Estonia: Self-employed workers

  • Observatory: EurWORK
  • Topic:
  • Published on: 23 February 2009



About
Country:
Estonia
Author:
Liis Roosaar and Kirsti Nurmela
Institution:

Disclaimer: This information is made available as a service to the public but has not been edited or approved by the European Foundation for the Improvement of Living and Working Conditions. The content is the responsibility of the authors.

There is not much information on self-employed persons without employees in Estonia as there is generally no distinction made between self-employed persons with or without employees. Although some general data is collected by the Tax and Customs Board, there is no detailed information on their working conditions. Compared to employees, there are less social guarantees for self-employed persons and there are no associations that would solely protect their interests. Moreover the participation of self-employed workers in collective bargaining is not supported by legislation.

1. Legal provisions and social security

Please provide the definition of self-employed workers which is applicable in your country.

A self-employed worker can be any natural person offering goods or services for sale in his or her own name as his or her permanent activity. A self-employed worker may also be a minor aged at least 15 years if they are given the right to offer goods or services and they have their parent’s consent. A self-employed person or the economic unit that he or she owns is not a legal person.

A person has to register either in the Tax and Customs Board (Maksu- ja Tolliamet) or in the commercial register to be legally self-employed. Registration in the commercial register is voluntary and double registration is generally not necessary. However, if the self-employed worker is registered with the Tax and Customs Board as a taxpayer pursuant to the Value Added Tax Act (Käibemaksuseadus), a registration in the commercial register is obligatory (i.e. the registration must be done if at the beginning of a calendar year the cash flow of the last year was over EEK 250,000 (€15,980)).

On the one hand, becoming a self-employed person is rather simple. Unlike other legal forms of entrepreneurship, no capital is needed to become self-employed and therefore the costs of starting self-employment are rather low. Also the accounting principles are simpler than for other forms of entrepreneurs (it is possible to use cash-basis accounting) and no articles of association are needed. On the other hand, compared to other forms of entrepreneurship the tax burden in general is higher for self-employed persons and they are liable for their economic commitments with all their personal assets.

Briefly indicate the main differences, if any, in the social security regime of self-employed workers with no employees compared with: a) employees; b) self-employed with employees.

There is no distinction in the social security regime for self-employed persons with and without employees. However, the issue of lower level of social security coverage of self-employed workers compared to employees has been widely discussed and only recently the discussions have resulted in introducing acts that improve the situation e.g. the self-employed have obtained a right to join the second pillar of the pension insurance (see also 3.1 below for more detailed information).

All non-contributory social security schemes are universal, covering all persons residing in Estonia (no differences among employees and self-employed persons). These are state unemployment allowances (EE0707029I), family benefits (e.g. childbirth allowance, child care allowance etc.) and social benefits as well as funeral grants. However application of contributory schemes for employees and self-employed persons is different. This includes pension insurance (covering old age, survivor pensions and invalidity), health insurance (covering health care, sickness and maternity) and unemployment insurance.

The compulsory social security system is financed by the state (non contributory schemes) and by an overall income-related contribution (contributory schemes). In the case of employees, the contributions are paid by the employer, who pays an amount equivalent to 33% (20% for social security and 13% for health insurance) of the gross payroll on social tax. Self-employed persons, however, must act as employers and pay social tax contributions from their own business gains which cover them with general schemes of pension insurance and health insurance on a compulsory basis.

Unemployment insurance is applied to employees only. The self-employed cannot join this scheme, not even on a voluntary basis. However, in respect of the unemployment risk, the self-employed nevertheless are eligible for flat-rate state unemployment allowance (for more on unemployment insurance in Estonia, see EE0707029I).

Please indicate the existence of any particular legal forms of employment which cover contractual relationships which are commonly regarded to be mid-way between dependent employment and self-employment (if necessary, see for a longer discussion of the concept the EIRO comparative study ‘Economically dependent workers', employment law and industrial relations’).

