Hiring Talent And Managing Payroll In Estonia

Agreements

• In Estonia, the employment contract must be in writing and must include details such as the job description, working hours, and remuneration.
• Collective agreements are agreements between employers or their organizations and trade unions or employee representatives. These agreements regulate the terms and conditions of employment, including wages, working hours, and holidays.
• The maximum duration of a fixed-term employment contract is two years. The employer can extend this period to three years only in specific cases.
• Employers must provide employees with written notice of their dismissal, and the notice period should be by the terms of the employment contract.
• All contracts and agreements must be in Estonian to be legal. Other languages can be used only in certain special cases if both parties agree to use the same language.

Onboarding Process

• The new employee must first be registered with the Estonian Tax and Customs Board and obtain an identification code before beginning to work.
• The employer must provide the employee with a written copy of the agreement (within seven days of beginning work) which states the terms of their employment, including their job description, working hours, remuneration, notice period, severance pay, etc.
• Some mandatory documents to be submitted for onboarding include a valid passport or ID card, a residency permit (if applicable), and a tax card.

Minimum Wage

Payroll Cycle

Annual Bonus

Health Benefits

• medical care
• hospitalization
• prescription drugs

Working Hours and Overtime

• Work hours:A typical work day consists of 8 hours making a 40-hour work week. The maximum number of hours is 48 hours per week.
• Break: A 30-minute break must be given for 6 hours of consecutive work. In a week,
• Overtime: If the employee works for more than the agreed upon time with mutual agreement of both parties, the employee is entitled to overtime pay of 1.5 times the wage or a paid time off. An employee is allowed to spend just 8 hours a week as overtime.

Social Security

Taxes for Employees

• The income tax rate is a flat 20%
• The mandatory funded pension contribution is 2% of the employee's gross salary (for those born after December 31, 1982).
• Unemployment insurance - 1.6%

Termination

• Employment in Estonia can be terminated by either the employer or the employee. Termination can be done with or without notice, depending on the circumstances.
• Employers must have a valid reason for terminating the contract. Some of the reasons for termination are-

  • Mutual agreement of termination
  • Expiry of a fixed-term contract
  • Death of employee or employer (in some cases)
  • cancellation
• The notice period (wherever applicable) according to employment duration is as follows.

  • Less than one year - at least 15 days
  • One to five years - at least 30 days
  • Five to ten years - at least 60 days
  • Ten years or more - at least 90 day

Severance Pay

• In Estonia, employees are entitled to receive severance pay if they have been employed for at least one year and are terminated due to redundancy or restructuring.
• The amount of severance pay is based on the employee's length of service.

Employees or Contractors

• In Estonia, the legal definitions of employees and contractors are based on the degree of control exercised by the employer over the work performed by the individual.
• An employee is someone who is on the payroll and enjoys certain benefits. Employees usually accrue taxes. The employer is also required to withhold and pay taxes on the employee's behalf.
• Contractors are those who work on a period-to-period basis and are not on a payroll. They are paid as per the contractual agreement. Contractors don't enjoy certain employment benefits. Contractors may be required to be enrolled in the social security scheme and have different social security taxes.
• Misclassifying an employee as a contractor can result in fines and penalties for the employer.

Final Words