Estonia

Estonia, officially the Republic of Estonia is a small country in northern Europe. It is bordered to the north by the Gulf of Finland across from Finland, to the west by the Baltic Sea across from Sweden, to the south by Latvia, and to the east by Lake Peipus and Russia, covering a total area of 45,339 km2. The capital city Tallinn and Tartu are the two largest urban areas of the country. The Estonian language is the autochthonous and the official language of Estonia. Estonia is a very highly developed country and a member of the EU. Its small population of 1.3 million people is considered to be the one of the most internet savvy in Europe. The Estonian workforce is highly educated and creative.

Estonia’s stable, fast-growing, and fairly open economy is a house of innovation and growth. With its flat-rate taxation policies, a stable budget, and extensively friendly investment policies for foreign nationals, it is one of the most business-friendly countries and a hub for entrepreneurs.

Hiring in Estonia

Most employees in Estonia are engaged under employment contracts, and independent contractor status is rarely used. Companies are responsible for ensuring that employees are eligible to work in Estonia. Citizens of the EU have a right to work in Estonia if they have been granted a right of residency. Temporary residents must have work permits.

Employment Contracts in Estonia

It is legally required to have employment contract in Estonia, in the local language, which spells out the terms of the employee’s compensation, benefits, and termination requirements. An offer letter and employment contract in Estonia should always state the salary and any compensation amounts in Euro rather than a foreign currency.

A work contract is required to include some specific terms, in the absence of which the contract is defective.

The following terms are mandatory:

  • the identities of the parties (name, personal identification code or registration number, residence or seat);
  • 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 legal consequences;
  • the agreed pay payable for the work (wages), including other benefits, if agreed upon;
    • wages payable based on the economic performance and transactions;
    • the manner of calculation;
    • the procedure for payment and the time of falling due of wages (pay day);
    • taxes and payments payable and withheld by the employer;
  • the time when the employee performs the agreed duties (working time);
  • the place of performance of work;
  • the duration of holidays;
  • a reference to, or the terms of, advance notification of cancellation of the employment contract;
  • the rules of work organization approved by the employer;
  • a reference to a collective agreement, if a collective agreement is applicable to the employee.

A contract is considered to be expired on the following grounds:

  • by agreement of the parties;
  • end of the contract period;
  • the initiative of the employee;
  • the initiative of the employer;
  • demands on third parties and conditions not depending on the parties involved.

The notice of a contract termination by either party should be presented in writing.

Working Hours in Estonia

The standard work day is eight hours with a 40 hour week, but businesses often close early on Fridays and executives often work longer hours.

Holidays in Estonia

  • New Year’s Day 01. January
  • Independence Day 24. February
  • Good Friday
  • Easter Sunday
  • Spring Day 01. May
  • Pentecost
  • Victory Day 23. June
  • Midsummer Day 24. June
  • Day of Restoration of Independence 20. August
  • Christmas Eve 24. December
  • Christmas Day 25. December
  • Boxing Day 26. December

The working day directly preceding New Year’s Day, Anniversary of the Republic of Estonia, Victory Day and Christmas Eve is reduced by three hours.

Vacation Days in Estonia

In general, most Estonians receive 28 paid calendar days of vacation, including working and non-working days.

Estonia Sick Leave

Employees are allowed up to 182 calendar days of paid sick leave. Employers are responsible for paying for sick leave from the fourth through the eighth day of leave, and the state pays from the ninth day forward. Sick pay is at 70% of the employee’s last year’s average salary.

Maternity/Paternity Leave in Estonia

Women are entitled to 140 days of maternity leave which must start between 30 and 70 days before the due date. The state pays a maternity benefit.

Fathers are entitled to up to 30 working days of paternity leave from 30 days prior to the due date until the child turns three years old. Paternity leave is paid for by the state and is based on income.

Parental leave is allowed up until the child’s third birthday and is paid by the state. The maternity and parental paid benefits, together are capped at 575 days.

Health Insurance in Estonia

Health insurance is paid for through a social tax, see rates above.

The purpose of health insurance in Estonia is to:

  • cover the costs of health services provided to insured persons;
  • prevent and cure diseases;
  • finance the purchase of medicinal products and medicinal technical aids;
  • provide the benefits for temporary incapacity for work and other benefits.

Estonia Supplementary Benefits

Commonly negotiated benefits include:

  • Company car
  • Laptop
  • Mobile phone
  • Share options

Bonuses

Annual bonuses can be negotiated as part of the salary package.

Termination/Severance in Estonia

Probationary periods of up to four months are common in Estonia.

The minimum periods of termination notice vary from 15 to 90 calendar days, depending on the employee’s length of service, and employers must have grounds for termination.

If an employee is terminated due to redundancy, the employer must pay compensation of one month’s average wage.

If a fixed term contract is cancelled early due to redundancy, the employer must pay what the employee would have been entitled to.

If an employer gives advance notice of cancellation later than provided by law or a collective agreement, the employee has the right to receive the compensation that s/he would have received had the employer adhered to the advanced notice terms.

If the employer wishes to terminate the employment contract with immediate effect, the employer may choose to provide payment instead of notice.

Employees with between five to ten years of service are entitled to an additional one month’s salary from the Unemployment Insurance Fund. Employees with ten or more years of service are entitled to two months’ additional salary from the Fund.

These provisions apply to individual as well as collective dismissal cases.

Paying Taxes in Estonia

Employers are required by the law to pay a social tax of 33% of gross salary, up to a limit set by the state, for all employees, 20% of which is allocated for pension insurance and 13% for health insurance.

The social security system of Estonia comprises seven benefits:

  • Health insurance (contributory)
  • Unemployment insurance (contributory)
  • State unemployment allowances (non-contributory)
  • State family benefits (non-contributory)
  • Social benefits for disabled people (universal, non-contributory)
  • State funeral benefits (universal, non-contributory)
  • Pension insurance (contributory)

Unemployment insurance is 2.4% of the wage. The employer pays 0.8% and employees pay 1.6%.

Unemployment benefit: those who are out of work are eligible to receive an unemployment benefit, as of 1 January 2021 a minimum of EUR 9.73 per day for a period of up to nine months provided they have registered themselves with the Unemployment Office.

This information is provided as generally accepted information and is not intended as advisory services.

Why us

Establishing a branch office or subsidiary in Estonia to engage a small team is time-consuming, expensive and complex. Estonian labor law has strong worker protections, requiring great attention to detail and an understanding of local best practices. We make it painless and easy to expand into Estonia. We can help you hire your candidate of choice, handle HR matters and payroll, and ensure that you’re in compliance with local laws, without the burden of setting up a foreign branch office or subsidiary.