The Law of Obligations Act (Võlaõigusseadus) stipulates five different contracts for provision of services in Estonia: authorisation agreement, contract for services, brokerage contract, agency contract and contract of commission. Any person, including self-employed persons, can enter into these types of contracts, which should indicate that the parties are tied only on the basis of law of obligations. However, employment relations may also be the real purpose of these types of contracts, i.e. contracts for services under law of obligations are often used instead of employment contract, to hide the employment relationship between the parties. This is also the case with self-employed persons who work under different types of contracts for the provision of services. The Tax and Customs Board has focused its attention on determining the cases where these types of contracts are used instead of regular employment contracts with self-employed persons. In this case, they will treat the income of the self-employed persons as income from employment and not as business income and the taxation is arranged accordingly (i.e. the social tax is paid by the employer instead of the self-employed person).

Unfortunately there are no specific surveys that could show to what extent these contracts are used in practice.

whether they are commonly considered as economically dependent employment;

These legal forms of employment are not commonly considered as economically dependent employment (EE0611029I). In Estonia, the concept of economically dependent employment is not strictly related to the type of contract for provision of services used. It is more widely related to situations where employers force their employees to become formally self-employed while continuing to work solely for the same employer (‘bogus self-employment’). The types of contracts for provision of services referred to above are however sometimes used to hide economically dependent employment.

specify the main features of such forms of employment and whether they enjoy specific social security regime and, if relevant, the basic features of such special regime (please refer this illustration to the answer given to question 1.2 above).

It is important to differentiate between employment contracts and contracts for provision of services which create different relations between parties. In the first case, the employer is obliged to provide the means and working conditions to allow the worker to carry out their work. In this case the social security regime applying to the employment relationship is valid. In the case of contracts for the provision of services, the client makes a purchase and expects the result described in the contract (i.e. the client does not have to act as an employer). In this case no special social security regimes apply. If a self-employed person is a party to the contract, the social security regime applies that is applicable to self-employed persons (see answers to question 1.2 above).

indicate any rules which generally apply to this kind of employment as for: a) working time and vacation; b) maternity and parental leave; c) sick pay and leave for sickness

A range of Acts that regulate employees’ working conditions do not apply to self-employed persons or to people in these contractual relationships, for example the Republic of Estonia Employment Contracts Act (Töölepingu seadus), the Holidays Act (Puhkuseseadus), the Working and Rest Time Act (Töö- ja puhkeaja seadus). Persons who offer their services regulate their working time and vacations themselves and they can include related provisions in their service contracts.

In the case of maternity and parental leave, the same conditions apply as to self-employed persons (see question 8.a).

Sick pay and sick leave is provided for all persons covered by health insurance. If persons working under the contracts for provision of services have paid their social taxes and they are registered with the Estonian Health Insurance Fund (Haigekassa), they are covered by health insurance. Sick pay is provided by the Health Insurance Fund.

2. Recent trends in self-employment with no employees

Please provide data on recent trends in self-employment (since 2000):

Table 1. Recent trends in self-employment (2000-2007)
  2000 2003 2006 2007
Men Women Men Women Men Women Men Women
Self-employed (no.) 34,124 23,173 37,805 27,376 37,986 29,846 - -
Self-employed with no employees (no.) - - 27,568 19,306 27,183 20,986 - -

Source: The Tax and Customs Board, 2007

Note: No data on self-employed with no employees in 2000 was available from the Tax and Customs Board

Please report, according to available research and studies,

the distribution of self-employment without employees across sectors and occupations;

Table 2 indicates that over half of self-employed persons without employees are concentrated in the tertiary sector. Another large proportion (30%) of self-employed persons without employees is also in the primary sector – many farmers are registered as self-employed.

Table 2. The distribution of self-employment without employees across sectors, percentage, 2003 and 2006
Sector 2003 2006
Primary 33.2 30.1
Secondary 8.7 9.9
Tertiary 53.5 58.0
Unspecified 4.6 2.0

Source: The Tax and Customs Board, 2007

The table 3 shows a more specific distribution of self-employed persons without employees between economic activities.

Table 3. The distribution of self-employment without employees across economic activities, percentage, 2003 and 2006
Actvity 2003 2006
Agriculture, hunting and forestry 32.4 28.2
Fishing 2.5 2.5
Mining and quarrying 0.1 0
Manufacturing 4.4 4.3
Electricity, gas and water supply 0.2 0.2
Construction 4.3 5.6
Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods 9.9 8.5
Hotels and restaurants 0.6 0.6
Transport, storage and communication 7.9 8.2
Financial intermediation 1 0.7
Real estate, renting and business activities 18.5 19.9
Public administration and defence; compulsory social security 0 0
Education 1.3 1.3
Health and social work 1.2 1.1
Other community. social and personal service activities 15.8 18.8
Total 100 100

Source: The Tax and Customs Board, 2007

No data can be provided on the distribution of self-employment across occupations because occupations of self-employed workers are not registered by the Estonian Tax and Customs Board and no surveys have been conducted

whether self-employment without employees has either increased or decreased significantly in recent years (since 2000) in specific:

Sectors and activities.

