Hire in Estonia with Confidence

Employment Laws

Employment contracts are regulated by Estonian labor legislation based on the Employment Contracts Act (Töölepingu seadus), as well as unique terms and conditions specified in employment contracts. 

There are three types of employment contracts in Estonia: 

• Permanent (Alaline tööleping)
• Fixed-term (Tähtajaline tööleping)
• Agency (Agentuuri tööleping

If the work duration exceeds 14 calendar days, or if it has a permanent character – employment contracts must be concluded in writing. This rule does not apply to agreements whose duration does not exceed 14 calendar days.

There is no requirement to draw up written contracts in Estonian.

Hiring Practice

Candidates are recruited externally through job boards and advertising. An applicant must submit their CV to the employer.

Applicants are entitled to get a net salary estimate (hinnanguline netopalk) and information on all deductions upfront during the hiring process.

Employers reserve the right to perform background checks during the hiring process. 

Offer letters are not required, and they are not common in Estonia. 

Once a decision has been made, the employer must notify the candidate and create an employment contract (tööleping). The following aspects must be collected and included:

• Full name
• ID number
• Residence information
• Employment start date
• Description of duties
• Job title
• Gross/net salary and contributions
• Employee benefits
• Work location
• Internal rules of the employer (if applicable)

Tax Documents

Employers are obliged to submit an income and social tax return (form TSD) online to the Estonian Tax and Customs Board (Maksu-ja Tolliamet) by the 10th day of each month. It must be followed by the remittance of withheld income tax, contributions to a mandatory funded pension, unemployment insurance payments, and social tax to the bank account of the Board on the same day as the return is filed.

Payer's Tax Withholding & Reporting Requirements

Employers must pay:

• A social tax of 33% of gross monthly salary for all employees, 20% of which is gross income tax (unless they are exempt from it) regardless of any pay rise, and 13% – health insurance

• An unemployment insurance tax of 1.6% of gross monthly salary for all employees

• Pension contribution of 2% of gross monthly salary for all employees born after 31 December  1982

Per diem allowances are not taxable if they are within a specific monetary limit. As of September 2022, a tax-free per diem rate for a business trip abroad is EUR 50 per day up to 15 days a month and EUR 32 for the rest of the month.

Companies registered in the Czech Republic are subject to 21% corporate value-added tax.

Remuneration

There is no universal payroll rule and schedule in Estonia. Employers are generally expected to pay their staff once a month unless different contractual terms & conditions apply.

Workers’ Rights

In Estonia, employees enjoy the following rights:

• Annual leave – 28 days
• Sick leave – 182 days, paid at 70% of an employee’s salary paid from the fourth until the eighth day of illness
• Maternity leave – 140 days
• Paid parental leave – up to 435 days
• Paternity leave – 10 days
• Education leave – 20 days
• Childcare leave – 6 days per month
• Adoption leave – duration negotiated
• Double pay in case of working on a public holiday
• Severance pay – an average of the previous 6 months’ salary for employees who have been employed for less than 5 years; a full monthly salary for those who have been employed for 5-10 years; two full monthly salaries for those who have been employed for over 10 years
• Overtime – additional time-off or payment at a rate of 150% of normal hourly pay

Benefits

All employees must have unemployment insurance, which the employer is required to pay for. Pension and health insurance contributions are deducted from employees’ salaries and are paid by employers. Employees may be granted additional internal benefits not otherwise governed by labor laws.

When Paid

Last business day of each month, unless otherwise determined by the employment contract.

Employment Laws

No distinctive employment contract is required between an entity and a worker for the latter to be classified as an independent contractor. If an individual renders services to a third party for over 14 calendar days and gets paid for it based on an agreement, such an agreement is considered to be an employment contract. Hence, services rendered by independent contractors are still regulated by Estonian labor law.

Hiring Practice

Contractors are hired through professional employer organizations, an established digital private legal company, or directly. In Estonia, independent contractors are hired based on fixed-term employment contracts whose duration exceeds 14 days.

Contractors may be found via word-of-mouth, job boards, social networks, industry bodies, or other forums. Although hiring practices vary, the contractor may be asked to provide a CV, portfolio, and references, and possibly sign an NDA.

There is no limitation on the use of independent contractors.

Tax Documents

Contractors file tax reports (maksuaruanded) online on their own by March 31 of each year. 

Tax reports can also be submitted in person through a service bureau (Teenindusbürood).

Payer's Tax Withholding & Reporting Requirements

Remuneration paid to independent contractors is subject to a 20% monthly gross income tax. 

Unless a contractor’s gross monthly income exceeds EUR 2,160, the contractors are exempt from paying and reporting a gross income tax. The same rule also applies to employees.

Residents with an annual income of EUR14,400 or less enjoy a basic personal

allowance of EUR6,000. Residents with an annual income above EUR14,400 are entitled to a deduction calculated as per the formula: 6000 – 6000 / 10,800 x (amount of income – 14,4000).

No taxes on commercial transactions apply.

Remuneration

• Through invoices regularly issued to companies directly by contractors by the end of the month. It is encouraged, but not legally enforced, to provide consistent compensation in euros (EUR). Payments become due after the contractor issues an invoice.
• Through outsourced wage processing providers

The frequency of remuneration is to be agreed upon by an employer and a contractor.

Workers’ Rights

Independent contractors are legally entitled only to severance pay. In the event of early termination of the contract without notice, contractors are entitled to the wages that they would have received until the date of termination of the contract.

Benefits

No benefits are granted to contractors. Third-party benefits granted by professional employer organizations may apply when an independent contractor is hired through such organizations (i.e., an umbrella company) and is considered their employee.

When Paid

Typical contractor invoices are issued monthly on net 30-day terms. Each invoice usually includes the following details:

• Invoice number and date
• The client’s name and address
• The contractor’s bank details
• Agreed payment terms and due date