Do I Need a Local Entity to Hire in Estonia?

In Estonia, a "local entity" refers to a recognized business presence, typically a subsidiary or branch, that can act as the employer. This setup allows you to comply with local payroll and employment obligations, ensuring that you can manage taxes, social contributions, and employee rights effectively.

Without a local entity, you cannot register as an employer, run compliant payroll, or issue legally binding employment contracts. An alternative is to use an Employer of Record (EOR), which can act as the legal employer on your behalf, allowing you to hire without the complexities of establishing a local entity.

What is Required to Employ Someone in Estonia?

• Local employing entity required to directly employ? Yes (You need a local entity to manage employment obligations)
• Payroll registration required? Yes (Registration with the Estonian Tax and Customs Board is mandatory)
• Withholding/tax remittance required? Yes (Employers must withhold income tax and social contributions)
• Social contributions required? Yes (Mandatory contributions to the social security system are required)
• Local employment agreement required? Yes (Written contracts are mandatory under Estonian law)
• Mandatory benefits to budget? Yes (Includes paid leave, health insurance, and pension contributions)
• Works council/collective agreements considerations? Usually (Applicable in sectors with collective agreements)

Best Options If You're Hiring in Estonia

Can I Hire Contractors Instead of Setting Up an Entity?

Yes, but you should be cautious about misclassification risks.

Hiring contractors in Estonia can be a viable option, but it’s essential to ensure that the contractor operates independently and is not effectively treated as an employee. Misclassification can lead to significant legal and financial repercussions.

• Ensure the contractor has control over how they complete their work.
• Avoid exclusive contracts that may imply employment.
• Be cautious if the contractor is integrated into your team or business processes.

How Long Does Entity Setup Take And What Does It Cost?

Typical entity setup timeline: Typically 4–8 weeks, depending on the type of entity and required registrations.

Ongoing cost categories (entity route):

• Accounting, bookkeeping, and statutory filings: Estimated €300–€600 per month ($350–$700)
• Payroll provider: Estimated €20–€50 per employee per month ($23–$58)
• Employer registrations and recurring compliance: Estimated €200–€500 per year ($230–$580)
• Corporate tax filings and annual reporting: Estimated €1,000–€2,500 per year ($1,160–$2,900)

EOR cost components (no-entity route):

• A per-employee EOR service fee (from $399 per month with Playroll)
• Pass-through statutory costs (e.g., employer social contributions around 33% of gross salary)
• Any optional benefits you choose to provide beyond statutory minimums

How an Employer of Record Can Help You Hire in Estonia

Hiring in Estonia can be complex, but it doesn’t have to require setting up a local entity or taking on long-term overhead. With an Employer of Record like Playroll, you get a simple, predictable way to hire compliantly while keeping costs transparent and under control. We help you:

• Hire employees in Estonia quickly without establishing a local entity, eliminating incorporation costs, ongoing administration, and exit complexity.
• Stay fully compliant with local payroll, tax, and employment regulations with Playroll’s payroll services.
• Control your total employment costs, with a clear monthly EOR service fee (from $399 per employee).
• Focus on growing your business, while we manage contracts, payroll, compliance, and labor law obligations end to end.
• Scale up or exit the market easily, without the financial or legal burden of closing a local entity.