Estonia 106 - Employing Workforce


  • Next up is our introduction to a subject important for most aspiring E-Residents - how to employ workforce in Estonia?

    Employment Contracts

    Employment contracts may be concluded either for a fixed term or for an unspecified period. The majority of employment contracts in Estonia are concluded for an unspecified period with a four month probation period.

    An employment contract for a longer period than two weeks must be in written form i.e. signed by both parties or their representatives. However, failure to use the written form will not render the contract void.

    The employment contract must contain at least the following: data of the parties (name, ID code or registry code, place of residence or seat); the date of entry into the contract and commencement of work; a description of duties; the official job title in case it brings about legal consequences such as longer vacation or earlier retirement age; wages together with taxes and payments payable or withheld by the employer, pay day and the procedure for payment; other benefits if agreed upon; working time; work place; duration of holidays; a reference to or the terms of advance notification of cancellation of the employment contract; a reference to inside work rules approved by the employer and a reference to a collective agreement if it is applicable to the employee.

    Collective Contracts

    In addition to individual employment contracts, the employment relations may be governed by collective contracts concluded between the employer or an association of employers and employees or the employees’ union or federation.

    Collective agreements usually set forth more beneficial conditions for employees than prescribed by law.
    With a few exceptions (civil aviation, road transportation etc.) the trade union movement is not strong in Estonia.

    Working Time

    The full working time is 40 hours on average during a seven day work period. In case of working in shifts the period for calculating working time is up to four months.

    The requirement for weekly rest time is 48 consecutive hours during a seven day period or in case of shift work not less than 36 consecutive hours. The daily rest time requirement is 11 hours between shifts or work days. Longer rest periods are prescribed for minors. The law also provides exceptions upon which shorter rest time may be agreed on.

    Overtime Work

    Overtime work must be agreed on separately. The general limit is 8 hours of overtime on average during a seven day period over a four month calculation period (amounting to 48 hours on average per work week).

    An additional 4 hours of overtime amounting to 52 hours on average may be agreed on if it is not unreasonably detrimental to the employee.

    Overtime work is compensated either by giving the employee time-off equal to the amount of overtime or by a higher rate of monetary compensation. The supplementary overtime rate must be at least 50% of the normal wage rate, meaning that overtime pay amounts to at least 150% of the normal wage rate.

    Vacation

    Vacation is calculated on the basis of the calendar year, and the annual paid vacation is 28 calendar days. The law prescribes prolonged vacations for minors and for employees receiving incapacity pensions which are partly compensated by the state. Longer vacations are also prescribed for persons employed in the education sphere.

    In addition to annual holidays, employees have the right to paid study leave (up to 20 calendar days per year), and short parental leaves, which are mostly unpaid or compensated by the state. A parents’ right to childcare vacation lasts until the child is three years old. During the time a parent uses childcare vacation the employer is obliged to maintain the job for his or her return to work.

    Minimum Wage

    The minimum wage for each successive calendar year is determined by Government decree. In 2016 the gross minimum monthly wage is EUR 430 and in 2017, EUR 470. The average gross montly wage is EUR 1,045 (Q3 2015).

    Terminating an Employment Contract

    During the probation period of four months either party may terminate an employment contract concluded either for a fixed term or for an unspecified period by giving a 15 days notice.

    The employee has the right to terminate an employment contract concluded for an unspecified period at any time by giving a 30 days notice (ordinary termination). Ordinary termination may not be used for fixed term contracts, unless the contract is concluded to employ a substitute for an employee. Fixed term contracts may only be terminated for reasons provided by law such as fundamental breach of contract by the employer (extraordinary termination), in which case no advance notice is required and the employer must pay compensation equal to three months wages. The employer may terminate an employment contract only by extraordinary termination. The two grounds for extraordinary termination prescribed by law are:

    • reasons connected to the employee’s person (the employee has not been able to fulfil his or her obligations due to health reasons, insufficient work skills, has committed theft or fraud, has appeared at work intoxicated, has continued to breach his or her obligations even after the employer has given him or her a warning etc.);

    • economic reasons such as a decrease in work volume, reorganisation of work, other cessation of work (lay-offs).

    The employer must give the employee advance notice. The amount of time depends upon the period the employee has worked for the employer. For instance, in case of less than one year of employment – 15 calendar days and in case of five to ten years of employment – 60 calendar days.

    If an employee working pursuant to a contract concluded for unspecified term is laid off, the employer must pay the employee compensation amounting to one month wages in addition to which the employee has the right to receive insurance benefits according to the Unemployed Insurance Act. If the contract is for a fixed term, the compensation amounts to the sum of wages to which the employee is entitled to until the expiration of the term of the contract.

    The notification of termination of the employment contract must be made in a form that can be reproduced in writing, including e-mail, fax or even SMS. If this requirement is not followed, the notification is deemed void. The notification must be justified (contain the reason for termination).

    Key statutes:
    Employment Contracts Act 2009
    Collective Agreements Act 1993
    Unemployed Insurance Act 2002

    Information posted above is intended as a general guide and does not constitute legal advice.


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  • Dear Tark, this is a wonderful and clear summary on employment considerations! It will also be useful for all to recognize that such contracts provide a lot of "substance" as to the "economic purpose" and "nexus" of a business's activities. The absence of such elements always leaves some vulnerable to questions of "tax residence" for the employer and/or the employee. Thanks for this, Lyn


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