Comparing sectors in 2003 and 2006, the biggest change in self-employment without employees has been in the tertiary sector. A slight increase has also occurred in the secondary sector. In the primary sector, self-employment without employees has slightly decreased (Table 2).

Comparing economic activities, the largest decrease in self-employment without employees has been in mining and quarrying. The largest increase occurred in the construction sector (Table 4). Unfortunately there is no available research that could explain these changes.

Table 4. The number of self-employed without employees across economic activities, 2003 and 2006
Actvity 2003 2006 Change, %
Agriculture, hunting and forestry 14,475 13,311 -8.0
Fishing 1,099 1,190 8.3
Mining and quarrying 53 8 -84.9
Manufacturing 1,982 2,013 1.6
Electricity, gas and water supply 97 82 -15.5
Construction 1,929 2,645 37.1
Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods 4,405 4,026 -8.6
Hotels and restaurants 262 302 15.3
Transport, storage and communication 3,527 3,882 10.1
Financial intermediation 447 316 -29.3
Real estate, renting and business activities 8,263 9,387 13.6
Public administration and defence; compulsory social security 3 1 -66.7
Education 565 619 9.6
Health and social work 530 505 -4.7
Other community, social and personal service activities 7,053 8,881 25.9
Total 44,690 47,168  

Source: The Tax and Customs Board, 2007

Occupations (International Standard Classification of Occupations – ISCO 88, at one digit).

No data can be provided because occupations of self-employed workers are not registered by the Estonian Tax and Customs Board and there are no surveys conducted on the subject.

and in specific groups of workers defined by:

Gender (men/women).

Table 1 above shows that when comparing years 2003 and 2006, the number of self-employed persons without employees has increased only slightly (2.8%). At the same time the number of self-employed men without employees has decreased by 1.4% and the number of women increased by 8.7%. Unfortunately, there are no qualitative data that could explain these changes.

Age groups (younger/older; 14-24, 25-54, 55-64; 65 and over).

The largest change in the distribution of self-employed people without employees has occurred in the youngest age group ( 2.3%) and among 25-54 year olds ( 2.1%). In other age groups, the proportion of self-employed people without employees has slightly decreased.

Table 5. The distribution of self-employment without employees across age groups, percentage, 2003 and 2006
Age groups 2003 2006
up to 24 0.7 3.0
25-54 66.5 68.6
55-64 18.8 17.3
over 65 14.0 11.1

Source: The Tax and Customs Board, 2007

Nationality (nationals/foreign nationals).

There is no statistical data gathered by the Tax and Customs Board concerning the nationality of self-employed persons.

Other relevant dimensions to be specified.

The only additional dimension registered by the Tax and Customs Board is the county where the self-employed person offers goods or services. The table below of Estonian regions on the Nomenclature of Territorial Units for Statistics (NUTS) level 3 illustrates that there has not been significant changes in the geographical distribution of self-employed persons without employees.

Table 6. The regional distribution of self-employment without employees (NUTS level 3), percentage, 2003 and 2006
Region 2003 2006
Northern Estonia (including the capital Tallinn) 30.7 32.2
Southern Estonia 28.1 28.7
Western Estonia 12.2 11.9
Central Estonia 18.9 18.2
North-Eastern Estonia 6.6 7.6

Source: The Tax and Customs Board, 2007

Based on existing research and studies, please provide any available data on the diffusion and recent trends of:

All legal forms of employment indicated in section 1.3 above (contractual relationships mid-way between dependent employment and self-employment and economically dependent employment), specifying whether they concentrate in any sectors and/or occupations.

