Employer of Record in Estonia

Employer Of Record In Estonia

Skuad’s Estonia EOR (Employer of Record) solution helps your business expand into Estonia without the need for an entity setup. Its unified and automated global HR platform enables you to expedite the onboarding of your remote team, manage their payroll, benefits, etc. compliantly. It helps you streamline the global expansion process with a resourceful global network. To learn more, get in touch with Skuad experts today.

Estonia At A Glance

Estonia is the northernmost country of the Baltic states, which also includes Latvia and Lithuania, situated on the eastern coast of the Baltic sea. According to the World Economic Forum, it is the number one entrepreneurial country in Europe, and therefore, is a promising attraction for foreign direct investments (FDI). Trading, tourism, and Information Technology are a few of the major industries here. Its economy is among the fastest-growing in Europe, and it is often referred to as the Silicon Valley of Europe.

Population: 1.32 million

Currency: Euro

Capital city: Tallinn

Languages spoken: Estonian, English, Finnish, and Russian

GDP growth: 35.19 billion USD (2021)

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Employment In Estonia

What You Must Know Before Employing In Estonia

 Building an international team of trusted employees anywhere in the world is now easier than ever. Utilizing a global EOR solution takes the complicated and time-consuming administrative work such as compliance, taxes, and payroll off your plate so that you can focus on the growth and expansion of your company. At the same time, there is an added benefit of reducing compliance risks. 

Below are some of the statutory rights and entitlements for employees in Estonia.

Entitlements Explanation
Standard Working Hours in a Week The standard working hours per week are 40, with an average of 8 working hours per day. The employee has the flexibility of working part-time as well. Most weekends are rest days depending on the type of industry.
Overtime Eligibility If an employee works overtime, that is over and above the usual number of working hours or on their mutually agreed rest days and has not been provided with an alternative day of rest, then he/she is entitled to receive compensation amounting to at least 1.5 times the average salary, or additional rest period. This is to be mutually decided between the employee and employer.
Paid Public Holidays in Estonia Here is a list of compulsory paid leaves in Estonia -
Date Significance
1st Jan New Year’s Day
24th Feb Independence Day
2nd April Good Friday
4th April Easter Sunday
1st May Labor Day, Spring Day
23rd May Whitsun
23rd June Victory Day
24th June Jaanipäev
20th Aug Estonian restoration of Independence
24th Dec Christmas Eve
26th Dec 2nd Day of Christmas
Bonuses A bonus is usually negotiated between the employer and employee. Bonuses are not mandatory but are common in Estonia. The employee is compensated annually.
Annual Leave Entitlement An employee is entitled to a minimum of 28 paid leaves off from work annually, including working days.
Maternity Leave Female employees are entitled to maternity leave of 140 days. It can be increased to 154 days in case of medical complications and in special cases. One can apply for it 30-70 days before the due date. Male employees are eligible for paternity leave of 10 days and can claim the same 2 months before the birth and 2 months after the birth of the baby.
Employees are eligible for 70 days of leave when they adopt children below 10 years of age. The state funds these leaves.
Childcare Leaves Parents are eligible for childcare leaves annually in Estonia. They are eligible for 3 working days if they have 1-2 children under the age of 14, and 6 working days if they have at least 3 children or more under the age of 14, or at least one child that is less than 3 years of age.
Medical Leaves In Estonia, an employee is entitled to 182 days of sick leave. Employers compensate the employee from the 4th-8th day of the sick leave and post that, the state funds the leaves. The paid sick leave that an employee can claim is 70% of the average of the previous year’s salary.
Employee Protection and Anti-discrimination Rights Any discrimination that stems from nationality, sex, creed, caste, religion, status, wealth, and political or personal viewpoints, is prohibited.

Call Skuad to know how you can leverage Skuad’s expertise in Estonian labor laws, employment laws, and other laws for local and foreign workers.

Full-Time Employee Contracts vs. Independent Contracts

The employment rate in Estonia is at 68.1% in 2021. Most employees in Estonia are employed with employment contracts and independent employee contracts are rarely used. Companies are given the responsibility of making sure that their employees are eligible to work in the country. 

Employers in Estonia can hire both contract workers and full-time employees. The requirements for both depend on the job roles, responsibilities, and the project. Contractor positions are open for indefinite terms, and the individuals hired in this role are expected to work on a certain project and deliver the same within the given time. Fixed-term contracts are either for a specified length of time, generally two years, or as long as it takes to complete the specified task. 

