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Employing new staff from Estonia might help your business grow, but there are a few things to think about before you start hiring talent from this Northern European country.
Estonia is not only one of the most technologically proficient countries in the world, but it has also drawn a considerable number of foreign talent in recent years due to lax visa requirements. Together with the country’s highly trained workforce (86% of whom speak at least one foreign language), they provide a large pool of potential candidates from whom corporations can pick when expanding their worldwide teams.
If an employee’s position is temporary, their employment contract in Estonia may be either fixed-term or permanent. No matter the type of work, the Estonian Employment Contract Act mandates that employment contracts be in writing and contain at least the following essential information: identification of all parties, date of commencement (and employment duration for temporary contracts), workplace, job description, duties, and responsibilities, basic salary as well as other compensation or benefits and payment details, working hours, the total number of holidays, notice periods for termination, and any other information that may be required by law.
Hiring remote employees from Estonia allows companies to gain access to the country’s highly educated, tech-savvy, and inventive workforce. However, employing from this country has its drawbacks.
They do, however, provide substantial worker protection. Workers’ benefits, minimum pay, paid time off, working hours, and misclassification are all spelt out in detail.
Overtime pay, employment taxes, and social contribution obligations for employees and companies in Estonia can make keeping compliant as a foreign company difficult. This post will teach you all you need to know about hiring and paying remote employees in Estonia without breaking any of the country’s numerous labour laws.
Native Teams’ Employer of Record services help you hire and pay your team through an owned infrastructure in Estonia. We handle everything from legal employment to ensuring your team is paid and managed compliantly and with care, without any third parties involved.
Hire your first Estonian employee with Native Teams.
When hiring new team members in Estonia, employers will need to follow the labour laws outlined in the section below.
In Estonia, employment relationships are primarily regulated by the Employment Contracts Act (Töölepingu seadus). The Act establishes the legal framework for employment contracts and sets out the rights and obligations of both employers and employees.
The most common is the indefinite-term employment contract, which is the default form of employment and is presumed to apply unless the parties specify otherwise. An indefinite-term contract continues until the employer or employee terminates it in accordance with the applicable legal procedures.
A fixed-term employment contract is used for temporary work or specific projects with a predetermined end date. It may only be concluded where the nature of the work justifies a temporary arrangement, such as seasonal work or replacing an employee who is on leave.
The duration and renewal of fixed-term contracts are regulated to prevent misuse. Typically, a fixed-term contract cannot be renewed more than twice consecutively without being converted into an indefinite-term contract.
Employment may also be agreed on a full-time or part-time basis, with working hours and remuneration determined by the agreed employment terms.
Estonian law also provides for a flexible working arrangement under which the employer guarantees a minimum number of weekly hours, while the employee may voluntarily take on additional hours up to full-time without those additional hours being treated as overtime.
Each additional hour requires the employee’s written consent. If additional hours become a regular pattern, the guaranteed minimum number of hours is automatically increased accordingly. In return for this flexibility, a higher minimum wage of 1.2 times the statutory minimum rate applies.
An employment contract must include:
Download a free employment contract for Estonia through Native Teams.
Written contracts are the standard form for formalising employment because they provide clear, accessible evidence of the terms agreed between the parties. Where an employment contract is not initially provided in writing, the employer must provide the employee with a written document setting out the main terms of the employment relationship within seven days of the employee starting work.
Oral contracts are legally binding but provide less tangible evidence of the agreed terms, which can increase the risk of misunderstandings or disputes. They are therefore less common and are typically used for very short-term or casual employment arrangements.
Electronic contracts are also legally recognised and are increasingly common. An electronically concluded contract is equivalent to a written contract where it complies with the applicable electronic signature requirements.
Standard working hours are generally limited to eight hours per day and 40 hours per week. Employers and employees may agree on different working-hour arrangements, provided they comply with the applicable legal limits and ensure adequate rest periods.
The employment contract must clearly specify the agreed working time, including:
In Estonia, night work is defined as work performed between 22:00 and 06:00.
For employees performing night work, regular working time should generally not exceed eight hours within a 24-hour period. Employers must ensure that night workers do not exceed the prescribed working hours and must provide compensation of at least 1.25 times the employee’s regular hourly wage.
Employers must also arrange health assessments for night workers before they begin night work and periodically thereafter.