There is no available information on any research or studies concerning the contractual relationships referred to in section 1.3 in Estonia. However, the issue of economically dependent employment has been on the agenda of the Tax and Customs Board during the previous year. According to them, in October 2006 there were about 1,700 self-employed persons who could be classified as economically dependent workers. Moreover, the number has increased during the past few years. However, no detailed data is available on this type of worker. Even though there is no research on concentration in certain sectors, the media has touched on this type of employment arrangement particularly with regard to those working in postal services, taxi-driving and the construction sector (more information on economically dependent workers in EE0702039I).

‘Bogus self-employment’, i.e. formal self-employment which is fraudulently used to disguise contractual relationships which should be properly registered as dependent employment, in order to avoid the protections and costs (both wage and social contributions) connected with the latter, specifying whether it concentrates in any sectors and/or occupations.

In Estonia, it is generally assumed that economically dependent employment is related to either forced self-employment or tax evasion. Therefore the employment relations of these self-employed persons are regarded as ‘bogus self-employment’. For example, during the years 2002-2004, the largest growth in self-employment occurred in the construction sector (from 1,420 self-employed people to 2,215). The sudden increase of over 50% in self-employment could indicate some trends of forced self-employment in the sector, as overall growth of active self-employed persons was about 17% over the same period. Underlining this point, the entrepreneurship consultant Olavi Kärsna has claimed that many construction workers were compelled to become self-employed. At the same time there was also a general growth of the sector. Both the social partners and the government have undertaken to reduce these kinds of employment relations (see also question 3.a below).

3. Collective representation and collective bargaining

NCs are requested to indicate the main collective representation organisations of self-employed workers with no employees or of the workers with the special contractual relationships illustrated above in section 1.3. In particular, they should provide information on:

The type of associations (trade associations or trade unions).The associational domains of each of such associations: territorial, sectoral, occupational, professional, etc.Membership and membership rates.Any forms of social dialogue or collective bargaining these associations engage in, specifying:

The levels at which such activities take place (national, sectoral, territorial, company).The actors they engage in these activities with (public authorities, employers associations, single employers).The topics typically covered by these activities.The typical outcomes of such activities (joint documents and declarations, guidelines, agreements, etc.)A brief description of the content of some (two or three) of the main and most recent of such documents.

In Estonia, there are no specific collective representation organisations for self-employed persons, including for those without employees. Nevertheless, according to the Confederation of Estonian Trade Unions (Eesti Ametiühingute Keskliit, EAKL) self-employed persons can lawfully join trade unions (dependent also on the articles of association of the trade union concerned). Moreover, EAKL pointed out that the collective representation of self-employed people is practically possible only on sectoral or state level because legally self-employed workers are their own employers and they are not regarded as dependent workers. Thus until now the trade unions have only provided legal consultations for self-employed workers.

The other important social partner on the national level, the Estonian Employers’ Confederation (Eesti Tööandjate Keskliit, ETTK), has reported that they do not have self-employed persons as their members.

There are also some self-employed workers among the members of the Estonian Association of SMEs (Eesti Väike- ja Keskmiste Ettevõtete Assotsiatsioon, EVEA). EVEA is a non-governmental, non-profit association for SMEs and self-employed people performing a representative, advocacy and lobbying function for small and medium-sized businesses as a social group. Altogether 7.4% of the 174 members in EVEA are self-employed workers but the association does not have any information about how many of these self-employed workers do not have employees. According to a representative of EVEA, they have been active on the national level in influencing draft acts and laws that are related to self-employed workers. However, there have not been any special activities solely related to self-employed workers without employees. According to EVEA, the most important changes in legislation for self-employed persons are:

In 2007 the base of tax calculations for self-employed workers changed according to the Income Tax Act (Tulumaksuseadus). Now the method for calculating social tax and income tax for self-employed workers is based on practically the same principles as for wages.

A change in the Health Insurance Act (Ravikindlustusseadus) has been initiated: since the enforcement of the change in 2006 self-employed persons are eligible for health insurance after 14 days counted from their registration as self-employed. Before, they had to wait for three months.

The Funded Pensions Act (Kogumispensionide seadus) was also changed in favour of self-employed workers: since 2005 they have been able to join the second pillar of the pension insurance to increase their level of social security.

Additionally, EVEA has defended the right of self-employed people to choose accounting principles, i.e. since 2003 self-employed persons may choose whether to use the accrual method of accounting or cash-basis accounting which is regarded simpler.

