Hiring guide in Estonia

What should I know about hiring in Estonia?

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.

Why is Estonia a good choice for finding remote employees?

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 spelled 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.

How can Native Teams help you hire in Estonia?

If you want to start hiring people from Estonia, you can employ Estonians using an employment contract written in the employee’s native language. The contract must identify the location of employment, duties, working hours, and holidays, as required by law. Employees must get their contract within three months after starting their new job. Native Teams can help you employ your new team members through our Employer of Record services and as well as handle payroll, taxes, benefits and overall compliance of your Estonia team.

Hire your first Estonian employee with Native Teams.

Legal requirements for hiring in Estonia

When hiring new team members in Estonia, employers will need to follow the labour laws outlined in the section below.

Legal framework

Types of employment contracts

The most common type of employment contract in Estonia is the indefinite-term employment contract. This contract remains in effect until either the employee or employer terminates it, following legal procedures.

Another one is the fixed-term employment contract, which is used for temporary work or specific projects with a set end date. These contracts are only allowed when the nature of the job justifies the temporary arrangement, such as seasonal work or filling in for an employee on leave. A fixed-term contract can only be renewed twice before it automatically converts into an indefinite-term contract.

Estonian law also recognises probationary periods, generally included as a clause in the main employment contract rather than a separate agreement. The probation period, capped at 4 months, allows either party to terminate the contract with a shorter notice period. Plus, both part-time and full-time contracts exist, with terms governing working hours and compensation based on the agreed employment conditions.

Content of an employment contract

The contract must be in written form, signed by both the employer and employee, to be legally binding. It should include the names, identification codes, and addresses of both parties, as well as the contract’s signing date and the start date of employment. A detailed job description and official title, if legally relevant, must also be included.

The contract must specify the agreed salary, including performance-based pay if applicable, along with the method of calculation, payment procedure, and payday. It should also list the taxes and payments withheld by the employer, including references to the authorities responsible for these payments and the protections they provide.

In addition, the contract must outline the employee’s training entitlements and any other agreed benefits. It should specify working hours, the workplace location, and the duration of annual leave, with references to other paid holidays. 

The contract must mention the format for termination notices, the obligation to provide reasons for dismissal, and the applicable notice periods. It should also reference the employer’s work organisation rules, relevant collective agreements, procedures for handling overtime, and the length of the probationary period.

 Download a free employment contract for Estonia through Native Teams.

Oral, written or electronic employment contracts

Although written contracts are the most common and preferred due to their clarity and ease of reference, both oral and electronic contracts are legally recognised. 

Written contracts are essential for formalising employment relationships, ensuring that both parties have a clear, documented understanding of their rights and duties. They serve as concrete evidence of the agreed terms, especially in case of disputes. If a written contract is not provided at the start of employment, the employer must issue a written document detailing the main terms of the agreement within 7 days of the employee starting work.

While oral contracts are legally binding, they present challenges due to the lack of written proof, making them less common and generally used for very short-term or informal jobs. Electronic contracts, made possible by digital advancements, are becoming more prevalent. They are legally equivalent to written contracts, provided they comply with electronic signature laws.

Probationary period

The Employment Contracts Act allows for a probationary period of up to 4 months unless the parties agree to a different duration. 

If either party chooses to terminate the employment contract during the probationary period, a notice period of 15 calendar days must be observed. This requirement applies to both the employer and the employee, and if termination occurs, a written explanation of the reasons must be provided.

Working hours

Standard working hours are limited to 8 hours per day and 40 hours per week. Employers and employees may agree to different working hour arrangements, provided they stay within legal limits and ensure proper rest periods.

Breaks and types of leaves

Employees are entitled to a minimum 30-minute break if their workday exceeds 6 hours. This break is usually unpaid unless otherwise agreed in the employment contract. 

The Act also mandates a daily rest period of at least 11 consecutive hours within a 24-hour period, ensuring sufficient rest between workdays to prevent overwork and related health issues. Moreover, employees are entitled to a weekly rest period of at least 48 consecutive hours, typically covering weekends, though adjustments can be made based on business needs and mutual agreement between employer and employee.

Annual leave

In Estonia, the Employment Contracts Act guarantees all employees a minimum of 28 calendar days of paid annual leave each year. The leave is calculated in calendar days, meaning weekends and public holidays that fall within the leave period are included.

Employees have the right to take their annual leave in one uninterrupted period. However, with mutual agreement, the leave can be split, provided at least one portion consists of a continuous period of at least 14 calendar days.