The arrangement of night work must be agreed between the employer and employee in a written contract, which should specify the applicable working hours, compensation and any additional benefits or arrangements related to night work.
Employers must also provide night workers with facilities and support that promote health and safety during night shifts, including appropriate rest areas and emergency medical support.
Failure to comply with these requirements may result in penalties for the employer and may give employees grounds to seek redress through the Labour Inspectorate or the courts.
Employees are entitled to a minimum 30-minute break when their working day exceeds six hours. This break is generally unpaid unless the employment contract provides otherwise.
Employees must also receive a daily rest period of at least 11 consecutive hours within a 24-hour period. In addition, they are entitled to a weekly rest period of at least 48 consecutive hours.
This will typically cover the weekend, although the timing may be adjusted according to the needs of the business and the agreement between the employer and employee.
Employees have a minimum of 28 calendar days of paid annual leave per year. Annual leave is calculated in calendar days, meaning that weekends and public holidays falling within the leave period are included.
The timing of annual leave is generally agreed between the employer and employee. When scheduling leave, employers must take the employee’s wishes into account while also ensuring that business operations can continue effectively. Employers are generally required to prepare an annual leave schedule, which must be communicated to employees at the beginning of each calendar year.
Employees are entitled to take their annual leave as one continuous period. However, the leave may be divided into separate periods if both parties agree, provided that at least one period consists of 14 consecutive calendar days.
Salaries must be paid at least once a month, unless the employment contract provides otherwise. Payment is typically made by the end of the month following the period in which the work was performed. With each salary payment, the employer must provide a detailed payslip showing the gross salary, deductions and net amount paid to the employee.
Estonia’s minimum wage is set by the government in cooperation with trade unions and employer associations and establishes the minimum amount employers must pay employees. Employers are legally required to pay at least the applicable minimum wage, and failure to do so may result in penalties.
Any changes to the salary agreed in the employment contract must be made in writing and agreed by both the employer and employee.
To calculate the salary and taxes in Estonia, click here.
Employees are entitled to take sick leave from the first day of illness without jeopardising their employment status. Sick leave compensation begins from the fourth day.
The first three days of sick leave are generally unpaid, unless the employment contract or a collective agreement provides otherwise. From the fourth day, employees are entitled to sick pay in accordance with the applicable regulations.
The employer is responsible for paying sick leave compensation for days four to eight, while from the ninth day onwards, compensation is paid by the Estonian Health Insurance Fund.
To qualify for sick leave compensation, the employee must provide a medical certificate issued by a healthcare provider. The certificate documents the illness or injury and the recommended period of absence.
Employees should provide the certificate to their employer as soon as possible so that the employer can calculate and arrange the payment of sick leave compensation.
Pregnant employees are entitled to 140 days of maternity leave, which can begin 30–70 days before the expected birth date. During maternity leave, employees receive a maternity benefit paid by the Estonian Health Insurance Fund. The benefit is calculated based on the employee’s average income during the previous calendar year.
Fathers are entitled to up to 30 days of paternity leave, which can be taken from the child’s birth until the child reaches three years of age. Paternity leave is paid by the state, with the benefit calculated in a similar way to the maternity benefit.
Parental leave is available to either parent until the child reaches three years of age, allowing families to decide how to allocate leave between parents. During parental leave, parents receive the parental benefit (vanemahüvitis), which is paid by the Social Insurance Board.
The benefit is equal to 100% of the parent’s average income for the first 435 days (approximately 1.5 years), after which a flat-rate benefit is provided until the child turns three.
Employment may end through mutual agreement, resignation by the employee or dismissal by the employer.
Termination by mutual agreement is based on both parties agreeing in writing to end the employment relationship on mutually acceptable terms. The agreement should clearly state the termination date and any other relevant conditions agreed between the parties.
An employee who resigns voluntarily must generally provide the employer with at least 30 calendar days’ written notice before the intended termination date. However, where the employee terminates the contract because of a breach of the employer’s contractual obligations, such as failure to pay wages or providing unsafe working conditions, the employee may terminate the contract without observing the notice period.
In such circumstances, the employee is entitled to compensation for any damages incurred.
An employer may dismiss an employee only on specific grounds established by the Employment Contracts Act, including redundancy, unsatisfactory performance, breach of duties or long-term incapacity to work. The employer must provide a written explanation of the reason for dismissal and comply with the applicable statutory notice period, which ranges from 15 to 90 calendar days depending on the employee’s length of service.