In comparison, full-time employees are hired to deliver continuous projects and are expected to transition from one role to another during a given time. The role of full-time employees doesn't end upon the completion of the task. Unlike contractual employees, who get a fixed sum for a project, full-time employees get monthly salaries.

An employee contract needs to include all the basic and essential details of the employee such as the salary, personal details, benefits and perks, terms and conditions that have been mutually decided upon, and termination clauses. It should include the company’s details as well, such as the company registration details, location of the workplace, work hours, workplace policies, and other expectations. It should also specifically mention the employee’s job role, job title, and expected notice period. The employer is expected to keep a record of the contract for a minimum of 10 years, after its expiry.

Skuad’s Estonia EOR can help growing businesses to draft and manage contracts and with the onboarding of contractors as well as full-time employees in accordance with the local laws. Talk to us to learn more.

Hiring in Estonia

When looking for suitable workers for your company in Estonia, there are some processes to follow. 

First you need to identify the job role and know the exact requirements and expectations for this role. Then you need to place advertisements to let potential candidates know that you are hiring. Advertising in a foreign country can get taxing. One needs to adhere to all the local laws before placing an advertisement online or through traditional methods in newspapers.

Most companies hire through online job portals. Some of the popular online job portals in Estonia include EURES, CV Kescus, CV Online, EkspressJob and Skillific. Recruitment companies such as Arista HRS and Ancor Estonia are amongst the few popular agencies. Global job sites like Monster and Linkedin are also popular. Other alternatives include AISEC and GoWorkaBit.

The hiring process especially through such job portals can be tedious as it requires sifting through thousands of applications and having to conduct lengthy interviews and thorough background checks. Both employer and employees need to adhere to all recruitment policies legally. 

Scheduling interviews across time zones using different technologies (Google Meet, Zoom,etc.) can be a hassle but if planned correctly, it might sail smoothly. One needs to know what questions are okay to ask legally and which ones are not. A reference and background check is a must. It needs to be in writing that the prospective employee is okay with the same. Reaching out to previous employers, companies and a basic financial and criminal check is needed.

Once the right candidate is found, a job offer is made. The onboarding process includes everything from filing relevant employee documents and setting up the preferred mode of payment, provident funds, etc.

Before starting the hiring process, one needs to identify whether they wish to hire independently or hire a recruitment agency or an Employer of Record to take care of the entire process. Skuad can help organize the entire process meticulously without you having to set foot in the country. Read on to know more about how Skuad can help you expand your business in Estonia and hire a workforce remotely.

Probation & Termination

The probationary period in Estonia is generally about 3-4 months. After the conclusion of the probationary period specified in the contract, the employee will need to enter into a new contract which would be fixed in nature.

Termination

There are several circumstances in which an employment contract may end. Some of these reasons can include:

  • Employee’s death
  • Liquidation of the business
  • Fixed-term contract
  • Violation of workplace policies, despite warnings
  • Employer’s death
  • Mutual agreement between employee and employer
  • Other reasons mentioned in the agreement

Terminating the Contract on Mutual Agreement

The employee and employer can terminate the contract at any given time on mutual agreement. The contract should include the mutually agreed notice period, compensation, and other such terms.

Termination by the Employer

An employer can terminate the contract at any time but is bound to give the employee prior notice. The period of notice depends on the employee’s length of employment.

  • 15 days notice for employees who have been serving the company for one year.
  • 30 days notice for employees who have been serving the company for 5 years.
  • 60 days notice for employees who have been serving the company for 10 years.
  • 60 days notice for employees who have been serving the company for 10 years or more.

When an employer does not give the employee notice, he must compensate the employee with the salary for the specified period monetarily.

Termination by the Employee

An employee can terminate or end the contract through two methods - the ordinary termination and the extraordinary termination method. 

Under ordinary termination, the employee does not need to give a special reason for leaving. However, in the case of a fixed agreement, the employee needs to state a reason. An employee must give notice of minimum 30 days to the employer.

An employee can apply for extraordinary termination if they have a valid reason. This includes terminating the contract on the grounds of medical reasons, gap in expectations and breach of policies on the part of the employer. When the employer delays salary payments, mistreats or harasses the employee or if the workload is adversely affecting the employee’s health then these are valid grounds for extraordinary termination of the agreement. In such cases, the employee need not serve a notice period and can be relieved of his or her responsibilities immediately.

