Estonia: Latest working life developments – Q4 2017

An increase in the national minimum wage, changes to tax and benefit systems for 2018, a new scheme for fathers’ leave, and talks on the immigration quota 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 2017.

Minimum wage agreement reached

The new national minimum wage agreement was concluded between the Estonian Trade Union Confederation (EAKL) and the Estonian Employers Confederation (ETKL) on 26 October 2017. It provides for a 6.3% rise in the rate, from €470 to €500 per month (€2.97 per hour) as of 2018. It was also agreed that, until 2022, an increase in the minimum wage would be calculated annually on the basis of labour productivity and economic growth.

New tax reforms come into effect

An income tax reform, approved in December 2016, is to take effect from the start of 2018. EAKL stated in December 2017 that it sees this reform as a temporary stopgap by the government, calling for it to introduce a simpler, more progressive income tax system. EAKL also said it has discussed this with ETKL, but that they have not been able to reach any compromise on tax rates.

On 13 December, changes to the taxation of sole proprietors (FIEs), aimed at creating a similar tax environment for them as for companies and reducing their tax burden, were also approved by the parliament, coming into force at the start of 2018.

Since 2014, the members of the management or supervisory body of a legal entity have been unable to register as unemployed and thus have not had the right to receive unemployment benefits. However, the Chancellor of Justice and the Estonian Supreme Court decided that this contravened the Estonian Constitution, and on 6 December, the parliament approved changes to the Labour Market Services and Benefits Act to lift the ban. Thus, any management board members who are not paid for their role, and who have been employed and paid unemployment insurance tax for 180 days during the previous 12 months, now have the right to register as unemployed and receive unemployment insurance benefit.

Amendments to the Social Welfare Act on subsistence benefit were accepted by the Parliament on 6 December. The changes include incentives for getting a job by excluding part of the family’s income when calculating the benefit. This includes:

  • wages earned by children (under 18 years of age);
  • 100% of wages during the first two months of employment, and 50% of their wages in the next four months of employment for adults who have received the benefit for at least two preceding consecutive months, without receiving income from employment.

Changes in parental leave

The parental leave and parental benefits system reform was finally approved by the parliament in December 2017. The changes aim at:

  • providing a more flexible system;
  • promoting working;
  • encouraging fathers’ participation in childcare.

The changes include ‘father’s month’ – 30 days of paid leave reserved for fathers only. The new scheme extends the right to claim the benefit (amounting to 100% of the previous salary for 18 months) during the entire duration of the parental leave (the total sum of the benefit will remain unchanged, but it could be claimed in parts during a three-year period). Also, in the current legislation, parents are allowed to work while receiving the benefit, but the benefit is reduced if their income exceeds the minimum wage of the previous year (€470 in 2017). The changes will be implemented gradually from March 2018 to July 2020.

Immigration quota under discussion

Changes to the Estonian immigration quota have been proposed due to the need for foreign workers to make up for a lack of native workforce. The quota, which applies to nationals of non-EU countries who want to work in Estonia, is currently 0.1% of the population per year (1,317 in 2017) and it has stood at this level for more than two decades. In December 2016 the quota was reached for the first time, but in 2017 it had had been reached by the summer. In November 2017, the working group formed by the Ministry of Interior introduced their proposals to the Ministry on how to handle the quota more flexibly. Although the proposals have not been made public, it was announced that the quota will not increase and, instead, that some criteria will be introduced to determine who will be excluded from the quota. The working group, which consists of 19 different organisations, including national-level social partners, plan to hold further discussions.

Commentary

Estonia enters 2018 with a great number of changes. These include increased wages for the low-paid (through income tax reform and an increase in minimum wage) and measures designed to increase the flexibility and sustainability of different tax and benefits systems. Additional changes are ahead, the most extensive probably being a reform of the pension system, which should receive government approval during 2018.

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