it comes to calculating summarized working time, overtime work means any work performed in excess of the agreed working time.
Overtime work is not permitted for employees who work in hazardous conditions and whose working time has been shortened due to those conditions.
In line with the principle of good faith, an employer in Estonia may demand an employee work overtime due to unforeseen circumstances. These circumstances must relate to the enterprise or activity of the employer, specifically for the prevention of loss or damage.
Employers cannot demand overtime work from a minor, a pregnant woman or an employee who has the right to pregnancy and maternity leave.
An employer must compensate for overtime work by time off equal to the overtime unless an agreement is in place for the employee to be financially compensated. When compensating for overtime work in money, an employer must pay the employee 1.5 times their ordinary wages. If the overtime work falls on a public holiday, the employer must pay two times the ordinary wages.
It is fairly common in some industries for companies in Estonia to award a bonus to employees if certain agreed targets are met within an agreed reference period. These periods are typically monthly, quarterly or yearly. The conditions and calculation for the bonus are usually defined in a written bonus plan. Employers may also provide for a collective bonus system for the benefit of their employees, which is tied to a number of predetermined company objectives.
The following terms apply for the ‘ordinary’ termination of employment contract in Estonia:
- A cancellation is presumed to be ordinary, unless the employee proves it to be ‘extraordinary.’
- An employer may not cancel an employment contract ordinarily.
- An employee in an indefinite-term contract can ordinarily cancel their employment contract at any time.
- An employee may not ordinarily cancel a fixed-term contract.
The following terms apply for the ‘extraordinary’ termination of employment contract in Estonia:
- The employer must cancel an employment contract within a reasonable time after they learn (or should have learned) of the circumstance serving as the basis for the cancellation.
- An employer may extraordinarily cancel an employment contract with good reason (as outlined below) and by adhering to the terms for advance notice. This applies if the employee has:
- been unable to perform his or her duties for a long period due to his or her state of health, which does not allow for the continuation of the employment relationship. Such a ‘decrease in capacity for work due to state of health’ is presumed if the situation continues for over four months. However, before cancelling the contract, the employer must offer other work to the employee unless the changes would incur disproportionately high costs for the employer.
- been unable to perform his or her duties for a long period due to his or her insufficient work skills, non-suitability for the position or inadaptability. This applies if the ‘decrease in capacity for work’ does not allow for the continuation of the employment relationship. Before cancelling the contract, the employer must offer other work to the employee unless the changes would incur disproportionately high costs for the employer.
- disregarded the employer’s reasonable instructions or breached his or her duties, in spite of a warning from the employer.
- worked while intoxicated, despite a warning from the employer.
- committed theft, fraud or another act bringing about the loss of the employer’s trust in the employee.
- triggered a third party’s distrust in the employer.
- wrongfully, and to a significant extent, damaged the employer’s property or presented a threat of such damage.
- violated their obligation for maintaining confidentiality or the restriction of trade.
An employer may extraordinarily cancel an employee contract for economic reasons if the continuation of the employment relationship on the agreed conditions becomes impossible due to a decrease in the work volume, reorganization of work assignments or other cessation of work (layoff).
Before cancelling a contract due to a layoff, an employer must offer other work to the employee. However, this does not apply if the change would incur disproportionately high costs for the employer. Upon cancellation of an employment contract due to a layoff, the employees’ representative and an employee who is raising a child under three years of age have the preferential right of keeping their job.
An employer may also extraordinarily cancel an employee contract for economic reasons upon cessation of business activities (closure) or the bankruptcy of the employer.
Upon cancellation of an employment contract, the employer must take into account the principle of equal treatment.
Collective termination of employment contracts
- A collective termination of employment contracts means cancellation within 30 calendar days due to layoffs of no less than:
- five 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% 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 if the continuation of the contract cannot be reasonably demanded, taking into account all circumstances and mutual interests.
- 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, particularly if the employee’s state of health or family duties do not allow them 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 learned (or should have learned) of the circumstance serving as the basis for the cancellation.
The amount of notice an employer must provide to an employee depends on the period of employment. If the employee has worked for:
- less than one year, the employer must give at least 15 calendar days’ notice
- one to five years, the employer must give at least 30 calendar days’ notice
- five to 10 years, the employer must give at least 60 calendar days’ notice
- 10 years or more, the employer must give the employee at least 90 calendar days’ notice
Employees who wish to terminate a contract must give the employer at least 30 calendar days’ notice.
Employment contracts may be terminated during the probationary period by providing at least 15 calendar days’ notice. An employee is not required to notify the employer of extraordinary cancellation if, considering any and all circumstances and mutual interests, it cannot be reasonably expected for the contract to be continued through the expiration of the agreed term or through the term of advance notice.
Upon terminating an employment contract due to a layoff, the employer must pay the employee compensation of one month’s average wages. An employee is also entitled to receive an insurance benefit under the Unemployment Insurance Act.
Severance amount depends on years of service:
- 5 years or less: 1 month
- 5-10 years: 2 months
- >10 years: 3 months
Employers can pay severance in lieu of providing notice.