The employer must also compensate the employee for any unused annual leave and provide severance pay where the dismissal is due to redundancy or long-term incapacity.
The employer must have a justified reason for termination and communicate it to the employee in writing. Legitimate grounds include unsatisfactory performance, redundancy and breaches of workplace discipline.
Where dismissal is based on unsatisfactory performance, the employer must have documented evidence showing that the employee has failed to meet established performance standards despite being given a reasonable opportunity to improve.
Redundancy may arise from economic, organisational or technological changes that eliminate the need for a particular position. In such cases, the employer must demonstrate that the redundancy is genuine and not being used as a pretext for termination.
Breaches of workplace discipline or other misconduct may also provide grounds for dismissal. This can include violations of company policies, repeated lateness or inappropriate behaviour. The employer must follow due process by issuing warnings and giving the employee an opportunity to correct their behaviour before proceeding with dismissal.
The applicable notice period depends on the employee’s length of service:
During the notice period, the employee is entitled to their regular wages and benefits.
The employer must provide the notice of dismissal in writing, clearly stating the reason for termination. This gives the employee a clear explanation of the basis for the dismissal. In cases of redundancy, the notice must also include information about any applicable severance pay and other compensation to which the employee is entitled.
If the employer fails to observe the required notice period or does not provide adequate justification for the dismissal, the employee may have grounds to challenge the termination.
Individuals who become unemployed may be entitled to unemployment insurance benefits if they register with the Estonian Unemployment Insurance Fund (EUIF) and meet the applicable eligibility requirements. To qualify, an individual must have been employed and paid unemployment insurance premiums for at least 12 months during the 36 months preceding unemployment.
To continue receiving benefits, unemployed persons must actively seek employment and be willing to accept suitable job offers. They must also participate in employment-related activities organised by the EUIF, including training programmes, workshops and counselling sessions.
The EUIF may provide a personalised employment plan based on the individual’s skills and available opportunities in the labour market. Failure to meet these obligations may result in the suspension or termination of benefits.
Employers also have responsibilities when an employment relationship ends. They must report the termination of employment to the EUIF and provide the documentation needed to support an employee’s unemployment benefit claim. Employers are also encouraged to cooperate with the EUIF by providing job placements, internships and other opportunities that can help unemployed persons return to work.
The law requires employers to issue employment certificates to departing employees, stating the reason for termination. These certificates are important for determining the employee’s eligibility for unemployment benefits.
Employees are generally entitled to severance pay when their employment ends for economic reasons, restructuring or the employer’s bankruptcy. The standard severance payment is based on the employee’s average wages:
The employer must provide written notice of termination and the reason for termination, calculate the applicable severance payment and pay it to the employee. Severance pay must generally be paid on the employee’s last working day or, in certain cases, shortly afterwards.
The probationary period may last for up to four months, unless the parties agree on a shorter period. During this time, the employer can assess the employee’s skills, work habits, performance and suitability for the role, while the employee can determine whether the position meets their expectations and career goals.
The terms of the probationary period, including its duration and conditions, must be clearly stated in the employment contract. If the contract does not specify a probationary period, it is presumed that no probationary period applies.
Either the employer or employee may terminate the employment contract during the probationary period by giving 15 calendar days’ written notice. The party terminating the contract must provide a written explanation of the reasons for termination.
The employee remains entitled to their regular wages and benefits throughout the probationary period, and any termination must follow the procedural requirements established by the Employment Contracts Act.
Intellectual property created by an employee as part of their job duties is considered to belong to the employer. This can apply to different forms of IP, including patents, trademarks, designs and copyrights.
The Employment Contracts Act further supports this framework by providing that rights to intellectual property developed by an employee while performing their employment contract are automatically transferred to the employer. This can include inventions, designs, software, literary and artistic works, and other creative outputs produced as part of the employee’s job responsibilities.
The specific terms governing IP ownership should ideally be set out in the employment contract to reduce the risk of disputes. The contract may define the ownership of IP, the scope of work-related intellectual property and any compensation payable for the employee’s contributions.
The GDPR requires employers to obtain employees’ explicit consent before collecting and processing personal data, unless another lawful basis applies. This can include processing that is necessary to fulfil an employment contract, comply with a legal obligation, or pursue the employer’s legitimate interests, provided these interests do not override the employee’s fundamental rights and freedoms.
