Employment Act/labor laws in Estonia

Estonia is a country in Europe and a member of the European Union. The Estonian Republic follows the unitary parliamentary form of Government. Estonia has an impressive GDP of 64 billion, providing a huge pool of IT specialists. The Estonian Republic is known for its technology sector growth, which makes the country an excellent choice for setting up a business there.

Estonia is a scarcely populated country with around 1.35 million people. Apart from that, Estonia has a stable economy and a high Human Development Index. The country has a stable democracy and A very innovative business market making this European nation a delightful choice for starting a business. 

The Employment Contracts Act and the labor code in Estonia govern employment in labor conditions. The regulations are liberal and both employee and employer-friendly.

Applicability of the Act

Estonia’s Employment Contract Act (ECA) applies to all employees (local and foreign) and employers. However, the Estonian labor laws do not apply to the following individuals:

• Members of any legal body.
• Members whose work must be independent and secret.

Employment Contract

Per the labor code in Estonia, there are four types of employment contracts. One must get on board with an organization with an employment contract. However, a written contract is not mandatory in Estonia as it is implicitly required for an employee to work with a company in exchange for remuneration.

The major type of employment contracts in Uganda can be classified as follows:

Open-ended employment contracts

Open-ended employment contracts imply an indefinite period of employment suitable for permanent employment and full-time work. These types of contracts do not have any expiration period. This type of employment contract is most common in Estonia and is a standard form for beginning employment. 

Estonian labor laws religiously accept open-ended contracts as these contracts do not have any time limit. Employers can hire workers permanently if they wish to do so.

Fixed-term employment contracts

Employment Act Estonia also provides fixed-term contracts majorly associated with seasonal jobs. These contracts are connected in several cases where some companies have a sudden increase in workload, need specific professionals for any particular project, for replacing any employee temporarily, and so on. 

According to the employment law Estonia guide, if the fixed-term contracts are successive, where the duration between them is less than two months, and have a limited total duration of 5 years, then such fixed-term employment contracts become permanent.

Probation period employment contracts

Not all employment contracts have a specific probation period. Estonia’s probation period employment contract must specify the employment clause in the employment document. Otherwise, the contract will not qualify for a probation period contract. 

Per the Employment Act Estonia, the probation period can last for a maximum of 4 months. If the employer thinks the employee is good enough, then the employer can end the probation period. On the other hand, if the employer is not happy with the candidate’s performance, then the employer can terminate the probation period by giving the employee a 15 days notice period.

Collective bargaining agreements

Collective agreements are prevalent in Estonia, as over 30% of the employees work under these contracts. These agreements generally have a tenure of 1 to 2 years and include the essentials like working conditions, remuneration, working hours, redundancy provisions, health, safety, etc. Collective bargaining agreements apply at all levels, including national, company, and industry.

Collective bargaining agreements work best when a company does not have any Union formation for their workers, and the work council of employees signs this contract. According to the ECA, it is compulsory that collective bargaining agreements have to be registered with the Ministry of Social Affairs. 

Key Provisions of the Act

Employers must deeply understand the key provisions of its employment act and the Estonian labor laws. The key provisions of the Employment Act Estonia are enumerated as follows:

Minimum age of employment

According to the statutory law in Estonia, the minimum working age is 18 years. As per labor act rules in Estonia, individuals below 15 are unemployable under any conditions. However, individuals who are 15 or above can work with parental permission or permission from a labor officer.

Working hours

The maximum working hours in Estonia labor laws is 8 hours a day, and the typical working days in Estonia are five days per week, with the weekend considered holidays. However, the working hours should be at most 12 hours.

Overtime pay

With the basic salary, an employee receives overtime pay from the employer if an employee works more than the stipulated hours. EAs per the Employment Act Estonia, the overtime pay for any employee is 1.5 times the basic pay of that employee. Following the Estonia working hours law and the overtime work of an employee cannot be more than 48 hours in a week. 

Minimum wage

According to the Employment Contracts Act Estonia, the minimum wage agreement governs the wages that have to be paid to every employee by the employer. The Estonian labor law guarantees a minimum wage of € 4.3 to every employee on an hourly basis.

However, the minimum salary for a full-time employee must be €725 per month. As of 2023, the minimum salary for 2nd region higher secondary school teachers is a minimum of € 1749 per month.

Night-time work wage

If an employment contract explicitly mentions the clause of night-time work, then it is applied via the employment contract. However, the wages of night-time workers are 1.25 times the basic pay of an employee.

Paid leave

The labor act rules in Estonia guarantee the provision of paid leaves or paid vacations to employees. Employees receive 28 paid leaves every year. If paid leaves fall on a public holiday, the leave is extended to the next working day so that the employees stay within paid time off. 

Public holidays

As per the employment law Estonia guide, employees receive 12 public holidays annually. If an employee willingly works on a public holiday, then the employer has to pay such an employee twice the basic salary. Thus, working on a public holiday makes an employee earn double pay.

Sick leave

The labor code in Estonia provides holidays for sickness. It can increase to a maximum of 250 days a year. Labor regulations in Estonia are very liberal and employee-friendly in the case of sick leaves, as it provides an employee 182 days of paid sick leave.  

The salary during an employee’s sickness will be 70% of the average salary of the previous years. The employer pays the salary from the fourth to the eighth day of sickness. However, from the 9th day onwards, the employee draws the salary from the social security services of Estonia. 