There may also be some self-employed persons without employees represented by other employer organisations (including some agricultural organisations) however there is no available information on the level of representativeness in these organisations.

4. Employment and working conditions

Wage levels, of self-employed workers without employees compared with the national average.

Based on the data from the Tax and Customs Board, no specific wage levels can be defined for self-employed persons in general or for self-employed persons without employees. However, table 7 below brings out the average monthly profits of self-employed workers without employees which indicate that the average monthly profits of self-employed persons without employees on average are higher than the monthly income of full-time employees. However, it should be kept in mind that this data includes self-employed workers for whom self-employment is additional activity and who may also work as full-time employees. Also, self-employed workers can deduct much of their expenses from their income and it is beneficial to reduce business gains in every legal way to decrease tax contributions. Some self-employed workers included in the statistics may be inactive. In 2006, 4.1% of self-employed workers without employees declared no gross earnings gained from their activity as self-employed.

Table 7. The average monthly profits of self-employed workers without employees and the average gross monthly earnings of full-time employees across economic activities, 2006.
Actvity Self-employed workers without employees EEK (€) Full-time employees EEK (€)
Agriculture, hunting and forestry 8,604 (550) 7,957 (509)*
Fishing 7,586 (485) 7,107 (454)
Mining and quarrying 11,266 (720) 10,070 (644)
Manufacturing 15,913 (1,017) 8,844 (565)
Electricity, gas and water supply 34,600 (2,211) 10,385 (664)
Construction 19,487 (1,245) 10,075 (644)
Wholesale and retail trade; repair of motor vehicles, motorcycles and personal and household goods 11,329 (724) 9,111 (582)
Hotels and restaurants 9,423 (602) 6,148 (393)
Transport, storage and communication 12,524 (800) 10,126 (647)
Financial intermediation 17,964 (1,148) 16,915 (1,081)
Real estate, renting and business activities 14,881 (951) 11,433 (731)
Public administration and defence; compulsory social security 17,780 (1,136) 11,482 (734)
Education 15,110 (966) 7,949 (508)
Health and social work 23,922 (1,529) 9,026 (577)
Other community, social and personal service activities 8,015 (512) 7,862 (502)
Total average 15,227 (973) 9,407 (601)

*The average gross monthly earnings in agriculture, hunting and forestry have been calculated as arithmetic average of the average gross monthly earnings in the activities named “agriculture and hunting” and “forestry”.

Source: The Tax and Customs Board, Statistics Estonia, 2007

The incidence of low-paid jobs (that is, according to the OECD definition, jobs which pay less than two-third of the median wage) among self-employed workers without employees compared with the national average.

Data from the Tax and Customs Board indicate that if all the yearly profits of self-employed workers without employees are taken into consideration in 2003 altogether 49.5% and in 2006 altogether 47.8% of self-employed workers without employees earned less than two-thirds of the median profit of self-employed workers without employees. (See also question 4.1 for explanation of the profits of self-employed workers).

According to a yearbook from Statistics Estonia ‘Earnings 2005’, in October 2005 the median wage in Estonia was about EEK 6700 (€428) – two thirds of the median wage thus equals EEK 4467 (€285). The yearbook also highlights the fact that about 19% of full-time employed men and 31% of full-time employed women received gross monthly earnings equal to EEK 4500 (€288) or less. The median wage was calculated for the first time by Statistics Estonia in 2005, unfortunately there is no update for 2006. Accordingly, data on the incidence of low-paid jobs among self-employed persons without employees and the national average are not comparable.

Working hours, of self-employed workers without employees compared with the national average:

Average hours actually worked per week.Diffusion of long working hours (more than 10 hours a day).Diffusion of work at unsocial hours (night, weekend).

There are no surveys available concerning the working hours of self-employed persons.

Place of work of self-employed workers without employees compared with the national average:

Home/office distribution.

There are no surveys available concerning the place of work of self-employed.

Exposure to risks and accidents at work of self-employed workers without employees compared with the national average:

Work accident rates.

Changes to the Occupational Health and Safety Act (Töötervishoiu ja tööohutuse seadus) stipulating that accidents of self-employed persons should be registered as work accidents, entered into force on 1 July 2007 (see also EE0702039I). Before, these accidents were registered as domestic accidents. Three and a half months after the Act entered to force, no accidents affecting self-employed workers have been registered by the Labour Inspectorate (Tööinspektsioon).

