Hire in Estonia

Employer of Record(EOR) in Estonia

Estonia Workforce Unlocked: How Employer of Record Makes Hiring Easy

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At a Glance

Capital City
Tallinn
ChaadHR entity
Languages
Estonian

Pricing

Hire employees
$599.00 / month
Hire contractors
$49.00 / month

Overview

Estonia has a market-based economy and is currently the 7th freest economy in the world (with a freedom score of 80.0). Being a part of the European Union has worked in their favor as their economy heavily relies on trade. This allowed them to maintain strong economic ties with Finland, Sweden, and Germany. Moreover, Estonia’s telecommunications and electronics sectors have also contributed to its continued growth and development.

Major economic hubs:

Tallinn, Tartu, Narva

Skills in demand :

ICT Professionals, Healthcare Professionals, Legal Professionals

Public and Provincial Holidays

Employee Leaves

Taxes

Resident Tax Information

The taxation of expats in Estonia is similar to that for residents. All individuals are taxed on their worldwide income, while non-residents only have tax rules related specifically with the country they're living or working within at any given time (Estonia).

Income taxes in Estonia are of two types, which include —

  • Active income  
  • Business income  
  • Employment income
  • Passive income
  • Rents and royalties
  • Capital gains
  • Interest income
  • Certain types of insurance proceeds  
  • Dividends
  • Scholarships  
  • Pensions Prizes and lottery winnings  
  • Grants

The Estonia government has introduced a new tax law which will affect all residents from 2018. From that year, fixed income and employment earnings are taxed at reduced rates of 14% instead 20%.

Certain social security contributions are subject to income taxes at 10%.  

All employers must follow WHT of 7%.

Social Security

It is mandatory for employers operating in Estonia to enroll their employees in the Estonian social security. Such employers include Non-residents with a permanent establishment (PE) or Employees in Estonia

Social security in Estonia revolves around three areas that include —

  • Health insurance
  • Pension insurance
  • Unemployment insurance

The social security contributions for both parties including —

Statutory Benefits

The employment laws of Estonia require that certain benefits be provided to employees. The statutory benefits include —  

Estonia is known for its extensive three-tiered pension system, which includes

Pillar I: State pension

The general pensionable age in Estonia is 63. There are different types of pensions that  

the state provides. The State pension covers

Old-age pension

Pension for the incapacity of work

Survivor's pension

National pension

Superannuated pension  

The employer deducts social tax at the rate of 33% from your salary, which contributes to state health insurance and pensions.

Pillar II: Mandatory funded pension

The second pillar aims to direct a part of an employee's salary towards their pension  

schemes.  

The employee's mandatory 2% contribution to the state-provided pension fund is a crucial part of their benefits package. When they reach retirement age, this amount will be paid back with interest at an agreed upon rate per year after deductions for inflation and other factors such as investment growth or decline in value since it was contributed.

Pillar III: Supplementary funded pension

An employee has two options for subscribing to the supplementary funded pension by .

Making contributions toward the voluntary pension funds or, Concluding a pension insurance contract with a life insurance company Payments from this pillar has two options of receiving payments that include

From the voluntary pension funds or, Based on the insurance contract

Pillar III: Supplementary funded pension

The unemployment insurance system is designed to help employees who lose their jobs through no fault of their own. All workers must pay 1% for themselves and an employer can cover up 0-0.8%.

The unemployed person must have contributed for at least twelve months and thirty-six before their unemployment occurred.  

However, unemployment allowance is paid to individuals who .

Do not qualify for unemployment insurance benefits .

Have an income less than the amount laid down by the regulations .

Has completed their full-time studies, or have worked previously .

Not actively looking for work  

The unemployment allowances paid by the state include €9,42 per day (as of 2021)  

for a maximum of 270 days.

As mentioned in the statutory leaves, employers must ensure that the leaves are  

provided to the employees. The statutory leaves include .

  • Maternity leaves.
  • Paternity leaves.
  • Sick leaves.
  • Annual leaves or paid-time-off.
  • Adoption leaves.
  • Childcare leaves and parental leave.
  • Study leaves.
  • Public holidays

Working hours in Estonia are forty hours a week. Employees commonly work for  eight hours a day for five days a week. Employers must provide overtime pay based  on employment contracts and collective bargaining agreements.

Fringe Benefits

Fringe benefits are commonly provided to employees in addition to statutory benefits,  statutory leaves, and gross annual salary. Commonly provided fringe benefits in Estonia include —

  • Additional paid time-off
  • House rent allowance
  • Work from home benefits
  • Flexible working
 hours
  • Gym memberships
  • Commuting expenses
  • Meal vouchers or canteens at the office
  • Expenses for business trips
  • 13th-month pay

Exempt Benefits

Certain benefits are considered exempt as laid down by the income-tax regulations of  Estonia.  

The exempt benefits in Estonia are —

The contribution toward unemployment insurance, compulsory accumulative pension schemes and social security/foreign sponsors is a major part if you need to be insured. The exempt amount for Residents or permanent residents stands at just EUR 2160

House rent allowances are exempt up to 20% of the rent.

Personal expenses up to EUR 6,000 (i.e., EUR 500 per month) are exempt  for individuals earning up to EUR 14,400.  

For individuals earning an annual income between 14,401 -25199 the exempt amount can be calculated using this formula: 6000-6000 / 10800 x (sum of Income –14400).

For individuals earning over EUR 25,200, the exemptions are not valid.

Long-term Incentives

In order to retain their top talent, many employers offer long-term incentives (LTIs). These benefits can be a part of an employee's strategic plan and provide them with more opportunities for success in the future.

Commonly provided long-term incentives in Estonia include —  

  • Employer-sponsored pension plans
  • Health insurance with dental covers for families
  • Life insurance contributions
  • Performance-linked incentives
  • Certain employers provide employee stock options
  • Personal accident insurance

Termination/Severance in Estonia

Termination Process

Termination in Estonia can take place in three ways:

  • Immediate Termination - An employer terminates the contract immediately due to misconduct
  • Employee Resignation - An employee can send a written resignation between 14 days to 1 month.
  • Termination with notice - Notice period is determined from the employee agreement.

Notice Period

Probationary employees’ notice period depends on the contract between the employee and employer while non-probationary employees have up to 15 - 90 days.

Severance Pay

If the contract is terminated due to redundancy, the employer must pay compensation of one month’s average wage for the employee’s last six month’s salary. For employment terms between 5 and 10 years, an additional one month’s pay has to be given.

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