With the shift to remote working, companies across the globe are increasingly seeking top-tier, remote talent beyond the corporate HQ. Thanks to straightforward labor legislation and a tech-savvy culture that embraces remote, global work, Estonia is the perfect place to begin growing your distributed team.
When it comes to hiring Estonian talent, salaries aren’t the only monetary consideration to factor into your budget. Before expanding into this Baltic nation, you’ll need to consider all the costs that make up a fulsome employment package. This includes things like taxes, social security contributions, overtime and vacation pay, stipends and benefits.
We’ve broken down the mandatory and optional costs of hiring an employee in Estonia so you can expand your global reach while shrinking your hiring expenses.
Mandatory Costs of Hiring in Estonia
Mandatory hiring costs are non-negotiable expenses when hiring remote, Estonian talent. Things like salaries, payroll taxes, overtime pay, and vacation pay must be properly accounted for or you risk violating local labor laws and regulations.
Salary
In Estonia, the minimum wage is EUR 725 per month and employers are legally required to pay this. That said, salaries vary greatly among industries and job types, so offering a competitive salary will depend on your hiring plans.
Taxes and Benefits
In Estonia, income tax is not assessed on the profit earned every year. Instead, it is deducted on a monthly basis and only when profits have been distributed (when you pay out dividends for example). The corporate tax rate is generally a flat 20%, calculated as 20/80 from taxable net payment.
Employers in Estonia pay 33.8% of the employee’s salary in taxes, which includes 20% in a mandatory pension, 13% in health insurance, and 0.08% in unemployment insurance.
- Generally, you can expect to pay 33.8% on top of a gross salary in payroll taxes to hire an employee in Estonia.
Overtime Pay
The standard working hours in Estonia are eight hours per day and 40 hours per week. Overtime pay of 1.5 times the employee's regular wage is mandatory, and employees can work a maximum of eight hours of overtime per week.
Severance Pay
Severance pay in Estonia is determined by the reason for termination and the length of employment.
- Termination due to redundancy: six months of salary
- Employees who have worked for 5–10 years: one month of salary
- Employees who have worked for more than ten years: two months of salary
- Termination during fixed term contracts: salary that the employee would be entitled to until the end of their contract
Supplemental Costs of Hiring in Estonia
When the world is your competition, it pays to incentivize new and existing hires with attractive supplementary benefits like medical, dental, vision, life insurance, retirement savings plans, and other stipends and perks.
Benefits
Companies in Estonia, offer a variety of supplementary benefits.
- Additional vacation days: by way of company closures during holidays like Christmas
- Employers may offer a tax-free reimbursement for the use of personal cars. The rate is €0.30 (USD 0.33) per kilometer. This reimbursement cannot exceed €335 (USD 369.74) per month. Any amount over this allowance is taxed.
- Gym memberships: covering 50%–100% of memberships and recreational activities
- Health insurance: There are five primary Estonian insurers that offer health benefits. €400 (USD 441.48) per year per employee is free from fringe benefits taxes. Health insurance usually covers in- and outpatient treatments, prophylactic checks, vision, and dental care. Massage and/or rehabilitation limits are also available, as well as some other extras.
Bonuses and Extras
There are no mandatory bonuses in Estonia but many companies will choose to provide annual benefits based on performance.
Companies usually provide employees with a quarterly stipend of up to 100 euros for health and sports expenses. These expenses are tax-exempt. This can include things like participation fees for recreational sports teams and gym memberships.
Average Cost of Hiring
Below is an estimate based on a salary of $100,000 for an employee in Estonia. This salary is for ease of calculation. It will change depending on particular factors related to your hiring objectives. These factors include the employment contract details, the candidate's experience and education, and the type of position.
Average Cost Of Hiring One Employee in Estonia (Annual in USD)
Mandatory Burdens
Salary: $100,000
Employer Taxes: $33,800
- Pension
- Health insurance
- Unemployment insurance
TOTAL: $133,800
Optional Burdens
Voluntary Health Insurance: $2,225
TOTAL HIRING COST: $136,055
These calculations do not take into account other typical costs in Estonia. These include gym memberships, co-working spaces, and subsidies for office set-up.
Work with Borderless
Growing your remote, global team and hiring Estonia-based talent can seem overwhelming, especially when you consider all the associated costs. Leave the headache to Borderless.
Borderless is an Employer of Record (EOR). They handle all the administrative work for you. This ensures compliance and gives you cost-savings. You can use this time to focus on growing your business.
To get started, book a demo today.
Disclaimer
Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
