Global PEO Services (GPS) helps companies hire employees in Estonia without establishing a legal entity. All human resources, benefits, payroll, and tax needs for the employees are managed by the Global PEO, while the new hires and headquarter teams focus on your business goals.
When hiring employees in Estonia, establishing a subsidiary or branch office is not always the best route, as it’s often a lengthy and expensive process. Hiring via a Professional Employer Organization (PEO), or Employer of Record (EOR), is a faster and often more effective option – especially when starting up in a new country.
Global PEO Services hires the employees on your behalf, legally contracting them through our subsidiary in accordance with Estonia labor laws. As a result, the burden of compliance is on us and the employees can begin work for your company in a matter of days. PEOs/EORs provide you with a streamlined option for hiring employees, testing markets, and responding to growing business needs in Estonia. With Global PEO Services, you get control without taking on legal entity liabilities, contractor risks, or sacrificing on talent or speed to market.
Estonia - Country Overview
The Republic of Estonia is a country in northeastern Europe. The country is regarded as an advanced economy characterized by a free market, pro-business and sound fiscal policies, which is open to foreign investment. The combined value of the country’s imports and exports is equal to 151% of its GDP, signifying the importance of foreign investment to its economy. Oil shale energy, textiles, timber, banking, telecommunications, transportation, electronics, food and fishing, chemical products and shipbuilding are the major sectors of the economy.
Parliamentary System, Unitary State, Parliamentary Republic
Tartu, Narva, Parnu, Kohtla-jarve
Employment Contracts in Estonia
The employment contract is generally entered into for an unlimited term unless a limited term is justified by the characteristics of the work. Employment agreements can be amended only by mutual consent of the employer and the employee.
An employment contract (and any subsequent amendment to it) must be in writing if its duration is longer than 2 weeks. The employer and the employee can freely detail the terms and conditions of employment, but the terms and conditions cannot be less favorable to the employee than those provided by the law.
Working Hours in Estonia
A regular workday has 8 hours and a normal work week comprises 40 hours. A workday cannot exceed 13 hours, including overtime work.
Overtime work, or work done beyond 8 hours a day, is paid at a rate of 150% of regular remuneration. Work done at night, between the hours of 10 p.m. and 6 a.m., is remunerated at a rate of 125% of regular pay. Work done on a holiday is paid at 200% of the normal rate.
Employee Leave in Estonia
The minimum amount of annual leave for employees who have worked for the company for at least a year is 28 days. Employees who have worked 6 months but less than a year are entitled to a prorated vacation. The timing of annual leave is mandated by the employer.
Employees must take one period of annual leave no less than 14 consecutive calendar days in length. Employers can refuse to allow employees to take leave in increments shorter than 7 days.
The annual leave payment must be made no later than the penultimate working day before the commencement of the leave. Any unused annual leave may be carried over into the next year. An employee may apply for additional vacation without pay, if necessary.
There are 12 public holidays in Estonia:
- Jan. 1: New Year’s Day
- Feb. 24: Independence Day
- Good Friday
- Easter Sunday
- May 1: Spring Day
- June 23: Victory Day
- June 24: Midsummers Day
- Aug. 20: Independence Restoration
- Dec. 24: Christmas Eve
- Dec. 25: Christmas Day
- Dec. 26: Boxing Day
When the holiday falls on a Saturday or a Sunday, the following Monday is a regular working day in Estonia. The working day before the New Year’s Day, Independence Day, Victory Day, and Christmas Eve is 3 hours shorter than the regular working day.
According to the general rule, public holidays are not working days. The need for an employee to work on a public holiday may arise (for example) due to the employer’s economic activity. In these cases, the employer must pay the employee 2 times his/her regular wages for the time worked. Employer and employee can agree upon the compensation for work done on a public holiday in the form of additional time off.
For the first 3 days of absence, the employee is not paid any benefits. From the fourth day to the eighth day, the benefit is paid by the employer at 70% of the average salary during the last 6 months. Starting from the ninth day, the benefit is paid from the Social Insurance Fund at 70% of the social security tax paid a year before.
An expectant mother has the right to paid pregnancy and maternity leave of 140 calendar days. She is entitled to maternity leave of at least 70 calendar days before childbirth. If an expectant mother starts using pregnancy and maternity leave less than 30 days before the estimated date of birth, pregnancy and maternity leave is shortened by the unused leave. The leave is paid by the social security system.
A father receives a total of 10 working days of paternity leave during the 2 months before the expected date of childbirth and during the 2 months after childbirth. Paternity leave is remunerated based on the father’s average wages but by no more than 3 times the average salary.
Adoptive Parent Leave
An adoptive parent is entitled to paid parent leave of 70 calendar days when adopting a child under 10 years of age but after the approval of adoption from a court.
Childcare Leave with Pay
Parents are entitled to paid childcare leave each year as follows:
- 3 working days if they have 2 or fewer children under 14 years of age,
- 6 working days if they have at least 3 children under 14 years of age.
The benefit is paid by the social security system.
Childcare Leave without Pay
Mothers or fathers who are raising a child up to 14 years of age are entitled to up to 10 days of unpaid childcare leave per year.
Parents, step-parents, adoptive parents or guardians of a child are entitled to 435 days of paid parental leave until the child reaches 3 years of age. Only one parent can take leave at the same time. The benefit is paid by the social security system.
Employee Benefits in Estonia
Pension and Social Security
Under the social insurance system, the legal retirement age is 63 and will increase by 3 months every year starting on January 1, 2017, until reaching 65 in 2026. To qualify for a pension, an employee must have at least 15 years of service. Early retirement is allowed under certain conditions but may result in decreased benefits.
Employees born after 1982 are also required to participate in the mandatory individual account system. As under the social insurance system, the minimum retirement age is 63 and will increase by 3 months every year until reaching 65 in 2026, but only 5 years’ service is required to qualify.
Employees are required to contribute 2% of earnings to their individual accounts but make no contribution to the social security system. The employer contributes 16% of gross payroll to the social insurance system and 4% to individual accounts.
There is no specific worker’s compensation program in Estonia. Benefits are provided through the sickness and maternity and old age, disability, and survivor programs and by employers. All employed persons residing permanently in Estonia are covered for occupational diseases and for accidents that occur at work or while commuting to and from work.
Total disability is defined as a loss of at least 40% of earning capacity and qualifies an employee for a pension benefit of 100% of the reference wage (the insured’s average gross daily wage in the previous calendar year). A partial benefit is paid for a loss of earning capacity between 10% and 40%.