Maternity leave

Estonia paid maternity leave is available to all female employees during pregnancy. The maternity leave is for 140 days, lasting 70 days before childbirth. Female employees must fill out the maternity leave form in Estonia to become eligible for the leave. 

Maternity leave in Estonia for foreigners is also the same as for the citizens and residents of the country. Maternity leave benefits and compensations are paid to the employees by the state, not employers. 

Paternity leave

Labor regulations in Estonia provide paternity leave to an employee who assists his partner during pregnancy. The employees receive paternity leave for a maximum period of 10 days. 

However, after the delivery of the child, the male employee is entitled to take two months of paternity leave. The employees during paternity leave get 100% of their salaries, but it is limited to three times the national minimum wage.

Parental leave

Shared paternity leave in Estonia or parental leave is granted to male and female employees until their child is three years old. The parental leaves are paid leaves, but the wages are paid by the state at this time and not the employer.

Maternity and parental leave can extend for a maximum of 575 days. However, only one child’s parents are entitled to this leave at a time.

Education leave

As per the labor code in Estonia, if students are employees in any organization, they can avail of 30 calendar days of leave for educational purposes or vocational training. The working students will get 20 paid and ten unpaid leaves during this time. 

Childcare leave

Estonia’s working hours law is very liberal, and they provide childcare holidays. If the employees have children below 14, they are entitled to a maximum of 6 days of childcare leave in a month. However, the number of leaves can change depending on the child’s age.

For a child with specific conditions, either parent can take a working day off till the child turns 18. 

Adoption leave

Employment law Estonia guide also provides paid adoption leaves to the employees so they can decide upon the adoption process. It also helps them get time to look after the children and bond with them.

Severance pay

Upon the termination of a redundant employee, the employer has to pay the employee the average of the previous six months’ salary as severance pay. Upon the employment law Estonia’s termination of fixed-term contracts, the employees are entitled to receive salary for the rest of the period till the expiration of the contract.

Some of the conditions of severance pay are as follows:

• When an employee has been a part of an organization between 5 years to 10 years, then the employee is entitled to get an additional month of pay.
• When a worker works for ten or more years in a company, such an employee is entitled to 2 additional months of salary.
• Employees with fixed-term contracts, if terminated in between, will receive the salary for the entire period of the contract till it extinguishes.
• Per the Estonian employment law, termination happens due to redundancy. Then the employee will receive six months of salary.

Termination of employment

Employment law Estonia termination allows terminating an employee on the following grounds:

• Due to any grave misconduct of an employee
• If an employee wilfully resigns from the organization.
• If the employment contract comes to an end

Also, providing a notice period is integral when terminating a contract. The duration of the notice period of an employee can be classified as follows:

• In the case of an employment contract that lasts less than a year, then the notice period will be of 15 days.
• If the employee works with the organization for 1 to 5 years, the notice period will be 30 days.
• When the employee has been on an employment contract for 5 to 10 years, the notice period will be 60 days.
• In the case of an employment contract that lasts more than ten years, then the notice period will be of 90 days.

Probation period

Some employment contracts exclusively mention probation periods with specific clauses. Per Estonian labor law, the probation period can be a maximum of 4 months and cannot be more than half of the term of the employment agreement.

Penalties

Failure to adhere to Estonian labor laws may trigger penalties and punishments that may vary based on the severity of non-compliance. According to the labor code of Estonia, if an employer breaches the employment contract, then the employee can choose to cancel or terminate the contract. Additionally, Estonian labor law guarantees that employers must pay damages when they fail to comply with the ECA. The amount of damage is generally 100 fine units for most cases.  

According to the employment law of Estonia guide, the labor dispute resolution body deals with cases relating to the breach of employment contracts. The labor dispute resolution body can increase or decrease the compensation amount, as the case may be. However, they can extend the penalty based on the scenario. 

Compliance strategies for Employers

The Estonian labor law is clearly drafted and easy to understand. Adhering to the labor code of Estonia for both resident and foreign companies is made easier with the help of compliance strategies. 

Some common compliance strategies that can help employers in controlling better operations are enumerated as follows:

In-house HR

• An employer can appoint an in-house HR team that helps companies easily follow Estonian labor laws.
• According to the Estonian labor code, the in-house HR force can look after the important employment factors, for instance, remuneration of employees, working hours, the employment environment, leaves, etc.
• A specialized HR unit is developed by companies with larger budgets to meet various employment needs.

Third-party HR agency

• Estonia has a lot of specialized companies that are masters in assisting businesses so that they can adhere to the Estonian labor laws.
• The output of a third-party HR unit can be easily compared to the deliverables of the in-house HR team.
• The cost of outsourcing from an agency with skilled HR professionals is quite less than that of building an all-new in-house HR team.

Employer of Records

• Employer of Records, often known as EOR solutions, is a well-known compliance tactic for big organizations that yields better results.
• EOR solutions enable employers to forgo the need for HR and assist them in adhering to Estonian labor law regulations.
• EOR solutions are compatible and affordable for organizations of all sizes; large, medium, and small size businesses.

How Can Multiplier Help Businesses Stay Compliant?

A business owner must consider several important factors when opening a business in Estonia. Launching a business can take time, effort, and compliance with the labor code in Estonia. Multiplier is here to help new business owners, provide guidance regarding numerous solutions for international expansion, and secure a significant global position.

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