Dismissal Wage

If an employee is terminated by an employer due to redundancy, the employer is obligated to pay the employee 1 month’s average salary. 

If the employer fails to give adequate notice to the employee, then the employee is entitled to compensation according to the advance notice terms.

If the contract is dissolved with immediate effect, then the employer must pay compensation instead of options for notice. 

Employees who have served for 5-10 years are entitled to an additional one month’s salary from the Unemployment Insurance Fund. Those with 10 or more years of service to the company are entitled to 2 month’s pay from the same fund. 

To learn more, get in touch with Skuad experts today.

EOR Solution

Business expansion is a long-drawn process that calls for extensive planning, especially when expanding to a foreign country. It is complicated and can take up to several months to complete but by choosing the EOR route for hiring employees in Estonia, you can fast-track the expansion process. Employer of Record Estonia (EOR) solutions by Skuad can make expansion to Estonia much simpler and a lot quicker for business. Our global outreach and a tech-enriched HR platform ensure compliance with local labor laws by managing employment responsibilities such as monthly payroll, work permits, employment contracts as well as taxation for your employees in Estonia. Book a demo with Skuad today.

Types of Work Visas in Estonia

Primarily there are only three types of visas for Estonia:

Visa Category (Non-EU citizens) Explanation
Schengen Visa (short-term) A Schengen visa (short-term), also known as a C-type visa, allows you to stay in any of the Schengen countries for up to 90 days within six months.
The Schengen visa allows you to visit other Schengen countries besides Estonia, such as Switzerland, Italy, Germany, France, Belgium, Netherlands, Spain, Latvia, Portugal, Finland, Iceland, Denmark, Austria. Sweden, Norway, Malta, Czech Republic, Lithuania, Luxembourg, and Poland.
In addition, you are not subject to any restrictions on the time you can enter or leave the Schengen area.
Criteria to getting Schengen Visa (short-term) Documents required for employees applying for a short term visa other than the basic documents are:
  • Employment contract.
  • Current bank statement of the last 6 months.
  • Leave permission from the employer.
  • Income Tax Return (ITR) form or Certificate of Income Tax deducted at the source of salary.
National Visa (long-term) The national type visa, also known as D-visa, allows you to remain within the nation of Estonia for a duration of 91 days to 180 days during a six-month duration.
The Visa D is often issued for seasonal workers, short-term workers, researchers, volunteers, guest researchers, and students, among others.
Criteria to Get National Visa
  1. A travel document issued within 10 years, containing at least two blank pages with a minimum of three months validity after the expiration of the visa.
  2. Completed and signed application form.
  3. Insurance policy covering all the expenses for illness or injury until the validity of the visa. In the case of a multiple entry visa, the insurance should cover until the end of the first intended period of stay.
  4. Confirmation from the employer or registration of short-term employment.
  5. A 35x45 mm photo
  6. Biometrical data (10 fingerprints) during submission of the application
  7. Fee - General, EUR 100, children 6-11 years, EUR 40.
Transit Visa Compared to the other mentioned visas, a transit visa is completely different. While a transit visa allows you to enter the country, you can only do so for a brief time.
It means it's only issued for a couple of days at maximum. The purpose of issuing a transit visa is to enhance travel experience and convenience.
Criteria to Get Transit Visa
  1. Visa in the transit country
  2. Copy of the valid visa for the final destination
National Visa (long-term) If you're a citizen of the EU, the EEA (Iceland, Liechtenstein, and Norway), or Switzerland, you are authorized to enter Estonia without a visa.
If you would like to live or work in Estonia for around 3 months, you can register as an Estonian resident within the Population Register of Estonia during the primary 3 months of your stay.

Work Permits in Estonia

Can Skuad Sponsor Work Permit in Estonia? Yes
Processing time 2-4 weeks
Work Permit Process Step 1: Skuad’s local partner in Estonia applies for the Employment permit.
Step 2: Ministry of Foreign Affairs approves the work permit.
Step 3: The employee enters Estonia with a Schengen visa.
Step 4: Police and Border Guard Board approves residence permit.
Step 5: Start working in Estonia.
Work Permit Validity 6 months (single/multiple entries).
Work Permit Process for Different Countries The work permit process is broadly divided into EU and non-EU segments. Here is a list of Estonian representations which are handling visa applications.
Where is the Application Processed The application would be processed in the employees home country
Work Permit Restrictions You can find the information on the limitations and obligations of an employer here.
When Can Employee Travel to Estonia An employee can travel to Estonia once they receive the Schengen visa approved by the Estonian embassy, based out of the employee's home country.
This letter has a pre-approved single-entry visa for the employee that gives the employer 6 months to get the employee to Estonia and have the permits issued.
What’s the Cost of Business Visa EUR 100
Duration of Business Visa Processing 2 weeks
Switch Business Visa to Work Permit No
Can Spouses Work on Dependent Visas? No
Termination of Work Permit The extension or refusal to extend the temporary residence permit is made 10 days before the expiry of the validity term of the temporary residence permit. The residence card is issued at the Service Office found on the application form.