Health outcomes, work-related health problems and occupational illnesses of self-employed workers without employees compared with national average:

Occupational illness rates.

The occupational illnesses of self-employed workers are not registered in Estonia and there have been no surveys conducted on the issue.

Work intensity and stress at work

There are no data or relevant surveys available in Estonia.

Lifelong learning of self-employed workers without employees compared with the national average:

Participation rates in continuous education and training.

There are no available surveys concerning the lifelong learning of self-employed.

Work-life balance of self-employed workers without employees compared with the national average:

Presence and take up rates of maternity/parental leave (according to the applicable social security regime).

Legislation regulates maternity and parental leave of persons working under employment contracts. Self-employed persons regulate their working time and vacations themselves and should therefore be able to implement maternity and parental leave more flexibly (unless they are actually economically dependent workers). However, in order to receive benefits self employed persons have to take up the leave.

There are three kinds of leaves and benefits connected to children and care in Estonia.

1) Maternity leave for mothers giving birth (140 days, half of which can be taken before the birth). If the mother stays home at least 30 days before the birth, she has a right for maternity benefit which is 100% of previous taxable income. The benefit is part of the health insurance. Since self-employed persons pay social taxes they are covered by health insurance and are eligible for maternity benefit under the same conditions as employees. Unfortunately there is no information on the take-up rate of maternity leave or benefits.

2) Paternity leave for fathers for 14 days during the maternity leave or two months after the birth. Starting from 2008, paternity benefit is 100% of previous taxable income. However self-employed persons are not eligible; only employed fathers with permanent employment contracts are eligible.

3) Parental leave which starts after the maternity leave and lasts until child reaches three years of age. According to the Parental Benefit Act, benefit is paid at 100% of average earnings (calculated on employment in the previous year) for 575 days (starting from maternity leave). A precondition for receiving parental benefits is no income during the period benefits are received. If a person declares income, the benefits will be reduced (further information from Pall, 2007).

Statistics from the Social Insurance Board (Sotsiaalkindlustusamet) show that in 2006 there were 26,618 people receiving parental benefit, including 793 self-employed workers without employees. Thus in 2006, 1.6% of self-employed workers without employees took up parental leave (at least part of the time). Moreover, self-employed persons without employees make up about 3% of persons receiving parental benefits. At the same time, there is no information on how many employees and self-employed persons were eligible for the benefit. Thus it is not possible to assess the exact take-up rate.

In 2006 the average monthly benefit for the group of self-employed workers without employees amounted to EEK 5,801 (€371) while the benefit on average was EEK 5,952 (€380).

The minimum parental benefit for persons receiving income (including self-employed people) is the minimum monthly wage, which was EEK 3,000 (€192) in 2006. In 2006 23.7% of persons on parental leave received parental benefit of EEK 3,000 compared to the 45.4% of self-employed workers without employees who received the same amount. This minimum amount is paid to all people who earned some taxable income, but less than the national minimum wage.

In 2006, the highest level of parental benefit set by the law was EEK 19,191 (€1,227). During the years 2004-2006 the proportions of the people receiving the maximum amount of parental benefit per calendar month have been slightly higher among self-employed workers without employees than among all the employees on average (4.5-4.8% compared to 3.5-4.1%).

Presence and take up rates of long-term leave (according to the applicable social security regime). If possible, please indicate the reasons for long-term leave.

No additional data or relevant surveys can be brought out linked with work life balance of self-employed in Estonia.

Degree of control of personal working time.

No additional data or relevant surveys can be brought out linked with work life balance of self-employed people in Estonia.

Degree of consistency of personal working time with family and social commitments.

No additional data or relevant surveys can be brought out linked with work life balance of self-employed in Estonia.

Job satisfaction of self-employed workers without employees compared with the national average:

Degree of satisfaction with employment conditions.Degree of satisfaction with working conditions.

There are no surveys available concerning job satisfaction among self-employed workers.

