HR — Formalizing Relations With Your Employees

A Complete Guide on Correct Back-Office Management in Estonia

HR: Basics

The full-fledged HR process consists not only of seeking, training, and recruiting future employees but legitimizing the relations with them as well. These boring issues require the creation of piles of different contracts for your team members. Let's see how you can streamline this process by yourself.

Working With Employees in Estonia

Generally, there are two main types of employees: staff members and freelancers (yes, technically they are not employees but nowadays working with freelancers can be beneficial for many businesses).

So, the establishment of relations with different employees requires different types of contracts. You can find needed templates on the official government websites or use the legal services of local lawyers from Upwork.

Hiring an Employee

So, if you are hiring an Estonian-based employee in Estonia, there are two main steps:
  1. Both sides must sign an Employment agreement (feel free to use our template) and an employee must sign an application for non-taxable income. The document must be in Estonian, so under the link, you will find a template with the translation in the comments;
  2. Registration of an employee in the e-Tax system by an accountant.

Of course, there is a whole list of different small things to take into account. We recommend using a checklist made by Work in Estonia. The whole list of sample contracts can be found here.

If you are looking to hire an employee, please take into account that different social taxes will be applied. Enty has already developed a free social tax calculator.
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HR Routine in Estonia

So, after you've hired an employee, there are several monthly actions that your company needs to complete. Declare salary payments on the monthly combined corporate income and payroll tax return (called TSD in Estonia) and pay the taxes due.

The TSD return must be submitted and the calculated taxes paid by the 10th day of the month following the month when the salary payment was made. Since the employee is an Estonian tax resident working in Estonia, all payroll taxes must be paid in Estonia. The tax return is accessible via the e-tax system, where you need to report an employee's ID code, gross salary amount, and whether the individual would like to make use of monthly deductions or not. Tax calculations are automatically made by the system itself.

Again, we highly recommend checking all the requirements and tips on Work in Estonia website until our HR solution is released.

Working With Contractors

In order to work with a contractor which can be either a legal entity or a person your company will need to perform two actions:
  1. Create and sign a service agreement (don't forget to use our tips from the contracts section);
  2. As the work is done, a contractor and your company must sign a Transfer and acceptance certificate that lists all services that were completed. Transfer and acceptance certificate will also include an invoice that must be paid by a company as agreed in the contract.

A Bit About Intellectual Property

Actually, it is a highly confusing topic and appropriate for a separate guide. But let's briefly go over this topic. In most jurisdictions, only an individual might become a creator of intellectual property, not a legal entity. So, a business should somehow legitimize these rights by transferring them from an employee to an entity.

Thus, to avoid outside-the-law situations, you should prepare proper documents in advance. Your company's intellectual property is regulated by a bunch of different agreements: trademarks, patents, copyrights, and others. So, ask your lawyer for an explanation of how it is better to legitimize intellectual property in your case.
And that's it! The next step is to explore our helpful materials, templates, and links
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