Employee benefits in Estonia: All you need to know

Employee benefit programs can be challenging enough to set up and manage in your own local market. The prospect of developing a legally compliant, equitable, and competitive benefits plan in a foreign country like Estonia can seem overwhelming.

Managing benefits for international employees doesn’t have to be difficult or complicated. And the upside of hiring across borders is huge.

Estonia provides an excellent example of the high caliber of talent available in previously untapped foreign markets. For so long Estonians had to travel to get access to roles with global companies.

Now, a combination of factors has made it easier than ever to access Estonia’s incredibly rich labor market. This Baltic nation contains some of the world’s best data security professionals in the world, a wealth of experienced software engineers, and a thriving tech scene that has developed so much incredible local talent.

Progressive globally-minded companies will find a haven of qualified professionals in Estonia. The country has a well-established remote work culture with a huge collection of co-working spaces. Potential employees are actively seeking roles with international companies that can afford them opportunities for fast growth and work-life balance.

Developing a compliant and attractive benefits plan in Estonia will help you lure in this top talent. We’ve prepared this guide to simplify the process. We walk you through the statutory employee benefits you need to provide in Estonia (and additional perks that will keep you competitive) and explain how to manage the setup and delivery of a global benefits program with ease.

We’ll explain:

• Who is entitled to employee benefits in Estonia

• Statutory employee benefits that you must provide

• Detailed leave entitlements

• Additional benefits that are most valued in the local Estonian market

• How to set up and manage benefits for international employees

Who is entitled to employment benefits in Estonia?

Estonian employees who perform labor or service duties are entitled to employment benefits, unless otherwise provided by law. Paid leave is granted to every employee in accordance with his or her contract of employment, collective agreement or law.

Mandatory employee benefits in Estonia include paid leave, a three-pillar pension system and employment insurance.

In Estonia, an independent contractor or a self-employed individual isn’t entitled to the same statutory provisions as an employee. It’s important to understand this delineation. With the exception of social security contributions, the majority of benefits stated in Belgian legislation only apply to full-time employees.

Regardless of whether you view a worker as an employee or a contractor, legislators will make the only determination that matters. If you’re found to have an employee relationship and you’ve neglected to provide statutory benefits, you’ll open your company up to the serious risks of misclassification and subsequent fines or penalties.

For more detailed information about understanding this concept, be sure to read our dedicated guide to misclassification.

Leave entitlements in Estonia

The duration of mandated annual vacation is 28 days in Estonia, with extended leave available to people in certain jobs, such as state officials and local government officials, teachers, academics, and scientific staff. The vacation duration calculations do not include national or public holidays. An employee may also take unpaid leave at their own request for a specified time period if this is agreed to by both the employer and employee.

Depending on the job function and employment contract or collective bargaining agreement (CBA) in place, Estonians are entitled to various amounts of annual leave.

An employee's annual paid leave is lodged at 28 days unless the employee and employer agree to a longer annual leave period or unless otherwise dictated by specific elements of the Employment Contracts Act. For example, government workers are entitled to 35 days of vacation each year, while academic and research staff are entitled to 56 days of paid time off.

Employees who fall sick can be afforded up to 182 days of paid sick leave. This period lasts until the employee is healthy enough to resume working. During this time, the gross wage paid will be 70% of the employee’s previous years' average salary.

Maternity and paternity leave

Mothers are entitled to 140 days of pregnancy and maternity leave, which may begin at least 70 days before the anticipated birth date of the child. This is a progressive and generous policy compared to many other nations.

The state pays for the maternity benefit, not the employer. Maternity leave is paid at 100 percent of average earnings, which is based on employment in the previous year. There are no upper limits to payments.

The minimum wage of 584 EUR per month is paid to mothers who did not work in the previous year but did work for a period of the current year prior to giving birth to their child.

The state shall pay parental leave at their request for the purpose of raising a child who is up to three years old. The government also provides this benefit. The combined maternity and parental advantages are covered for a duration of 575 days.

Pension plans and retirement contributions

A pension is a recurring payment paid to an individual when he or she becomes aged, incapacitated for work, or loses his or her employment. The Estonian pension system's goal is to allow individuals to continue living with income after they retire.

The Estonian pension system is built on the following three pillars.

1. State PensionThe state pension is a type of pension paid by the government that aims to provide consistent monthly payments to individuals who have reached retirement age, become unable to work, or have lost their provider. The pensionable age in Estonia is 63, and it will be raised to 65 by 2026.In order to guarantee that the state pension is paid, taxes from those who are currently employed are used to pay benefits to existing pensioners. The state pension is paid out of the contributions generated to the state budget from the social tax. The employer must withhold 33% social tax from an employee's salary, and acts as the direct payer of the social tax, which the state uses for health insurance and pensions.