Upon terminating a fixed-term employment contract for economic reasons, an employer is required to pay employees compensation equivalent to the salary due for the remainder of the contract term.
If an employee terminates the employment contract extraordinarily because the employer has committed a fundamental breach of the contract, the employer must pay the employee compensation of three months’ average wages.
Post-Termination Restraints / Restrictive Covenants
An agreement on a restraint of trade clause following the expiration of an employment contract is valid only if all of the following conditions apply:
- The clause is necessary for protecting the employer’s special economic interest.
- The clause is limited reasonably and recognizably for the employee in terms of space, time and objects.
- The clause has been agreed upon in writing.
- The clause is active for up to one year maximum, starting from the expiration of the employment contract.
- The employer pays the employee a reasonable monthly compensation for adherence to the agreement.
In 2019, the European Court of Justice stated companies must implement an objective, reliable and accessible system for recording the working times of their employees.
The operation of trade unions in Estonia are regulated by the Trade Unions Act and the Collective Agreements Act. The first Act outlines the general rights of and basis for the activities of trade unions, as well as their relations with government authorities and employers. The latter Act determines the legal basis for concluding and performing collective agreements. Employees have the right to freely establish, join or not to join trade unions. Both trade union membership and density have decreased in recent times.
Tax and Social Security
Personal Income Tax
Employment income for resident and non-resident taxpayers is subject to a flat income tax rate of 20%.
A resident must pay income tax on all income sourced in Estonia and worldwide. Employment income for residents is also subject to unemployment insurance premiums at the rate of 1.6% and mandatory funded pension contributions of 2%.
A non-resident must pay income tax on all income sourced in Estonia. Income derived from certain activities is eligible for a discounted rate of 10% This includes income earned through artistic and sports activities, fees from professional services and royalties.
Social Security Contributions
Employers in Estonia must pay social tax on payments to employees at the rate of 33%. This is 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 required to calculate and withhold all payroll taxes on a monthly basis.
*The above rates serve as a broad guideline. Actual rates charged by GoGlobal will differ.
An employer must pay wages to an employee once a month. A more frequent pay schedule can be agreed upon. If the pay day falls on a public holiday or a day off, the pay day will be the working day preceding the public holiday or day off. The employer must transfer the employee’s wages and other remuneration to the bank account indicated by the employee unless otherwise agreed upon.
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 required to disclose information about monthly salary, fees, bonuses, average salary calculation or any other notices connected with the employment relationship. The parties may agree on how the payslip is disclosed, whether on paper or through email.
An employee has the right to annual paid leave of at least 28 calendar days. National holidays and public holidays are not included in the vacation calculations. Annual holiday should be used within the calendar year. Annual holiday is granted only by agreement of both parties. At least 14 calendar days of holiday must be used by an employee successively. The employer can refuse to divide annual holiday leave into parts shorter than seven days.
Carry Over Rules
An unused part of holiday can be transferred to the next calendar year but this leave will expire without compensation within one year of the end of the calendar year for which the holiday was calculated.
In case of sickness, the employee can be allowed up to 182 calendar days of paid sick leave. This is subject to a maximum of 250 days per year. The gross wage during this period is 70% of his or her last years’ average salary. The employer pays the wage from the fourth to the eighth day of sickness. The government pays the wage starting on the ninth day.
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 is entitled to a paternity leave of 30 calendar days. This may be taken in one segment or in several segments during the period of time from 30 days before the estimated date of birth until the child turns three.
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.
Childcare leave will be granted to both employed parents separately and on a per-child basis. Each parent is entitled to a total of 10 days of parental leave per child below 14 years old (i.e. a total of 20 days for two parents). Childcare leave does not expire each year and is valid until the end of the calendar year in which the child reaches 14 years old.
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 by three hours preceding New Year’s Day, the anniversary of the Republic of Estonia, Victory Day and Christmas Eve.
Benefits to the Employee in Estonia
In general, all employees working in Estonia, and from whose gross salary an employer has paid the social security contributions, 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 common for international employers in Estonia to offer some additional benefits that would not typically be offered by local companies:
- 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 three months, they simply need to register for Estonian residency within the first three months of entering the country.
Citizens of a non-EU country wanting to work in Estonia for a short time (up to six 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 wishing to work in Estonia for a longer time (more than six months) need to apply for a residence permit. Initially the application is for a temporary residence permit and is renewable. They can then work up to two years with the first permit. After living in Estonia for five years on a temporary residence permit, it is possible to apply for a long-term residence permit. First, they must fill out an application form and identification documents. Next, an “Invitation by Employer” form must be completed by the employer and 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 required to pay the employee a salary at least 1.5 times of the Estonian annual average gross monthly salary.
Getting a Tax Number
The Estonian identification code (‘Isikukood’) is a unique 11-digit code. Formed on the basis of the sex and date of birth of a person, the number enables the specific identification of the person. This number also functions as a Tax Identification Number. Everyone working 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 once they receive their temporary residence permit at the Police and Border Guard Board. A personal ID code is not required for signing an employment contract. However, individuals 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|