Currency: Icelandic króna (ISK)
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Interested in working remotely in Iceland? We will help you with compliant employment for your employer, handling all employment tasks and payroll.
Facts & Stats
Iceland is known for its fantastic work-life balance which is reflected in high productivity levels at work and outstanding employee performance.
Iceland is one of the world’s most peaceful nation and along with its Scandinavian neighbours, boasts impressive performance on equality, democracy, per capita wealth, and environmental sustainability.
Capital city: Reykjavík
Currency: Icelandic krona (kr, ISK)
Population size: 364,134 (est. 2020)
Languages spoken: Icelandic
Time zone: UTC +0
Ease of doing business: Very easy
Payroll frequency: Monthly
VAT – standard rate: 24%
GDP – real growth rate: 0.1%
Employing in Iceland
Most employee entitlements are defined by collective bargaining based on the 1938 Act on Trade Unions and Industrial Disputes. With 91.8% of the workforce organised into unions, Iceland has the highest union membership rate. Overall, employees in Iceland enjoy protection against discrimination based on age, religion, sexual orientation, gender expression, and race.
Employees in Iceland get paid on either a weekly or monthly basis. In some sectors, bi-weekly payments are common.
There’s no minimum wage mandated under Icelandic law; employers and employees can enter into collective bargaining to determine wage rates as they see fit.
Employees who have worked for the same employer for more than twelve weeks during the current year are entitled to an annual bonus which is usually paid in December.
Employment Contract Details
Employment agreements can be in English or Icelandic and include relevant information such as the job position, working conditions, working hours, holidays, and conditions for terminations. All employment contracts are according to the trade union.
The standard probation period in Iceland is three months. After this duration, companies decide whether they want to hire the employee permanently. Iceland’s employment laws do not mention probationary employees. As such, the process is governed by business practices and customs.
The minimum onboarding time we need is only 2 working days!
Working hours and overtime
A standard working week in Iceland is 40 hours divided into five eight-hour days with the following regulations on breaks and rest periods:
- at least 15 minutes of break after six consecutive hours of work – but most companies have lunch breaks ranging from half an hour up to one hour plus additional coffee breaks of up to 35 minutes;
- at least eleven consecutive hours of rest each day;
- at least one day off per week.
Employees can work overtime if it’s agreed between the parties. Daily, employees cannot work more than 10 hours.
Overtime payment is mandatory and cannot be included in the salary. Hours outside of standard work hours are considered overtime. Employees can work a maximum of 162.5 hours of overtime a month.
Paid time off
Employees accumulate paid time off, depending on their tenure in the same line of work.
The minimum PTO entitlement is 24 weekdays annually, compensated at a rate of 10.17% of your normal wages. After five years of employment with an employer, you’re entitled to 27 weekdays, paid at an 11.59% rate. This increases to 30 weekdays, compensated at a 13.04% rate after 10 years of employment with the same employer.
Employees can take the 16 public holidays off and are entitled to 1.375% of the normal monthly wages per hour if they’re expected to work on a public holiday.
Iceland celebrates 12 national holidays a year. National public holidays include:
New Year’s Day
The first day of summer
Icelanders’ national holiday
Icelandic language day
Competitive Benefits Package in Iceland
Swapp Agency can help employers provide a competitive and compliant benefits package for their employees in Iceland. If you have questions, let us know and we can help.
Medical insurance plan
Dental insurance plan
Vision insurance plan
Additional paid holidays
Flexible work schedule
Taxes in Iceland
Learn how employment taxes and statutory fees affect your payroll or employees’ paychecks in Iceland.
11.50% – Mandatory Pension Fund
2.00% – Supplementary (optional) Pension Fund (the employee can elect to supplement their pension by either 2% or 4%, and the employer then is obliged to match this with 2% in either case)
6.10% – Social security contribution (this contribution is calculation on the Gross salary + Mandatory Pension Fund + Supplementary Pension fund amounts)
1.55% – Union fee
0.10% – Rehabilitation Fund
10.17% – Vacation Allowance – once annually (this value is a minimum 10.17% of annual gross salary and can go up to 13.04% of annual gross salary, depending on the employees tenure with the employer)
4% – Pension fund contribution
Personal income tax rates
The individual income tax ranges from 31.45% to 46.25%. Income tax is calculated according to progressive rates. Multiple additional factors may impact overall rates such as the household status and the number of children.
31.45% on the first ISK 4,188,216 per year ($34147.70)
37.95% on the next ISK 7,569,948 per year ($61719.92)
46.25% on any income over ISK 11,758,159 per year ($95867.58)
Types of leave
Employees are entitled to 2 days of sick leave per month, accruing 24 days per year. The first 2 days per month are paid at 100% by the employer. After the first 2 days, the amount of pay and length of leave will depend on the Trade Union Selected by the employee.
Pregnant employees are entitled to six months of maternity leave, starting up to a month before delivery is due, and compensated at a rate of 80% of the employee’s normal wages.
Fathers are entitled to six months of paternity leave, paid at a rate equivalent to 80% of the normal wages. One month of parental leave is transferable between partners and both parents’ leave entitlements can be exercised until the newborn turns 18 months of age.
In addition, parents can take up to 13 consecutive weeks of leave to care for children up to the age of eight.
Hospitalization leave: parents are entitled to 12 days of leave if any of their children are hospitalized.
Adoption leave: Adoptive parents can exercise the same parental leave entitlements as natural birth parents, with each partner taking up to six months of paid leave off work.
Either the employee or the employer has the right to terminate the employment contract. However, the employer or employee must give notice in writing, and the resignation period commences at the start of the following month. The termination period usually lasts three months unless both parties agree to a different date. Employers are not required to provide any specific reason for terminating an employee.
The minimum notice period is 7 days and will be increased according to the length of the employment.
- 1 week for the first 3 months of the probation period
- 1 month following the end of probation period
- 3 months after 6 months of employment
There is no legally mandated severance pay, but unions can negotiate a mutual rate applicable to their members.
Hire Employees in Iceland
With Swapp Agency, your business can easily hire employees in Iceland. No more worrying about complex tax systems, managing international payroll, or local laws. No entity needed. Swapp Agency takes care of everything in +170 countries.
Usually, to hire in Iceland your business needs an entity. That means a local office, an address registered as a subsidiary, and an account with a local bank. All of this, plus navigating regional benefits, payroll, tax, and HR laws, can take months. Swapp Agency lets you hire employees in Iceland quickly, easily, and compliantly. We even automate tax document collection, payroll, benefits, and more.
Risks of misclassification
Like many other countries, Iceland treats self-employed individuals or contractors and full-time workers differently and there are risks associated with misclassification.
Grow your Team in Iceland with Swapp Agency
Common questions that could come up during the hiring process include the minimum wage, overtime rates, and guaranteed paid time off.
Swapp Agency can help you offer a complete, competitive, and compliant benefits package to your employees in Iceland.
Our team ensures your employees are onboarded and paid as quickly as possible while keeping your business compliant with all local employment legislation. The minimum onboarding time begins after the employee submits all required information. The onboarding timeline is also dependent upon registration with local authorities.
For all non-nationals of the country of employment, the Right to Work assessment (if applicable) will add three extra days to the total time to onboard. There may be extra time required if we need to follow-up on the right to work assessment.
Please note, payroll cut-off dates can impact the actual first day of employment.