2. Mandatory Funded PensionThe goal of the second pillar is to channel a portion of workers' salaries away from the state pension towards their own personal pensions, allowing them to have an additional pension in addition to the consistently paid state pension.In the case of a mandatory funded pension, an employee pays a monthly 2% of their gross wage into a chosen pension fund, and the state adds another 4% from the current social tax on top of that.

3. Supplementary Funded PensionThe third pillar was established with the goal of allowing individuals to safeguard their retirement. The contributions paid to the supplementary funded pension can be determined by the individual, and the amount of the contributions may be changed at any time. If the contributors to the supplementary funded pension make less than €6,000 or 15% of their gross income per year, no income tax is deducted from their payments.

Minimum wage and overtime

In Estonia, the national minimum wage is 584 euros per month and 3.48 euros per hour. The payroll cycle in Estonia is generally monthly, and payments must be made on the same day of the month and no later than the last working day of the month.

The usual Estonian workweek is 40 hours long, with five days worked each week for eight hours per day. Work beyond the usual weekly working hours is compensated as overtime and governed by employment contracts or collective agreements. There are no restrictions on the number of hours that may be worked when an employee is asked to work overtime or on weekends. Minors are the only exception.

Insurances

Unemployment insurance is a legal requirement that requires employers and employees to pay taxes in order to provide benefits to people who are unemployed. Employees must contribute 1.6 percent of their gross income, while the employer must contribute 0.8 percent of the payroll for unemployment insurance. The employees' income is automatically deducted from their paychecks.

People who are eligible to receive a pension do not have to pay unemployment insurance. EU citizens may claim unemployment insurance benefits. To be eligible for an unemployment insurance benefit, you must have paid at least 12 months' worth of unemployment insurance contributions in the previous 36 months.

Want to see a full breakdown of employment costs for new hires in Estonia? Check out our free Employee Cost Calculator tool.

Additional benefits to consider for Estonian employees

Estonia is a thriving and competitive market stacked with highly skilled professionals (especially in the software industry). As a result, simply offering statutory benefits alone will reduce your chances of snagging a superstar candidate. Chances are, your key potential hire will find a more attractive package elsewhere.

When it comes to healthcare, Estonia has a solidarity-based social insurance system that provides healthcare to citizens based on their needs. It is run by the Estonian Health Insurance Fund (EHIF) and covers 19 hospitals in the country. However, there is also a private healthcare system, with over 20 hospitals. Many professionals have private insurance to supplement the public system, allowing for shorter wait times and access to more specialized care. Private insurance is typically provided by their employers, and this is an important benefit to consider for your Estonian employees.

Job seekers today are also pursuing roles with flexible working hours and more focus on work-life balance. In a global talent market where remote work is readily available, value-based benefits like this are becoming table stakes for leading businesses across the world (we explain in more detail in our values-based benefits guide).

Creating a globally attractive benefits package that complies with local regulations doesn’t have to be complicated.

Remote cares passionately about providing perks and benefits to enable your global team to enjoy security, stability, and work-life balance.

Our team of internal legal, HR, and benefits experts are constantly working with our customers to create customized benefits packages to attract top talent around the world.

The size of your business won’t prevent you from sourcing international talent. If you’re a smaller business looking to employ Estonians, your benefits plan doesn’t have to be cost-prohibitive. This small business guide to affordable global benefits will help you find inexpensive perks that will motivate workers open to a more flexible, remote-first role.

How to set up and manage benefits for international employees

No matter whether you’re hiring at home or abroad, you need to understand how to construct a benefits and compensation plan that is equitable and attractive.

Most importantly, you need a solution that allows you to stay compliant with all of the local labor laws in each country of operation.

Creating your own legal entry in another foreign country is exceedingly time-consuming and expensive, ruling out all but the biggest of enterprises.

Rather than sourcing multiple local experts each time you look to hire abroad, an employer of record gives you a cost-effective, fast, and secure alternative to help you grow your team across borders.

When should you use an employer of record?

If you don’t have an established process to manage processes like hiring, onboarding, and paying international team members – an employer of record like Remote will give you immediate relief.

Remote’s EOR service gives you the advantage of dedicated local employment experts that can offer the insight you need to create a strong benefits package, a compliant employment contract, and a competitive offer to your candidate.

We’ve previously dedicated an entire article to when should you use an employer of record, but there are a few key trigger points where an EOR can significantly minimize your risk:

• Minimizing permanent establishment and co-employment risk

• Developing locally relevant and globally competitive benefits plans

• Managing onboarding and payroll in compliance with all local labor laws

• Advising on terminations, dismissals, and redundancies

• Protecting any IP & patents produced by your remote employees

An employer of record like Remote manages the complicated parts of international employment. The combination of Remote’s intuitive software hub, and our team of global HR experts combine to organize all the tiny details of managing a globally distributed workforce. Remote handles all the complicated parts of global employment so don’t have to worry.

Learn how Remote simplifies hiring in Estonia, and all around the globe, so you can open up a whole new world of potential talent.

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