Employer of Record in Estonia

Hiring independent contractors has boomed in popularity because of the cost savings and flexibility they offer. It can be a great option if you require niche skills or short-term project support. Contractors allow businesses to access specialized skills quickly, without the time and cost of setting up a local entity.

However, it’s important to know the limits of this model: contractors are not a substitute for full-time employees. Relying on them for ongoing, long-term roles can create serious compliance risks, including employee misclassification, which can lead to fines, back taxes, and reputational damage.

Playroll’s contractor management solutions make it simple to compliantly engage, onboard, and pay contractors around the world. We provide clear visibility into agreements, streamline payments, and reduce compliance risks – so you can focus on getting the work done. And when you’re ready to take the next step, we can help seamlessly convert contractors into full-time employees through our global Employer of Record service.

Businesses can only operate smoothly in Estonia if they comply with local labor laws including drafting compliant employment contract agreements and meeting taxation and payroll obligations. Learn more about the employment laws and regulations in Estonia below, to avoid any compliance issues.

Employment Contract Requirements

In Estonia, employment contracts may take the form of either permanent or fixed-term arrangements, provided that the temporary nature of the work is demonstrable. Irrespective of the employment type, the Estonian Employment Contract Act stipulates that written agreements must encompass, at a minimum, the following essential details:

• Identification of both contracting parties
• Commencement date
• Comprehensive job description, inclusive of duties and responsibilities
• Basic salary, along with any additional compensation or benefits, and specifics regarding payment

Onboarding Process

We can help you get a new employee started in Estonia quickly, with a minimum onboarding time of just 1-2 working days. The timeline starts once the employee submits all required information onto the Playroll platform and completes any necessary local authority registrations. For non-nationals, the Right to Work assessment (if applicable) may add up to three extra days. Additional time may be needed for follow-ups on this assessment. Please note, payroll cut-off dates can impact the actual start date. Playroll's payroll cut-off date is the 10th of each month unless otherwise specified.

Working Hours in Estonia

The standard work week consists of 40 hours, typically distributed as 8 hours per day over a five-day work week.

Overtime in Estonia

Any work conducted beyond the standard 40 hours per week is considered overtime. The regulation and compensation for overtime are typically outlined and governed by the terms specified in employment contracts or collective agreements.

Probation Period in Estonia

The probationary periods for employment in Estonia are limited to a maximum duration of four months.

Growing your team in Estonia is exciting, but it’s not without challenges. Local labor laws are often nuanced, and hiring without the right legal structure or processes can lead to misclassification, non-compliance penalties, or disputes. An Employer of Record removes that risk by acting as the legal employer on your behalf, taking full responsibility for compliance, contracts, payroll, and employee benefits.

This gives you the freedom to scale at your own pace, whether you're adding one employee or building out an entire function, without the burden of setting up and managing a local entity. You remain in control of day-to-day responsibilities and performance, while the EOR ensures every hire is legally protected and properly supported. It's a strategic way to expand globally without spreading your internal team too thin or exposing your business to legal liabilities in unfamiliar markets.

Estonia's payroll tax system combines a straightforward flat tax approach with comprehensive social security coverage, creating a balanced environment for both businesses and employees. Employers must manage several key obligations, including the 33% social tax, 0.8% unemployment insurance, and withholding of employee contributions.

The country's digital-first approach to tax administration significantly reduces compliance complexity, with all declarations and payments handled through the e-MTA portal. Monthly submissions are due by the 10th day of the following month, with penalties applying for late or incorrect filings.

Using payroll management software can help employers consolidate payroll data and stay compliant in Estonia, particularly given the country's emphasis on digital reporting and the need for accurate calculations of various contribution types.

Employees expect to be paid accurately, on time, and in full compliance with local standards. When you're hiring in Estonia, providing a smooth payroll experience is critical to retention and trust. An Employer of Record ensures that employees receive what they’re owed, without errors, delays, or confusion about taxes or benefits.

Key Ways an EOR Supports Payroll in Estonia:

• Reliable Salary Payments: Ensures employees are paid promptly in local currency.
• Clear Payslips & Documentation: Provides employees with compliant, understandable records.
• Correct Benefits & Contributions: Delivers legally mandated contributions and any changes in compensation, like bonuses.
• Payroll Setup & Processing: Handles salary calculations, tax withholdings, and local reporting obligations.
• Boosts Employee Confidence: Builds trust with compliant, consistent payroll operations.

