- Overview: Estonia
- Global HR Compliance
- Global PEO and payroll
- Work permit for hiring expats via PEO
- Contractor vs. employee: which is better?
- Expand without a Company Set Up
Global HR Compliance in Estonia
Companies that want to grow their business internationally are often confronted with an ever-changing, sometimes confusing, and always complicated array of employment laws and tax regulations that they need to keep up with. It can feel impossible to know how to navigate the rapidly changing legal environment of today’s global employment.
When you look at what it takes to truly “go global” and expand your organization across geographic borders, you can easily become overwhelmed by the obstacles in front of you. This is why many companies turn to Global PEO and EOR providers: they know that these experts can help them hire employees across multiple countries while reducing their overall risk and ensuring compliance with local laws.
A Global PEO is a professional employer organization (PEO) that specializes in helping businesses navigate international hiring and set up payroll, benefits, and HR management for those employees. A Global PEO brings together the expertise of local HR managers in multiple jurisdictions, each with the ability to provide their perspective on the labor and tax regulations unique to their country.
Partnering with Acumen International, a leading PEO and EOR global employment solutions provider is the best way for your company to thrive internationally without slowing down or changing how you do business. With Acumen PEO and EOR by your side, you can get ahead of the game regarding international hiring compliance, identify and mitigate risks related to regulatory compliance, such as employer misclassification risks, and stay on top of any tax implications related to where your employees work.
Non-Compliance Risk in Estonia. How It Affects Your HR Operations
With the complexity of global employment laws and their different interpretations and local specificities in multiple countries, expanding internationally can be risky if you’re unaware of these risks. The burden of navigating complex tax, regulatory, and compliance environments can fall squarely on your shoulders—and getting it wrong is costly.
With its booming tech industry and burgeoning position as a tech hub, Estonia has become an appealing location for companies looking to expand internationally but with lower initial overhead costs than other European locations such as Germany or Luxembourg. This comes at a cost, though—while these kinds of low-cost jurisdictions often come with unique risks, such as complex and ever-evolving local labor and tax regulations.
Estonia’s rules on hiring foreign workers are generally aligned with those of other European countries. However, non-compliance risk is challenging for companies who bring foreign employees into their workforce because employers can easily get tripped up from not adhering to local employment regulations in Estonia.
The challenge is that the costs of non-compliance are not always immediately apparent. It might take a year or two to discover that your business has been fined hundreds of thousands of dollars in back taxes because it failed to comply with local labor and tax laws.
HR Compliance Risks to Global Employers
- Complex in-country tax and social security regulations
- Ubiquitous and highly demanding trade unions
- Labor laws favoring the rights of employees over employers
- Employee misclassification risk
- Reputational damage risk.
Employee Misclassification Risk Prevention in Estonia
Employee misclassification risk has become a pressing issue in Estonia, and it’s one that is being taken increasingly seriously by the government. As a business owner, you already know how important it is to comply with tax law—but did you know that this extends to how your employees are classified? Employee misclassification is a serious issue for employers in Estonia. Knowing the possible consequences of this mistake can help you avoid misclassifying your employees and ensure compliance with federal and local laws.
How to Avoid Employee Misclassification Risk
Employee misclassification happens when an organization is incorrectly classified as a non-employee or a self-employed business. While this might seem like a small issue, many risks are associated with being incorrectly classified. First, working without the benefits and protections inherent in being an international employer can put your business at risk of being sued by one or more of your employees. Second, incorrect employee classification may lead to your organization being audited by the government and paying fines for not staying compliant with the law. Third, if you’re incorrectly classified as a non-employer or self-employed business, you’re not eligible for certain tax deductions that could leave you paying more than you should for payroll expenses.
To avoid all these risks and continue operating legally, your organization’s workforce needs to be classified correctly.
The first step to preventing misclassification is understanding what it means and how you can recognize it. Employee misclassification occurs when an employee is mistakenly classified as an independent contractor. The governments, labor, and tax authorities have created a series of regulations and guidelines to determine whether someone should be considered an employee or an independent contractor. If you follow the guidelines, you’ll be on the right track to avoiding the risk of misclassification.
One of the biggest factors affecting misclassification is a lack of understanding about employment status and how certain actions can jeopardize your organization’s tax status.
For example, if you hire independent contractors instead of full-time employees to save money on expenses normally covered for full-time employees—such as benefits, paid time off, and sick days—you may have more indirect costs down the line. You’ll have to do more paperwork at tax time and pay back taxes and penalties if you’re audited by government authorities, and they discover a misclassification case.