Public holidays

The Employment Contracts Act designates several public holidays, including New Year’s Day, Independence Day, Good Friday, Easter Sunday, Labour Day, Victory Day, Midsummer Day, Restoration of Independence Day, Christmas Eve, Christmas Day, and Boxing Day.

Salary

The minimum wage in Estonia is currently set at €820.00 per month. Employers are legally obligated to pay at least this minimum wage, with non-compliance resulting in penalties.

Salaries must be paid at least once a month unless otherwise specified in the employment contract. Payments are typically made by the end of the month following the work period, ensuring timely receipt of earnings. Employers are also required to provide a detailed payslip with each payment, which outlines the gross salary, deductions, and net amount received.

To calculate the salary and taxes in Estonia, click here. 

Sick leave

The first 3 days of sick leave are typically unpaid unless otherwise specified in the employment contract or a collective agreement. From the 4th day onward, employees are eligible for sick pay, which is calculated and distributed according to established regulations. 

Employers are responsible for paying sick leave compensation for the period from the 4th to the 8th day of illness. From the 9th day onwards, the Estonian Health Insurance Fund takes over the payment of compensation. 

To qualify for sick leave compensation, employees must provide a medical certificate from a healthcare provider. This certificate serves as official proof of the illness or injury and indicates the recommended duration of absence.

Paternity and maternity leave

Maternity leave is available to pregnant employees, granting 140 days of leave that can commence 30 to 70 days prior to the expected delivery date. During this leave, employees receive maternity benefits, which are paid by the Estonian Health Insurance Fund and calculated based on the average income from the previous calendar year.

Fathers are entitled to paternity leave for up to 30 days, which can be taken from the birth of the child until the child turns 3 years old. This leave is state-funded, and the benefit is calculated similarly to maternity benefits, allowing fathers to support and bond with their newborns without financial pressure. Parental leave is available to either parent until the child reaches 3 years of age. 

During parental leave, parents receive parental benefits (“vanemahüvitis”) paid by the Social Insurance Board. This benefit amounts 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 3.

Methods of employment termination

Termination can occur through mutual agreement, employee resignation, or employer dismissal. The mutual agreement approach is the simplest, where both parties sign a written agreement to end the employment relationship under acceptable terms. This agreement should specify the termination date and any pertinent conditions.

When an employee chooses to resign, they must provide written notice at least 30 calendar days before the intended termination date. However, suppose the resignation is due to the employer violating contractual obligations, such as failing to pay wages or providing unsafe working conditions. In that case, the employee can terminate the contract without following the notice period and is entitled to compensation for any damages incurred.

Employer dismissal is more complicated and must be based on specific legal grounds outlined in the Employment Contracts Act. Valid reasons for dismissal include redundancy, unsatisfactory performance, breach of duties, or long-term incapacity to work. In such cases, the employer is required to provide a written explanation for the dismissal and must adhere to legally mandated notice periods, which range from 15 to 90 calendar days, depending on the length of the employee’s service.

Ordinary dismissal by employer

In Estonia, ordinary dismissal, as defined by the Employment Contracts Act, occurs when an employer terminates an employment contract for specific legal reasons. The employer must justify the termination, which must be communicated to the employee in writing. The law outlines several legitimate grounds for ordinary dismissal, including unsatisfactory performance, redundancy, and breaches of workplace discipline.

For unsatisfactory performance to be a valid reason for dismissal, the employer must present documented evidence showing that the employee failed to meet established performance standards despite being given a reasonable opportunity to improve. Redundancy, another common reason for dismissal, arises from economic, organisational, or technological changes that eliminate the need for a particular position. In these cases, the employer must demonstrate that the redundancy is genuine and not merely a pretext for terminating the employment.

In addition, breaches of workplace discipline or other forms of misconduct can justify ordinary dismissal. This includes violations of company policies, repeated lateness, or inappropriate behaviour. Employers must adhere to due process by issuing warnings and allowing employees to correct their behaviour before proceeding with dismissal.

Notice period and challenging the dismissal

The length of the notice period is determined by the employee’s duration of service. For employees with less than 1 year of service, the notice period is 15 calendar days. For those with 1 to 5 years of service, it extends to 30 calendar days. Employees who have served between 5 and 10 years are entitled to a 60-day notice period, while those with over 10 years of service must receive a 90-day notice period.

Rights and obligations of unemployed individuals

Unemployed individuals may be eligible for unemployment insurance benefits, provided they have registered with the Estonian Unemployment Insurance Fund (EUIF) and meet specific criteria. To qualify, individuals must have worked and paid unemployment insurance premiums for at least 12 months within the 36 months leading up to their unemployment.