5. The social partners’ positions

The Confederation of Estonian Trade Unions (Eesti Ametiühingute Keskliit, EAKL) sees a need for representation of self-employed workers by trade unions. Self-employed workers without employees are often forced to become self-employed on the initiative of their employers in order to optimise tax contributions or labour costs for the employer. According to EAKL, at present the collective representation of self-employed workers can only exist on state or sector level because by law self-employed workers are their own employers. Thus the trade unions have so far provided self-employed workers with legal consultation only.

The Estonian Employers’ Confederation (Eesti Tööandjate Keskliit, ETTK) pointed out that self-employment has been created to encourage entrepreneurship and the law also treats the self-employed workers as entrepreneurs. However in practice, the role of the self-employed resembles more that of an employee than an employer.

Both EAKL and ETTK pointed out that the current legislative regulation does not support the participation of self-employed persons in collective bargaining and collective agreements. Namely, the Collective Agreements Act (Kollektiivlepingu seadus) stipulates that a collective agreement can be entered into between an employer/federation of employers and a union, federation of employees or authorised representative of employees. Self-employed workers are classified as a form of entrepreneurship and thus they cannot enter into a collective agreement.

However it should be noted that the reason for such legislative provisions is the fact that formally self-employed persons are employers and therefore including them in collective bargaining as employees is not deemed to be appropriate. As an alternative, different forms of representation for self-employed could be developed (e.g. representative organisations).

The interest and aims of EAKL are related to the unification of the regulations for employees working under employment contracts as well as for employees that work under less traditional contracts. For instance, there are restrictions on working time for employees working under the Employment Contracts Act; however these restrictions do not apply to self-employed workers despite the risks related to fatigue for some economic activities. Other important issues are related to the minimum wage and social tax, as well as retirement funds and future guarantees for employees. For some sectors (e.g. construction and transport) EAKL hopes that in future it will be possible to set minimum requirements for wages and working time through collective bargaining which would also include self-employed workers in the sector.

ETTK has stated that the employment legislation needs more flexibility (especially in the case of restructuring and redundancies). It noted that inflexible and outdated employment laws seem to encourage employers to use self-employed workers instead of concluding employment contracts. Additionally ETTK stresses the need for raising the minimum level of social tax for self-employed workers (i.e. they should pay social tax on at least the sum equal to minimum wage level; currently social tax is paid on at least the sum equal to 75% of the minimum wage level). The Employment Contracts Act is currently being updated and the minimum level of social tax has been raised although not to the degree that ETTK has proposed. EAKL has also supported the initiative of ETTK related to the minimum level of social tax.

6. NC Commentary

There are several issues to consider regarding the situation of self-employed workers without employees. First of all, the lack of detailed research on employment and working conditions of the self-employed prevents detailed analysis and development of necessary regulations and policies.

Another important issue is the social protection of the self-employed. Self-employment is defined as a form of entrepreneurship and therefore the social protection issues of the self-employed and employees are not comparable. However, there are also cases where service contracts with self-employed persons are used to hide an employment relationship for taxation reasons, which leads to the issue of economically dependent workers. In cases where self-employment is a forced move, self-employed workers should also be treated as employees in terms of social protection and collective representation. The Tax and Customs Board has undertaken to deal with the issue by identifying cases of economically dependent employment among self-employed persons. In these cases the income of these workers are treated as salaries and not as business gains. Consequently, no deductions that are typical for business gains will be made from the incomes of the self-employed persons and the employer can be obliged to pay social contributions for the self-employed person.

In terms of collective representation, self-employed persons are clearly underrepresented - they do not have any organisations to protect specifically their interests. They cannot be represented by trade unions since self-employment is a form of entrepreneurship. However, a representative organisation is strongly needed to protect the rights of self-employed people (some actions have already been taken by the EVEA). The issue is also referred to by the social partners.

Nevertheless, some problems related to self-employed persons without employees are already being addressed, there are still several problems to be resolved, such as the application of the minimum wage and the regulation of working and rest breaks.

Liis Roosaar and Kirsti Nurmela, PRAXIS Center for Policy Studies

References

Linnas, S. (ed.) Töötasu. Earnings. 2005 Yearbook. Tallinn, Statistics Estonia, 2006.

Pall, K. Leave policies in Estonia. Country report (online). International Network on Leave Policy and Research, Danish National Centre for Social Research, 2007, available at http://www.sfi.dk/graphics/Leave network/country notes 2007/estonia 2007.pdf [accessed 9 November 2007].

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