Global EOR and PEO Solution: Save Costs. Alleviate HR Compliance Burdens
When expanding your business internationally, it is important to know the potential risks involved. Different countries have different laws and regulations regarding employment, taxes, and compliance, making operating in multiple countries complicated and risky. You could incur a heavy burden of compliance-related expenses if you are not careful.
If you want to avoid non-compliance risks in Estonia when expanding internationally, take steps to ensure that your operations will not be burdened by outdated legislation or overly restrictive regulations. Keep up to date on changes affecting your business and ensure that your company is well positioned to accommodate them from the start.
In Estonia, as in many European countries, a company should partner with a PEO & EOR global employment solutions provider to handle HR administration duties, including payroll and benefits administration and regulatory compliance.
Achieving 100% HR Compliance in Estonia with Acumen International
Acumen International is a leading provider of global EOR and PEO services, offering fully compliant and cost-effective solutions for businesses that need to manage international payroll, HR & benefits administration across 190 countries. The team of Acumen PEO provides strategic guidance and a wide array of high-quality, cost-effective services tailored to your specific requirements that can help your company grow and scale up safely. Here are some of them.
- Processing Immigration requirements
- Business visa applications & extensions
- Work permit sponsorships
- Streamline onboarding, benefits, payroll, PTO
- Local labor law compliance across 190 countries
- Audit-proof compliance requirements
- Employee benefits management
- Handling employment contracts, terminations, and compensation
- Processing medical insurances and benefits
- Payroll, including year-end tax statements
- Relocation Services & housing
- Benefits administration
- Special needs or requirements
- Multi-country employment without limitations
- Handling contract worker and ex-pat workforce management
- Compliant employment or termination within 72 hours.
Our team of English-speaking professionals frees you from working through language nuances. Acumen International works 24/7 and can assist you whenever you need it, regardless of time zones. We can create tailored global employment solutions for you to deploy in Estonia that is managed legally and in full compliance with the employment laws, tax, social security, and immigration requirements in Estonia.
Global Employment Cost Estimation
As your company grows and expands its operations globally, it becomes increasingly important to have a global employment cost prediction that can give you visibility into your worldwide workforce expenses. Global Payroll Calculator can do that by providing you with predictive analytics on global employment costs and employer and employee tax analysis capabilities. This allows you to budget more effectively for your expansion plans and manage your international workforce. Having global employment costs at your fingertips helps you stay ahead of the competition and maintain a healthy bottom line.
The Global Payroll Calculator leverages unique up-to-date data collected by Acumen’s expert in-house team research of over 1500 official government sources and validated with local lawyers, compliance experts, and accountants.
Global Payroll Calculator helps companies minimize labor costs while providing up-to-date information on hiring, compensation, and tax requirements across 190 countries. The Global Payroll Calculator is also ideal for rapid global employment as it provides accurate estimates of an organization’s international intake, accounting for relevant factors such as salary levels, taxation rules, hiring requirements, and other legal standards across multiple jurisdictions.
HR Compliance Guide: Hiring and Firing Workforce in Estonia
Employment Agreements in Estonia
The legislation in Estonia provides for collective agreements at three levels – national, industry, and company/organization. In practice, the most important level is company or organizational level bargaining, although there have also been several important national agreements.
Permanent employment contracts
A written document of an employment contract shall contain at least the following data:
- The name, personal identification code or registry code, place of residence or seat of the employer and the employee
- The date of entry into the employment contract and commencement of work by the employee
- A description of duties
- The official title if this brings about a legal consequence
- The agreed remuneration payable for the work (wages), including remuneration payable based on the economic performance and transactions, the manner of calculation, the procedure for payment, and the time of falling due of wages (payday), also taxes and payments payable and withheld by the employer
- Other benefits, if agreed upon
- The time when the employee performs the agreed duties (working time)
- The place of performance of work
- The duration of the holiday
- A reference to the terms for advance notice of cancellation of the employment contract or the terms for advance notice of cancellation of the employment contract
- A reference to the rules of work organization established by the employer
- A reference to a collective agreement if a collective agreement is applicable concerning the employee
An employment contract may be entered into for a specified term of up to five years if it is justified by good reasons arising from the temporary fixed-term characteristics of the work, especially a temporary increase in work volume or performance of seasonal work. If duties are performed by way of temporary agency work, an employment contract may be entered into for a specified term if it is justified by the temporary characteristics of the work in a user undertaking.
