Estonia: Latest Working life developments – Q4 2016

The new government taking office, changes in tax legislation and rules on health and sickness, posted workers and foreigners, and a pay rise for cultural workers are the main topics of interest in this article. This country update reports on the latest developments in working life in Estonia in the fourth quarter of 2016.

New government aims to end economic stagnation

The Estonian government formed in April 2015 collapsed in November and the new government, led by Jüri Ratas, took office on 23 November 2016. The main goals of the present government are to bring Estonia out of economic stagnation, increase population, improve welfare and the cohesion of society, and ensure security. The coalition agreement (PDF) sets out a list of measures and activities to reach these goals. They include:

  • supporting and promoting entrepreneurship;
  • renewing employment-related legislation in the light of the new and emerging work forms;
  • increasing opportunities for young people to participate in the labour market;
  • reforming the system of parental leave and parental benefits as well as the pension system to increase flexibility and promote working.

Developments regarding tax policy, posted workers and foreigners

Some of the measures proposed by the new government were quickly transformed into draft legislation and approved by parliament in December. These include income tax reform, designed to stimulate the economy and decrease inequality. As of 2018, the general basic income tax exemption limit will be €500 per month (it is €180 in 2017 and was due to increase to €205 by 2019). From a gross monthly wage of €1,200, the basic exemption starts to decrease and does not apply to anyone earning €2,100 or above. With the reform comes the withdrawal of certain previous tax measures: the annual income tax refund for low-wage earners and the decrease in the social tax rate.

New regulations on employee health and sickness benefits

Two changes regarding employees’ health were also approved by parliament during the quarter. On 19 December it was decided that, as of 2017, employers would be entitled to social tax exemption for sickness benefit paid to employees for the second and third days of sickness leave. Employers are obliged to pay benefits to employees from the fourth to the eighth day of sickness leave, but many employers also compensate the first three days, although it was previously subject to social tax. Restoring compensation for the first days of sickness leave was proposed and actively promoted by the Estonian Trade Union Confederation (EAKL).

Secondly, as of 2018, the first €100 per quarter spent by employers on promoting the health of each employee will be exempt from fringe-benefit taxes. The costs must be related to sporting activities, therapy or payments of voluntary health insurance.

Amendments to protection for posted workers

The amendments to the Working Conditions of Employees Posted to Estonia Act to adopt the recent Posting of Workers Enforcement Directive 2014/67/EU were approved by parliament in November and came into force in December. The amendments simplify state supervision over the working conditions of posted workers as follows:

  • the Labour Inspectorate is now the implementing agency;
  • workers have the option to use the labour dispute committees in addition to the court;
  • in the construction sector, the local contracting entity is now responsible for the payment of wages to the posted workers where this has been ordered by a court decision and it is impossible to collect it from the employer who posted the worker.

The Act no longer applies to workers arriving from third countries, who can enter the Estonian labour market on the basis of the Aliens Act.

Amendments to the Aliens Act were also approved. The main aim of the amendments is to attract foreign investments as well as foreign specialist and highly qualified workers to Estonia in the context of its ageing and decreasing population. Some of the changes were discussed in the second quarter of 2016, while most of the amendments simplify the procedures and conditions for applying for or holding a residence permit.

Collective bargaining outcomes

On 21 December 2016, the Ministry of Culture and the Estonian Employees’ Unions’ Confederation (TALO) concluded an agreement of intent, setting the minimum monthly gross wage for cultural workers with higher education or a higher vocational qualification at €942 for 2017 (€731 in 2016). This minimum wage is mandatory in the public sector and recommended for the entire cultural field. The national minimum wage, which was negotiated between national level social partners in 2015, is €470 in 2017 (€430 in 2016).

Commentary

The aims of the main legislative changes in the fourth quarter were to increase welfare in society, improve the health and well-being of workers, and attract qualified foreign workers to Estonia. Although there are opposing opinions regarding the increase in basic income tax exemption, overall these changes should have a positive impact on Estonia’s economy. For example, the social partners strongly approve of the changes that support employees’ health promotion. In the near future, employees will gain access to measures that prevent unemployment, and the sectoral collective agreement in the healthcare sector should be concluded after a year of negotiations.

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