The PDPA complements the GDPR by setting out Estonia-specific provisions and enforcement mechanisms.
Employment contracts should specify what personal data is collected, why it is collected, and what rights employees have regarding their data. Employers must also implement appropriate technical and organisational measures to protect personal data against unauthorised access, alteration, or disclosure.
Failure to comply with data privacy requirements can result in significant penalties, including fines and legal action. Employers should therefore ensure that their data collection, processing, storage, and security practices comply with the applicable requirements.
In Estonia, non-compete clauses are intended to protect an employer’s legitimate business interests by restricting employees from engaging in activities that compete with their current or former employer.
A non-compete obligation can apply during employment or for a specified period after employment ends. Its purpose is to prevent employees from using confidential information, trade secrets, or proprietary knowledge gained through their work to the employer’s detriment.
Non-compete clauses must be reasonable in scope, duration, and geographical area to be enforceable. The Employment Contracts Act does not set a maximum duration for post-termination restrictions, but Estonian courts typically consider periods of up to one year reasonable, depending on the nature of the business and the employee’s role.
Employers must provide fair compensation for the restriction on an employee’s freedom to work. This is typically calculated as a percentage of the employee’s previous salary and should be clearly specified in the employment contract.
For a non-compete clause to be valid, it must be agreed in writing and must not unduly restrict the employee’s ability to earn a livelihood. If a restriction is excessively broad or burdensome, a court may consider it unenforceable.
Employers should therefore tailor non-compete agreements to protect legitimate business interests without imposing unreasonable restrictions on employees.
Remote work involves employees performing their duties outside the employer’s premises, typically from home or another agreed location. The terms of remote work should be clearly set out in the employment contract or a separate teleworking agreement, including the nature of the work, working hours, availability, and communication expectations.
Any change to the agreed work location, including a move to remote work, must be mutually agreed by the employer and employee and documented in writing. Employers must ensure that remote working arrangements comply with occupational health and safety requirements and provide employees with the tools and equipment needed to perform their duties effectively.
Employers are also responsible for covering costs directly related to remote work, such as internet and telephone expenses, unless otherwise agreed.
The policy should also set out how employee performance will be monitored and evaluated, ensuring that remote employees are held to the same standards as employees working on-site.
For remote work, the place of work is the employee’s home or another location outside the employer’s premises. Both parties must agree to the arrangement, which should be clearly documented in the employment contract. The agreement should also specify working hours, communication protocols, and when the employee is expected to be available.
Employers are responsible for ensuring that the remote working environment is safe and suitable. This includes conducting risk assessments and providing the equipment and tools necessary for the employee to perform their duties. Employees must comply with applicable safety requirements and maintain the confidentiality of company information.
Employers must also respect employees’ right to disconnect, meaning employees should not be expected to remain available outside their agreed working hours. Regular check-ins and performance evaluations should be agreed upon to monitor performance and ensure that remote working arrangements do not negatively affect productivity.
Employers are responsible for maintaining a safe working environment whether employees work on-site or from home. For remote employees, this responsibility includes taking reasonable steps to ensure that the home workspace meets applicable health and safety standards.
Employers should begin with a risk assessment of the home workplace, identifying potential hazards and taking measures to reduce them. This may include providing ergonomic office furniture, suitable lighting, and the equipment needed to prevent physical strain and injuries.
Employees must follow the employer’s health and safety guidelines, maintain their home workspace accordingly, and report any issues that could affect their health or safety. The employment contract or a separate teleworking agreement should clearly set out the health and safety responsibilities of both parties, including procedures for risk assessments, equipment provision, and reporting concerns.
Employers must also ensure that remote employees have access to occupational health services and training on safe working practices at home.
Compared to Western Europe or North America, labour costs in Estonia are relatively lower, making it an attractive destination for hiring skilled workers without the high salaries typical of countries like Germany, the UK, or the US.
Another advantage is that Estonia is part of the European Union, which means hiring employees from Estonia provides access to the entire EU market. Workers in Estonia follow EU labour laws, providing more uniform regulations for businesses operating in multiple European countries.
While most countries are still catching up with the remote work trends, Estonians are quite accustomed to remote and hybrid work models. The country’s digital infrastructure supports a strong work-from-anywhere culture, which can benefit businesses looking for flexible work arrangements.
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