Skuad’s local partner in Estonia can sponsor work permits for foreign workers. As an EOR in Estonia, Skuad takes care of all responsibilities related to employment. On Skuad’s HR platform, the client company can manage their employees’ daily activities and operations. Learn more about work permits here.

Payroll & Taxes in Estonia

Payroll Setup

The first step for you as a company is to understand whether you wish to hire local or foreign nationals. A local entity is required to hire employees and eventually set up a payroll system. If you already have a well set-up entity, Skuad can help ensure that it complies with all the Estonian laws. In case you do not have an entity set up, Skuad can provide you with an all-encompassing service that can get you up and running in the country in a short period while completely abiding by the legislation. 

Once an entity is established, the payroll can be set up. Payroll can be set up internally for companies that wish to have a long-term occupancy in the country. The payroll cycle is monthly and the standard VAT rate is 20% in Estonia.

Taxes

Tax Type Rate
Pension 20%
Unemployment Insurance 0.8%
Health Insurance 13%

Employee Payroll Taxes

Tax Type Rate
Compulsory Pension for those born after 31st Dec, 1982 2%
Unemployment Insurance 16%


Incorporation - How to set up a Subsidiary in Estonia?

The first step when expanding your business in Estonia is to set up a legal subsidiary to carry out operations smoothly within the country. Skuad can be your global outsourcing solution and make it easy for your company to work in Estonia. 

One needs to consider and evaluate various factors before setting up. Firstly, where would you want your subsidiary to be located? Different cities and areas have different subsidiary laws that affect subsidiary fees. The next step is to identify the type of subsidiary that best suits your business goals. Estonia’s legislation allows different types of subsidiaries such as private limited company, general partnership, commercial association or limited partnership. A private limited company would give you lots of flexibility to operate in the country.

Here are the steps you need to take to set up a subsidiary in Estonia as a private limited company (LLC):

  • Filing the company’s registration certificate
  • Drafting the subsidiary’s Articles of Association
  • Submitting proof of the subsidiary’s registered address
  • Submitting proof of the invested share capital 
  • Details of the manager
  • Submitting documents required by the Trade Registry
  • Registering with relevant authorities such as the Commercial Register
  • Opening a local bank account
  • Register for VAT
  • Register for Sick Fund of Estonia

Setting up a subsidiary can be time-consuming and a tedious task. From running in a new location to becoming aware of all the Estonian laws, it can take up to several months to set up. 

Skuad can help with a complete payroll setup and also handle legal compliance and taxation. Get in touch with our experts to set up a subsidiary in Estonia.

Professional Employer Organization (PEO)

A professional employer organization can help you manage all HR-related services comprehensively. This includes payroll, taxation, compliance, recruitment, training, employee benefits, risk management and other services. A PEO is a co-employment organization wherein the company outsources the HR functions completely. An EOR, on the other hand, acts as a legal employer. EOR firms provide services such as payroll taxes, compliance, admin and other similar services.

The difference between the two is that if a company chooses to partner with a PEO, they need to have an entity set up legally in Estonia. However, if they choose to partner with an EOR, they can legally set up and hire employees within the country as it is a legal employer. This is the benefit of an EOR firm - accessibility across borders.

Skuad's EOR solution is a good way to expand your business in Estonia without setting up a separate entity. Our solutions help you to stay focused on your business and leave all business compliances, payroll processing and complete management work to us. Connect with Skuad to know more.

Book a demo today.

Conclusion

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. Even though Estonia has introduced an annual quota of non-EU nationals, this does not apply to startups and high-ranked employees. It has a highly educated workforce, simple legislation and a straightforward hiring process. It was ranked as the number one country for business in Europe by the World Economic Forum. It has truly opened gates to the world. Talk to our Skuad experts to know more.

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