In Estonia, work permits and visas are essential for employers hiring foreign workers or relocating employees. The process involves registering employment with the Estonian Police and Border Guard Board, submitting applications at Estonian embassies, paying fees, and meeting specific eligibility criteria.

The key visa types include the Short-Term Visa (Type C) for brief assignments, the Long-Term Visa (Type D) for extended stays, the EU Blue Card for highly skilled workers, and the Digital Nomad Visa for remote workers. Employers must ensure compliance with labor regulations and provide required documentation, such as employment contracts and proof of qualifications, when sponsoring foreign employees.

Mandatory Leave Entitlement in Estonia

The annual leave entitlement in Estonia is 28 days for a full time worker. These can include public holidays on top of that or within those days, which would otherwise be unpaid.

Public Holidays In Estonia

Employees have the right to take national holidays off. These holidays include:

Paid Time Off in Estonia

All employees are entitled to a minimum of 28 calendar days, which is equivalent to four weeks, of paid annual leave.

Maternity Leave In Estonia

Female employees are entitled to 100 calendar days of maternity leave. Up to 70 days can be taken before the due date, and during this period, maternity benefit will be paid by the Social Insurance Board. the maternity benefit is determined and paid based on the mother's actual taxable income during the reference period.If the mother's income subject to social tax in the reference period was equal to or less than the minimum wage , the maternity benefit is paid at the rate of the minimum wage, which in 2024 is 820 euros per month, with a hourly rate of 5.31 euros.

Paternity Leave In Estonia

Fathers are entitled to a benefit of 30 calendar days which can be used up to 30 calendar days before the estimated date of birth of the child until the child turns 3. The amount of compensation depends on the social tax paid in the reference period.

Sick Leave In Estonia

Employees are entitled to up to 182 calendar days of leave per year due to illness. The breakdown of the leave period is as follows:

1. Days 1 to 3: Unpaid leave.
2. Days 4 to 8: Paid by the employer based on average wage in the last six months.
3. Days 9 to 182: Paid by health insurance at 70% of the daily income, based on social tax payments made during the previous calendar year.

Parental Leave In Estonia

In Estonia, both mothers and fathers can take parental leave until their child is three years old. However, only one parent at a time can take childcare leave. Parental leave benefits are paid for a duration of up to 475 days.

Study Leave

Employees have the right to 30 days of study leave as per the Adult Education Act, with 20 of these days compensated at the rate of the employees average salary.

Childcare Leave

Child leave is granted to both employed parents separately and on a per-child basis. Each parent is entitled to 10 days of parental leave per child aged 14 and under.

In Estonia, failing to provide the correct employee benefits can have serious consequences. Mistakes in benefits administration may result in fines and harm your reputation as an employer. An Employer of Record ensures statutory benefits and leave are handled correctly, every time, and provides comprehensive options for extra perks to reward your team.

Beyond just avoiding legal issues, a well-managed benefits program builds trust with your employees. An EOR ensures benefits are set up quickly during onboarding, updated when employee status changes, and fully compliant with national regulations. They also manage communication with employees, so there’s no confusion around what’s offered and how to access it. This combination of legal compliance and positive employee experience is hard to replicate without local infrastructure. With an EOR, you can offer peace of mind to your team (and to yourself) knowing that your benefits program in Estonia is running as it should.

Termination Process in Estonia

In Estonia, employers have the authority to terminate a fixed-term contract for various reasons, including:

• Business needs
• Employee misconduct
• Is permanently incapacitated by accident or ill health; unable to perform job duties
• Personal reasons

Notice Period in Estonia

The duration of notice an employer must provide to an employee before terminating the working relationship depends on the length of the employee's service:

• Less than 1 year of employment: At least 15 calendar days' notice.
• 1 to 5 years of employment: At least 30 calendar days' notice.
• 5 to 10 years of service: At least 60 calendar days' notice.
• 10 or more years of service: At least 90 calendar days' notice.

Severance in Estonia

If an employee's contract is terminated due to redundancy, the employer must provide severance pay, equal to one month's salary based on the average earnings of the past six months. Additionally, employees with 5 to 10 years of service receive one extra month's salary from the unemployment insurance fund, and those with 10 or more years of service get two additional months' salary from the same fund. For fixed-term contracts terminated early due to redundancy, employers may need to settle the remaining salary owed for the contract period.