Hire Contractors In Estonia

A jurisdiction with favorable legislation, reduced costs, and a supportive ecosystem - these three factors have played a very important role in placing Estonia on top of the list of highly sought-after countries for global expansion.

To top it all off, Estonia also boasts a highly skilled workforce. Almost 86% of adults speak at least one foreign language, making it much easier for businesses to hire contractors there. 

English is one of the most widely spoken languages in this country. Thus, businesses are no longer constrained by language barriers regarding international workers. 

However, even with these many advantages, companies face several challenges when hiring contractors in Estonia. These may include a lack of knowledge about labor guidelines or non-compliance with tax regulations. 

Here, we will discuss how to find contractors in Estonia some of these associated challenges of hiring in Estonia, and their potential solutions.

How to Hire Contractors in Estonia

Hiring contractors directly

One way to hire contractors in Estonia is by setting up a regional subsidiary. This is what we refer to as direct hiring contractors. It involves various steps, such as,

• Registering your business with the relevant authorities in Estonia.
• Posting project requirements on job platforms like Indeed or LinkedIn,
• Shortlisting job applicants
• Completing all the relevant paperwork, onboarding formalities, and so on.

The good part of this method is that you have complete authority and transparency over the entire process. Therefore, directly hiring a contingent contractor in Estonia is best suited for long-term projects. 

However, direct hiring may not be wise if you are handling a short-term and unstable project whose requirements fluctuate. The process requires a significant investment of time and money.

Hiring contractors through Skuad AOR

Another way of hiring contractors is through contractor management software or an agent of record in Estonia, like Skuad.

Skuad’s automated solution makes hiring contractors from anywhere worldwide, including Estonia, easier for all companies. 

With our platform, you no longer need to open up a subsidiary since we already have an established presence in this region. Additionally, we provide several other benefits, like,

• 100% compliance with all labor laws and tax regulations of Estonia
• Formulating accurate contracts that adhere to all the guidelines set under the employment laws of this country.
• A built-in IP protection system for your business that follows the relevant laws of Estonia.
• Organized contractor processes - expense management, reimbursement, invoicing, etc.

How to pay contractors in Estonia

Most businesses pay their independent contractors in Estonia directly through bank transfers, digital wallets, checks, or platforms like Paypal and Wise. 

While this may initially seem simple, it's not always the case. This is because, to pay your contractors directly, you must thoroughly know the relevant deductions and forms that need to be submitted under Estonia's tax guidelines. 

You must also be up-to-date on international contractor payment processing nuances, such as the right currency and exchange rates.

A smarter and easier alternative is to pair up with Skuad AOR. Our global payroll solution features various capabilities.

• Automated contractor invoicing and payments:  no more manual paperwork and reduced chances of human error.
• Timely and accurate payments to all your international contractors: zero risk of penalties/fines often arising from late payments or submissions.
• Multi-currency payroll (100+ currencies) 
• Simplified expense tracking
• Effortless management of contractor benefits and time off

Hiring Contractors Directly vs Hiring Contractors via Skuad

Let’s look at this table highlighting the main differences between these two approaches to hiring an independent contractor in Estonia.

Cost of Hiring Contractors in Estonia

The type of industry your business operates in plays a major role in determining the total cost of hiring contractors in Estonia. For example, a data engineer in this country usually charges around 18 EUR per hour. On the other hand, a Estonia contractor working in the marketing domain usually earns between 21 EUR per hour.

You must also be mindful of the Estonia minimum wage requirements, currently at 886.00 EUR per month.

In addition, remember to consider other factors when calculating the cost of hiring contractors in Estonia. These include the individual's experience level, the selected hiring method, and the location.

How to Convert a Contractor into an Employee in Estonia

Here are a few simple steps by which you can easily switch your 1099 worker to a W2 employee. 

• Research the payment laws: Carefully review the multiple guidelines established by Estonia's labor laws. For example, this country's employees generally work eight hours a day and 40 hours a week.
• Set up an entity or partner with Skuad AOR: Depending on your project's requirements, you can hire contractors in Estonia directly or through Skuad’s unified platform.
• Negotiate with the contractor: Discuss the salary, employee benefits, working hours, and other similar details with the contractor.
• Draft an employment contract: Formulate a labor contract highlighting the essentials of establishing a relationship with an employee.‍
• Onboard and add the employee to the Estonia payroll: Begin with the onboarding formalities, and remember to run a background check before adding the employee to your organization’s payroll.

Challenges of Hiring Contractors in Estonia

Below, we have discussed three of the most common challenges faced by companies when they hire contractors in Estonia. Let’s take a look.

1) Understanding the Law of Obligations Act and its requirements 

Estonia has different legislation to handle matters related to employment relationships in the country. More often than not, it becomes difficult for businesses to understand the different guidelines provided by these regulations, let alone comply with them. 

Take the Law of Obligations Act, for example. The primary legislation is the independent contractor-employer relationship in Estonia. 

Under this act, every employer must draft an authorization agreement or contract for services before employing an independent contractor. Depending on the service, other types of contracts, like agency contracts or contracts of commission, may also be used. 

Now, contracts for self-employed individuals can be divided into two types. They can either be for a fixed term or an unspecified term. 

A contract for unspecified term can be cancelled at any time. But, you also have to consider that the service which is the subject of the contract may be obtained or the transaction carried out by other means. If any damage is caused by not considering this, then you will have to provide compensation. 

These are some of the many requirements for hiring independent contractors in Estonia. Businesses often partner with contractor management software to help them understand these laws. However, it can be difficult for SMEs to do the same since the cost can be quite high.

2) Tax requirements for sole proprietors in Estonia

Sole proprietors/independent contractors in Estonia are required to pay income tax on the income derived from their business. The taxation period is one calendar year, and the rate was 24% in 2024. 

Contractor tax in Estonia requires the submission of Forms E and A to the Tax and Customs Board by 30 April of the year following the taxation period. 

When hiring an independent contractor in Estonia, you must fulfill these obligations. This will help you avoid any legal repercussions for your organization arising from non-compliance. 

But, to do so, you must also have a detailed understanding of the different requirements set out by the Estonian authorities. All these can get very confusing unless you have a solid contractor management platform to guide you.

Hire Contractors in Estonia with Skuad

Skuad is the preferred choice for multiple businesses worldwide when hiring international workers. It is a comprehensive platform with amazing capabilities that streamline this hiring journey.

Companies often struggle to distinguish between employees and self-employed individuals when hiring contractors. This inevitably leads to hefty fines, penalties, and sometimes even imprisonment. 

However, with Skuad, you no longer have to worry about worker misclassification. Our robust team of legal professionals handles all regulation-related matters and ensures that you classify your workers correctly.

Schedule a demo with us today, and enjoy a compliant and streamlined international hiring journey.

FAQs

Can I hire a foreign contractor?

Yes, you can hire international contractors. However, you must understand your country’s labor regulations and count those of the contractor’s country.

Do I have to inform the IRS when hiring a foreign contractor working in a foreign country?

Suppose the international contractor is not a resident of the United States and does not provide services within the vicinity of the USA. In that case, you do not have to notify the IRS.

Do I need to send a 1099 to a foreign contractor?

The 1099 form is only necessary for those contractors who are US citizens but are located internationally and for contractors who live abroad but work in the USA.