Contract for services or employment contract: käsundusleping and töövõtuleping in Estonia

Estonian law gives a company three ways to pay a person for work: an employment contract (tööleping), a contract for services (töövõtuleping) and an authorisation agreement (käsundusleping, often called a mandate). The difference is control. An employee works under the company's management and control. A contractor decides, to a significant extent, how, when and where the work is done. The content of the relationship decides which contract it is, not its title.

In short

• Employment contract: the person works under your management and control, for pay.
• Contract for services (töövõtuleping): the contractor owes a result.
• Authorisation agreement (käsundusleping): the contractor owes a service, done with due care.
• A fee to a private individual under either civil contract is taxed almost like a salary: 22% income tax, 33% social tax, unemployment insurance and the funded pension.
• A fee to a sole proprietor (FIE) who invoices it as business income carries none of these taxes for the company.
• If the facts look like employment, the Tax and Customs Board and the courts treat it as employment.

How is an employment contract different?

An employment contract exists when a natural person does work for another person in subordination to its management and control, and is paid for it (Employment Contracts Act § 1(1)). When a person works for another in circumstances where pay can be expected, the law presumes an employment contract (§ 1(2)).

The employment rules do not apply when the person doing the work is to a significant extent independent in choosing the manner, time and place of the work (§ 1(4)). That is the test a contractor relationship must pass. The employment rules do not apply to the contract of a member of the management board or another directing body of a company (§ 1(5)).

Three questions follow from that test:

• Manner. Does the company tell the person how to do the work, or only what result or service it needs?
• Time. Does the person keep fixed hours set by the company, or plan the work alone?
• Place. Must the person work where the company says, or choose the place?

A clause that takes away an employee's statutory rights, such as holiday or notice, is void if the relationship is in fact employment (Employment Contracts Act § 2).

What is a contract for services (töövõtuleping)?

In a contract for services, the contractor makes or changes a thing, or achieves another agreed result by providing a service, and the customer pays for it (Law of Obligations Act § 635(1)). It suits work with a clear deliverable: a website, a design, a translation, a repair.

• Personal performance. The law presumes that the contractor need not do the work in person (§ 635(3)), so the contractor may use helpers or subcontractors.
• Cancellation by the customer. The customer may cancel at any time. The contractor can then claim the agreed fee, less what the contractor saved and what the contractor earned or could have earned elsewhere with the freed time (§ 655(1)). This does not apply when the customer cancels because the contractor breached the contract (§ 655(2)).

What is an authorisation agreement (käsundusleping)?

In an authorisation agreement, the mandatary provides services to the mandator, and the mandator pays if the parties agreed on a fee (Law of Obligations Act § 619). It suits ongoing services with no fixed end result: advice, consulting, bookkeeping, project support.

• Due care. The mandatary acts loyally and with the diligence the mandate requires (§ 620).
• Instructions. The mandatary follows the mandator's instructions. But when the mandatary works from professional skills, the mandator may not give specific instructions on the manner or conditions of the work (§ 621(1)).
• Personal performance. The law presumes that the mandatary performs in person, with the right to use the help of third parties (§ 622).
• Confidentiality. The mandatary keeps the mandator's business secrets during the contract and, as far as needed, after it ends (§ 625).
• Cancellation. Either party may cancel an agreement of unspecified term at any time (§ 630(1)). The mandatary may cancel only if the mandator can get the service in another way, or must compensate the damage (§ 630(2)). Either party may cancel any authorisation agreement when it cannot reasonably be expected to continue (§ 631).

Write the notice period and the grounds for immediate termination into the contract, so that neither party has to rely only on these default rules.

How is the fee of a private individual taxed?

When the contractor is a private individual and not a registered sole proprietor, the company withholds and pays almost the same taxes as on a salary.

The unemployment insurance rates are those the Tax and Customs Board lists for 2026.

The company pays the withheld tax by the 10th day of the month after the payment, and files the TSD return by the same day (Income Tax Act § 40(4) and (5)). It also enters the person in the employment register (TÖR) no later than the day the work starts (Taxation Act § 25^1(4) clause 2, § 25^2(3); see the Tax and Customs Board guide).

The salary calculator shows the same taxes on a salary.

What changes when the contractor is a sole proprietor?

When the contractor is a sole proprietor (FIE) entered in the commercial register, and the fee is the FIE's business income, the company pays the invoice in full. It does not withhold income tax (Income Tax Act § 40(2) clause 3), it does not pay social tax (Social Tax Act § 9(1) clause 2), and it does not enter the person in the employment register (Taxation Act § 25^1(4) clause 2). The FIE pays the taxes on the business profit. A sole proprietor must apply for entry in the commercial register before starting the activity (Commercial Code § 3(2)).

Does the name of the contract protect the company?

No. The facts decide. If the person in practice works fixed hours, under a manager, with the company's tools, for a flat monthly fee, the relationship fails the independence test of Employment Contracts Act § 1(4) and is presumed to be employment (§ 1(2)).

For tax, when a transaction is made to avoid tax, the Tax and Customs Board applies the terms that match its real economic content (Taxation Act § 84). The risk is highest when a person who works like staff invoices through a sole proprietorship or an own company. The topic guide on contractors explains what a reclassification costs.

General information, not advice for your situation. The law as in force on 30.09.2026.