Independent contractors or freelancers are self-employed individuals who provide services to companies as a non-employee. This is one of the most common ways companies tend to hire non-local designers, engineers, support reps, etc.
For legal and tax purposes, independent contractors are not classified as employees. They may work for multiple clients, set their own work hours, negotiate their pay rate, and decide how a job gets done.
For example, the IRS says that if an independent contractor or freelancer does work that can be controlled (what will be done and how it will be done) by an employer then they are, in fact, classified as an employee.
As you can imagine, hiring someone as an independent contractor versus an employee is a fine line to tread.
While there are benefits when you choose the contractor route, there are quite a few drawbacks to consider and you’ll need to weigh them carefully to determine the best fit for your company.
A foreign subsidiary is a company that operates overseas as part of a larger company who’s HQ is in another country.
Establishing a foreign entity is great for having an international presence and accessing new markets. Though, setting up a subsidiary in Estonia can be expensive, stressful, and time-consuming. It's not for the faint of heart.
To set up a subsidiary in Estonia, you have to:
If you're lucky, this process can take months. If you're not so lucky, it can take up to a year. And on average, it costs about $50k-$80k, all-in-all, to get setup. And that's just for Estonia.
An employer-of-record (EOR) is a company that hires and pays an employee on behalf of another company.
An EOR is typically used to overcome the financial and regulatory hurdles that often come with employing remote workers.
Each country has its own payroll, employment, and work permit requirements for non-resident companies doing business in their jurisdiction. Meeting those demands can be a huge obstacle when it comes to hiring remotely.
At Panther, we help companies employ and pay people in over 160 countries, without having to set up a foreign subsidiary. Payroll, benefits, taxes, compliance, and more are all handled by us, at a fraction of the cost.
Outside of saving you months and tens of thousands of dollars, other advantages of using Panther are:
Because you no longer have to set up your own subsidiary, you’ll save a ton of time and tens of thousands of dollars using Panther.
Paying employees in Estonia is not the same as paying workers in your own country. Employees have to be paid using Estonia’s employment and payroll standards.
This means that you have to know, understand, and keep up with 1) fluctuating currency changes, and 2) local payroll and tax laws in the countries you’re looking to hire in.
Outside of the laws and regulations around payroll, there may be different conditions surrounding leave, overtime, termination, and more. As you can imagine, maintaining this kind of regulatory knowledge can be challenging. But it is crucial and necessary to follow local legislation.
After, you’ll have to determine the best way to pay your international employees. This can be done in a number of ways, including but not limited to:
One of the most challenging (and expensive) parts of paying international employees is setting up the infrastructure to do so.
Before you start to run payroll, you have to register your company as the local employer in the country the worker resides in. As you can see in the “Set up a subsidiary” section, this is a multi-step process that can take up to a year and put you on your way to bankruptcy.
Outside of EORs acting as the full admin employer, many also provide remote payroll.
For example, at Panther, in just 1-click, you’re able to pay your entire global team, anywhere in the world. We send you an invoice each month, charge you in US Dollars, and pay your employees the same amount in their local currency.
We factor in currency fluctuations and use the mid-market rate plus any applicable fee passed on by our provider at cost at the time of billing.
A full workweek in Estonia is 40 hours for employees over the age of 18.
In general, overtime must be agreed upon by the employee and employer. Overtime hours cannot exceed a total of 8 hours within a 7-day period.
However, the employee and employer may agree that overtime over a 4-month time frame can average 12 hours for every 7 calendar days. This agreement may be canceled at any time by the employee so long as 2 weeks’ notice is given.
There are no provisions in the law regarding 13th salaries.
Employees are entitled to 28 days of paid leave per year.
There are 12 public holidays.
Employees are entitled to up to 182 paid sick leave days per year, paid at a rate of 70% of the employee’s previous years’ average salary.
Sick leave is paid starting from the 4th day of illness and is paid by the employer. From the 9th day onward, sick pay is paid by health insurance.
Maternity leave is 20 weeks (140 days) in Estonia and a mother may begin taking this 70 days before the expected due date of the child. Health insurance pays the maternity allowance which is paid at a rate of 100%.
Childbirth allowance- When a child is born, an allowance of 320 EUR is granted. If triplets are conceived, the amount is 1,000 EUR per child.
Fathers are entitled to 10 working days and can be taken within 2 months of the expected due date of the child. After the birth, the father is entitled to 2 months’ paternity leave. Pay is based on the average wage of the employee. The father is entitled to 100% of their regular wages, however, is capped at 3 times the minimum wage.
In Estonia, paid parental leave can be taken until the child reaches the age of 3. The mother or father is able to take 435 days of consecutive or inconsecutive leave. However, only one parent can take this leave at a time.
Adopter’s leave: a person who adopts a child under the age of 10 is entitled to paid leave based on the employee’s average salary.
Child care leave: a mother or father is able to take paid leave (pay is equal to the minimum wage) and varies based on the age of the child:
For parents with a disabled child- the mother or father is able to take off an additional day of work each month until the child reaches the age of 18. This leave is also compensated based on the minimum wage.
The termination procedure differs based on the type of termination:
Notice period varies based on the duration of the employment:
It is also possible to give pay in lieu of notice.
In the case of termination due to redundancy, the employee is entitled to the average of the previous 6 months’ salary.
For fixed-term contracts that were terminated due to redundancy, the employee is entitled to the wages that they would have received from the date of termination to the expiry date of the contract.
Employees who have been employed for 5-10 years are entitled to an additional month’s salary. For employees who have been employed for 10+ years, they are entitled to an additional 2 months’ salary.
The probation period cannot be more than 4 months.
For fixed-term contracts, the probation period cannot be more than half of the term of the contract.
If an employer decides to terminate an employment contract during the probation period, the employer must give the employee 15 days’ written notice.