Employment Termination and Severance Pay (Dismissal) in Estonia
An employee may cancel an employment contract extraordinarily due to a fundamental breach of the employer’s obligation, in particular, if:
- The employer has degraded the employee, threatened to do so, or allowed the employee’s colleagues or third parties to do so.
- The employer has considerably delayed with payment of wages.
- Continuance of work is related to a real threat to the employee’s life, health, morals or good name.
An employee may cancel an employment contract extraordinarily due to a reason arising from the employee, particularly if the employee’s state of health or family duties do not allow him or her to perform the agreed work and the employer does not provide him or her with suitable work.
An employee may cancel an employment contract only within a reasonable time after he or she learned or should have learned of the circumstance serving as the basis for the cancellation
To terminate employment, employers must have legitimate reasons. These can be either related to the employee’s conduct or capabilities (e.g. gross misconduct, breach of the employment contract, poor performance, or permanent incapacity to work due to illness) or to economic, organizational, or technological reasons of the company (e.g. a decrease in the volume of work, organizational changes or financial position of the company). The reason for dismissal must be given to the employee in writing or in a format that can be reproduced in writing (e.g., by email or letter).
Employers must also observe the appropriate period of notice. The general rule is that an employer can only terminate employment without notice if the employee is guilty of gross misconduct
Termination of the employment contract can be done by mutual agreement. The parties are entirely free to agree on termination on any grounds they desire. Where the parties agree to terminate the employment, they are not required to obtain the courts’ or regulatory body’s approval before the termination is effective.
Notice Period in Estonia
The amount of notice an employer must give to an employee depends on the period of employment. If the employee has worked for:
- The employer must give a minimum of 15 calendar days’ notice in less than one year.
- The employer must give a minimum of 30 calendar days’ notice for one to five years.
- The employer must give a minimum of 60 calendar days’ notice for five to ten years.
- Ten years or more, the employer must give the employee a minimum of 90 calendar days; notice.
Employees who wish to terminate the employment contract must give the employer a minimum of 30 calendar days’ notice.
Employment contracts may be canceled during probation by giving no less than 15 calendar days’ notice. An employee does not have to notify the employer of extraordinary cancellation if, considering any circumstances and mutual interests, it cannot be reasonably demanded that the performance of the contract be continued until the expiry of the agreed term or term of advance notice.
Severance Payments in Estonia
Upon terminating an employment contract due to a lay-off, an employer shall pay an employee compensation of one month’s average wages. An employee also has the right to receive an insurance benefit under the Unemployment Insurance Act.
Upon terminating a fixed-term employment contract for economic reasons, an employer shall pay employees compensation equal to the salary due for the remainder of the contract.
No compensation is paid if the employment contract is terminated due to force majeure.
If an employee terminates the employment contract extraordinarily because the employer has committed a fundamental breach, the employer shall pay the employee compensation of three months’ average wages. A court or a labor dispute committee may change the amount of the compensation, taking into account the reasons for the termination and the interests of the parties.
If an employer or an employee gives advance notice of termination later than provided by law or a collective agreement, the employee or the employer has the right to receive compensation to the extent to which they would have had the right to obtain upon the term of advance notice.
Employee Benefits and Contributions Estonia
Annual leave, sick leave, public holidays entitlement, maternity, paternity and parental leave, mandatory pay of employer pension, health insurance, and unemployment insurance.
Probationary Period in Estonia
If an employment contract does not specify a probation period, it shall be regarded as entered without a probation period. The probation period may not exceed four months. In a fixed-term employment contract, the trial period cannot be longer than half of the contract term.
In general, overtime must be agreed upon by the employee and employer. Overtime hours cannot exceed a total of 8 hours within 7 days.
A full-time employee works 40 hours per week (deemed seven days) unless the employer and the employee have agreed that the employee will be a part-time worker. It is presumed that the employee works 8 hours a day.
Annual Leave in Estonia
Employees are entitled to 28 calendar days of holiday per year. The employee and employer can agree to a longer annual holiday, or a longer period can be provided by law.
Sick Leave in Estonia
In case of sickness, the employee can be given up to 182 calendar days of paid sick leave (max 250 days per year). The gross wage during this period is 70% of his or her last year’s average salary. The employer pays the wage from the 4th to the 8th day of sickness, and the state starts on the 9th day.
Parental Leave in Estonia
A woman is granted 140 days of pregnancy and maternity leave, which may commence at least 70 days before the estimated birth date of the child. The maternity benefit is paid by the state.
A mother or a father shall be granted parental leave at her or his request for raising a child of up to 3 years of age. The parental benefit is paid by the state. Together the maternity benefit and the parental benefit are paid for 575 days.