With a contract for work (töövõtuleping) you promise an agreed result, for example a finished website. With a contract of mandate (käsundusleping) you provide a service with due care but don't guarantee a specific result, for example keeping someone's accounts. With an employment contract (tööleping) you work under the employer's direction and control, at a time and place they set. Which contract it is depends not on the contract's title but on how the work actually goes.

Contract for work: you pay for the result

Under a contract for work, the contractor undertakes to make or change something or to achieve another agreed result. The client pays the fee for the finished work.

A contract for work fits when the result can be described before the work starts and handed over afterwards. For example:

  • building a website or an app;
  • making kitchen furniture to measure;
  • designing a logo;
  • renovating a flat.

What this means in practice:

  • The fee becomes due when the work is finished. If it has been agreed that the client accepts the work, then on acceptance.
  • The contractor is liable for the result. If the work does not conform to the contract, they must answer for it.
  • The contractor does not have to do the work personally, unless agreed otherwise. They may use subcontractors.
  • The client may terminate the contract at any time. In that case they generally have to pay the agreed fee, minus what the contractor saved or earned elsewhere because of the termination.

Contract of mandate: you pay for the activity

Under a contract of mandate, the mandatary undertakes to provide a service. They must act loyally and with the necessary care, but are not liable for a specific result being achieved.

A contract of mandate fits when the fee is paid for the work and time put in rather than for one finished thing. For example:

  • an accounting service;
  • consulting;
  • managing social media for a monthly fee.

If no fee has been agreed, it must still be paid if the service could reasonably be expected only for a fee. An open-ended contract of mandate can generally be terminated by either party at any time.

Employment contract: you work under someone else's direction

Under an employment contract, the employee does work subject to the employer's direction and control, and the employer pays them wages. For example, a cleaner who cleans a company's office every day at a set time, or a shop assistant who works to a shift schedule.

An employment contract gives the employee protection that contracts for work and of mandate don't:

  • the presumed annual holiday is 28 calendar days a year;
  • the employer cannot simply terminate the employment contract, but only for a reason named in the law;
  • wages must be paid even if the result of the work wasn't what the employer hoped for.

If you are really hiring someone, read also the article How do you hire your first employee?. You'll find a ready base in the employment contract template.

The comparison at a glance

What is paid for

  • Contract for work: the finished result.
  • Mandate: the service provided.
  • Employment contract: the work done, as regular wages.

Who is liable for the result

  • Contract for work: the contractor.
  • Mandate: the mandatary is liable for careful work, not for the result.
  • Employment contract: the business risk stays with the employer.

Who sets the working time and place

  • Contract for work and mandate: the person doing the work.
  • Employment contract: the employer.

Whose tools

  • Contract for work and mandate: usually the worker's own.
  • Employment contract: usually the employer's.

Holidays and sick leave

  • Contract for work and mandate: no statutory holiday and no sickness benefit paid by the employer.
  • Employment contract: statutory annual holiday and sickness benefit.

Ending

  • Contract for work: the client may end it at any time but generally has to pay the fee.
  • Mandate: an open-ended contract can generally be terminated by either party at any time.
  • Employment contract: the employer can terminate only on grounds named in the law and with notice.

The disguised employment contract

The Employment Contracts Act presumes that if someone does work for you that can only be expected for pay, it is an employment contract. The employment contract rules do not apply if the person doing the work is to a significant degree independent in choosing how, when and where the work is done.

This means the name of the contract doesn't matter. If the paper says contract of mandate but the person works like an employee, the Tax and Customs Board or a court may treat the contract as an employment contract. Attention usually falls on these signs:

  • subordination: the client gives day-to-day instructions and controls how the work is done;
  • a fixed work routine: set working hours, a schedule or an obligation to be in the office;
  • regular pay that does not depend on the result, for example the same amount every month for the same work;
  • the client's tools: the computer, the workspace and the software belong to the client;
  • the person does the same work as other employees and is in effect a member of the team.

If the contract is deemed an employment contract, the person gains an employee's rights, such as the right to holidays and protection against termination. The client may face additional tax claims. So it is worth choosing the type of contract according to the actual relationship, not according to what seems simpler.

Taxes and registration

If you make a contract for work or a contract of mandate with a natural person, the obligations depend on who pays the fee.

  • A company or sole proprietor (FIE) as the client must withhold income tax on the fee paid to a natural person under a contract for work, a contract of mandate or another contract under the law of obligations, and declare the payment. Other labour taxes may also apply.
  • The work must be registered in the Tax and Customs Board's employment register by the time the work starts at the latest. For a contract under the law of obligations, the date the contract enters into force is entered in the register.
  • If the person doing the work is a sole proprietor entered in the Commercial Register and the fee is their business income, no income tax is withheld. The sole proprietor pays their own taxes.
  • If the client is a private person who is not a sole proprietor, for example you order a renovation of your home, you do not have to withhold income tax on the fee.

You can find the exact rates and the declaration procedure on the Tax and Customs Board's website.

What to write in the contract

Write into the contract what matches the actual relationship.

In a contract for work:

  1. a precise description of the result;
  2. the deadline;
  3. how the work is handed over and accepted;
  4. the fee and when it is paid, for example in instalments;
  5. what happens if the work has defects;
  6. who keeps the copyright, if the work is creative.

In a contract of mandate:

  1. the content and scope of the service;
  2. the basis of the fee, for example an hourly rate or a monthly fee;
  3. how and how often reports are given;
  4. how the contract is ended.

Don't write set working hours, a place of work or day-to-day subordination into a contract for work or of mandate. If you really need them, you need an employment contract.

If the relationship changes over time, change the contract too. A one-off project can turn into everyday work in your team. Then the old contract for work no longer matches reality.

Common mistakes

  • A contract of mandate instead of an employment contract "to keep it simple". If the person works to your schedule and instructions, the contract may turn out to be an employment contract, with all the consequences.
  • A contract for work without a description of the result. If it isn't written down what the finished work is, there will be arguments later about whether the work is done and whether the fee is due.
  • A monthly fee in a contract for work. A fixed fee every month without a specific result points rather to a mandate or an employment contract.
  • Unregistered work. A company forgets to enter the contractor or mandatary in the employment register.
  • The title and the content don't match. The contract is called a "contract of mandate", but its content has a result, acceptance and the remedying of defects. Such a contract raises more questions than answers in a dispute.

You'll find a ready base in the contract for work template and the contract of mandate template.