To retain their benefits, unemployed individuals must actively seek work and be open to accepting suitable job offers. They are required to engage in job-seeking activities organised by the EUIF, which may include training programs, workshops, and counselling sessions. The EUIF also develops personalised employment plans based on each individual’s skills and the current job market.

Severance pay

Employees are generally entitled to severance pay if their employment is terminated for economic reasons, restructuring, or the employer’s bankruptcy. The standard severance pay is equal to 2 month’s average wage for employees with less than 5 years of service. 

For those with 5 to 10 years of service, severance pay is 2 months’ average wages, and for employees with more than 10 years, it amounts to 3 months’ average wages.

Prohibition of competition

The non-compete clauses protect the business interests of employers by restricting employees from engaging in activities that could compete with their current or former employer. Non-compete obligations can be included in employment contracts either during the employment period or for a specified duration following termination. The primary goal is to prevent employees from taking advantage of confidential information, trade secrets, or knowledge acquired during their employment.

The Employment Contracts Act mandates that non-compete clauses must be reasonable in terms of scope, duration, and geographic area to be enforceable. While the Act does not stipulate a maximum duration for post-termination non-compete agreements, Estonian courts generally consider periods of up to 1year to be reasonable, depending on the nature of the business and the employee’s role. 

In addition, non-compete clauses must offer fair compensation to the employee for the restrictions placed on their ability to work. This compensation is typically a percentage of the employee’s previous salary and should be clearly defined in the employment contract.

Remote working policy

The Employment Contracts Act mandates that any changes to the work location, including a shift to remote work, must be mutually agreed upon by both the employer and the employee. This agreement should be documented in writing to avoid misunderstandings. 

Employers are responsible for ensuring that remote working conditions meet occupational health and safety regulations and must provide employees with the necessary tools and equipment to perform their tasks effectively. What’s more, employers are typically required to cover costs directly related to remote work, such as internet and phone expenses, unless otherwise agreed.

Intellectual property rights

The Employment Contracts Act states that any intellectual property employees develop while fulfilling their employment contract automatically belongs to the employer. This includes inventions, designs, software, literary and artistic works, and other creative outputs generated during their job responsibilities.

Employee data privacy

The GDPR, which applies across the European Union, requires employers to obtain explicit consent from employees before collecting and processing their personal data unless a legitimate basis for processing exists. 

Such legitimate bases may include the necessity to fulfil a contract, compliance with legal obligations, or the employer’s legitimate interests, provided these do not override the employee’s fundamental rights and freedoms. The PDPA supplements the GDPR by outlining specific national provisions and enforcement mechanisms in Estonia.

Responsibilities within remote work arrangements

Employers are responsible for ensuring the remote working environment is safe and appropriate. This includes conducting risk assessments and providing the necessary equipment and tools. Employees, in turn, must follow safety regulations and maintain the confidentiality of company information. 

Under Estonian labour law, employers must also respect employees’ right to disconnect, ensuring they aren’t expected to be available outside their agreed working hours. Plus, regular check-ins and performance evaluations should be established to ensure remote work doesn’t adversely affect employee performance and productivity.

Health and safety at home

When employees work from home, employers must ensure that the home environment meets health and safety standards. This responsibility begins with conducting a risk assessment of the home workplace to identify potential hazards and implement measures to mitigate these risks. This may include providing ergonomic office furniture, adequate lighting, and necessary work equipment to prevent physical strain and injuries.

Employees must adhere to the health and safety guidelines set by the employer, maintain their home workspace according to these standards, and report any issues that could impact their health and safety. The employment contract or a separate teleworking agreement should clearly outline both parties’ health and safety obligations, detailing procedures for risk assessments, equipment provision, and reporting mechanisms for health and safety concerns.

What are the advantages of hiring employees from Estonia vs other countries?

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.

Why use Native Teams for hiring in Estonia?

Native Teams lets you employ team members ‘like a local’ meaning you get all the benefits of a global team, wherever you are based. Here are the reasons why you should use Native Teams for hiring:

• No paperwork: We will handle all the necessary paperwork for you.
• Save on taxes: We help you handle your taxes.
• No company set up: You can expand your business using our company entitles.
• Online onboarding: We’re here to ensure your onboarding process is trouble-free.
• No accounting: We will handle all of your accounting needs, including invoicing, payroll, and more.
• Increase your profit: We assist you in growing your business and maximizing your profits.
• Compliance expertise: we can assist your company in navigating the regulatory environments and ensure you meet all relevant requirements.
• Local support: We can assist you in understanding and complying with the relevant local laws.