Employer of Record in Iceland

General Information

• Currency: Krona (ISK)
• Employer Taxes: 17.40%-19.40%
• Payroll Frequency: Unknown
• Employee Costs: 8%
• Capital: Reykjavík
• Fiscal Year: 1 January – 31 December. Companies can apply to the IRD for a different fiscal year

Main Aspects of the Labour Code

Minimum Wage

General: Iceland does not have a government-mandated minimum wage. Instead, wages are set through collective bargaining agreements between employers and unions. As of 2024, the Icelandic Store and Office Workers’ Union indicates that the minimum wage is around ISK 368,000 per month, equivalent to approximately $2,680.

Payroll

Payroll Cycle: In Iceland, the payroll cycle is generally on a monthly basis, with employees receiving their payments by the 1st of the following month.

13th Salary

In Iceland, there are no legal requirements for employers to provide a 13th or 14th salary. However, employees do receive two holiday bonuses each year: one between May 1 and August 15, and the other on December 1. The summer holiday bonus amounts to 10.17% of annual income and is prorated for employees who haven’t completed 12 months of service by the payment date. To qualify for the December holiday bonus, an employee must have worked at least 12 months for the same employer, and this bonus is a fixed amount of around ISK 82,000.

Working Hours

General: In Iceland, a standard office workweek spans from Monday to Friday, totaling 37.5 hours, not including a half-hour lunch break. Employers are not allowed to schedule shifts longer than 13 hours.

Employees are entitled to a continuous rest period of 11 hours within any 24-hour timeframe. Furthermore, depending on the type of work and the employment contract, Sundays are generally designated as a day of rest.

Overtime: Any work exceeding eight hours in a day is classified as overtime unless the employment contract specifies that the salary covers occasional overtime. If the contract includes overtime provisions, employees can ask their employer to clarify the number of hours included before additional overtime pay kicks in.

Overtime is calculated at 0.875% of the monthly salary per hour for the first 162.5 hours of overtime in a month. Overtime beyond 162.5 hours is compensated at a rate of 1.0385% of the monthly salary per hour.

Employees also have the option to convert their overtime into extra holiday days instead of receiving pay, with one hour of overtime translating to one hour and forty minutes of holiday. If an employee is called in to work on a Saturday or Sunday, they are entitled to four hours of overtime pay simply for attending, regardless of how long the work takes.

Leave

Annual Leave (Vacation):

In Iceland, the minimum annual leave entitlement is 24 days, as outlined in the Holiday Allowance Act. However, many collective bargaining agreements provide for 25 to 30 days of vacation per year.

Vacation is accrued over one year to be taken the following year, with the vacation year running from May 1 to April 30. Employees who have not worked a full year are entitled to a proportional amount of vacation, earning two vacation days for each month worked during the earning year.

Vacation and vacation pay increase with length of service. All employees accumulate a minimum of 24 weekdays of paid leave, with holiday pay set at 10.17% of total wages. After five years in the same field, this entitlement increases to 25 weekdays and 10.64% of total wages. After five years with the same employer, it rises to 27 weekdays and 11.59% of total wages. After ten years with the same employer, it reaches 30 weekdays and 13.04% of total wages.

Fixed Christmas bonuses are paid on December 1, while holiday bonuses are distributed in summer, between May 1 and August 15. For employees who have worked only part of the year, bonuses will be proportional to their time served, and they are paid along with the salary in the corresponding month.

Public Holidays

Public holidays falling on the weekend are usually lost.

holidays.

Sick Days

In their first year with a new employer, employees are entitled to two days of paid sick leave per month. After one year, this entitlement increases to two months of paid sick leave. Employers have the right to request a doctor’s note to confirm the illness. After 21 consecutive days of illness, sick pay is provided through social security.

After five years with the same employer, employees are entitled to four months of paid sick leave, which increases to six months after ten years. If an employee changes employers after five years, they are still entitled to a minimum of two months of paid sick leave with their new employer.

Paternity Leave

In Iceland, there is no separate maternity or paternity leave; instead, parents are entitled to 12 months of parental leave. Each parent can take up to six months off work, with one month transferable between them. Mothers may take up to one month off before the baby arrives and are required to take at least two weeks of parental leave after the birth.

The standard monthly parental leave payment is 80% of the salary, with a maximum cap of ISK 600,000 before taxes. This payment is provided by the Parental Leave Fund (Fæðingarorlofssjóður).

During parental leave, the employment contract and all associated benefits remain in effect.

Additionally, parents can take up to four months of unpaid leave to care for a child until the child turns eight years old.

Other Leave

In Iceland, employees are entitled to take up to 24 days of paid leave each year to care for sick children, as stipulated in collective bargaining agreements. While there are no legal entitlements for broader family care, the Equal Status Act requires employers to accommodate employees’ family responsibilities. Most agreements specify additional leave days for family care.

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