Employees & Contractors, All You Need to Know
Companio has changed the employees' and contractors' system to be much clearer and more compliant.
Our goal is to help you understand the difference between a contractor and an employee and your company's obligations regarding registration of employment status, taxes, and social benefits.
Compliance With Regulations
From now on, Companio will consider only two types of members in your workforce: employees and contractors.
Employees are those who live in Estonia. As an Estonian company, you can hire them and pay for their salaries, including social taxes, social benefits, unemployment, and pension. However, they need to be registered in Estonia. To do this or verify their registration status, Companio needs proof of their residence in Estonia (VISA, residence permit, or Estonian national ID). Our accountants will ensure they are registered in the TÖR employment register if necessary.
Contractors are everybody else. If one person lives outside of Estonia, your company cannot hire this person as an employee in either their home country or Estonia. This person needs to be registered as a contractor somewhere and issue an invoice for their services. Someone living in Estonia can be a contractor, too, so instead of hiring them as employees, you ask them to invoice you. They still need to be registered as freelancers or own a company.
What Are the Obligations of My Company to Employees?
Companio will register your employees for you in the TÖR employment registry. You must upload proof of their residence in Estonia, and our accountants will register them.
For employees that were already registered, upload their proof of residency, and Companio will verify it and update their employment status accordingly.
What Are the Obligations of My Company to Contractors?
Contractors will invoice you for their services. For that, they must be registered in the country where they are tax residents. Then, they will invoice your company using their full name, tax ID, and address.
It is advisable to check their registration status, but your company will generally not get in trouble if they are not correctly registered as freelancers. On the contrary, they may have issues with the local authorities.
What About Digital Nomads?
Digital nomads who don't have a tax residence may not need to be registered as freelancers. Instead, they will invoice your company as individuals with their full names, IDs, and address.
Ask them to check with a local tax advisor that they don't have any obligations in terms of business activity registration with their home countries or any other country where they have resided.
What Happens if You Had a Board Member Salary and an Employee Salary?
The good news is that you won't need to pay any board member salary anymore if you live outside of Estonia. You will be considered a contractor.
As an advantage, you won't be paying social taxes for your salary anymore. If you had a 20/80 salary distribution before (20% board member, 80% employee salary), it will be unified in a single contractor salary for the total amount.
However, depending on your country of residence, you should be registered as a freelancer to be able to invoice your Estonian company.
If you live in Estonia, you will be considered an employee, and Companio will register you (or update your registration status after you upload a proof of residence) to ensure everything's compliant.
More doubts? Companio is here to help! 😄
In most cases, the migration will be easy. Those working for your company from Estonia will be considered employees, and those outside Estonia will be considered contractors. If this seems confusing, don't worry! Contact us, Companio will be happy to help.
Updated on: 09/12/2022