Hire employees
and contractors in Iceland

Remote’s guide to employing in Iceland.

Capital city
Reykjavik
Currency
Icelandic króna (ISK)
Population size
364,134 (est. 2020)
Language spoken
Icelandic króna (ISK)
01

Facts & stats

Land of fire (volcanoes), ice, and everything in-between (hot springs and geysers), Iceland combines a rich cultural history with strong economic performance, driven by extensive civil liberties, a high human development index, and a market economy with a vast social welfare system.

Iceland is the world’s most peaceful nation and along with its Scandinavian neighbors, boasts impressive performance on equality, democracy, per capita wealth, and environmental sustainability.

Iceland Map
  • Capital city
    Reykjavik
  • Currency
    Icelandic króna (ISK)
  • Language spoken
    Icelandic
  • Population size
    364,134 (est. 2020)
  • Ease of doing business
    Very Easy
  • Cost of living index
    96.77 (2021)
  • Payroll frequency
    Monthly
  • VAT – standard rate
    24%
  • GDP - real growth rate
    0.1%
02

Grow your team in Iceland with Remote

To employ in Iceland, companies must own a local legal entity in the country or work with a global employment solution. Managing payroll, benefits, taxes, and compliance in Iceland can get complicated, especially without established local relationships.

Remote’s global employment solution makes it easy for your company to employ workers in Iceland quickly, efficiently, and in full compliance with all applicable labor laws. We take on the responsibility and legal risks of international employment so you can focus on hiring great talent and growing your business.

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Iceland risks illustration

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.

03

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 organized 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.

Common questions that could come up during the hiring process include the minimum wage, overtime rates, and guaranteed paid time off. Remote can help you offer a complete, competitive, and compliant benefits package to your employees in Iceland.

Public holidays

Date Holiday Name Extra information
New Year’s Day
Maundy Thursday
Good Friday
Easter Sunday
Easter Monday
First Day of Summer
Labour Day
Ascension Day
Whitsun
Whit Monday
Icelandic National Day
Commerce Day
Christmas Eve
Christmas Day
2nd Day of Christmas
New Year’s Eve
Minimum
Wage

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.

Payroll
Cycle
For customers of Remote, all employee payments will be made in equal monthly instalments on or before the last working day of each calendar month, payable in arrears.
04

Competitive benefits package in Iceland

Remote can help you provide a competitive and compliant benefits package for your employees in Iceland. If you have questions or would like to offer a custom benefit, let us know and we can help.

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05

Taxes in Iceland

Learn how employment taxes affect your payroll and your employees’ paychecks in Iceland.

  • Employer

    • 8.65% - Social security contribution
    • 11.5% - Pension fund contribution
  • Employee

    • 4% - Pension fund contribution
  • Personal income tax rates

    • 31.45% on the first ISK 4,188,216 ($34147.70)
    • 37.95% on the next ISK 7,569,948 ($61719.92)
    • 46.25% on any income over ISK 11,758,159 ($95867.58)
06

Types of leave

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. With five years of experience working in the same industry, you’re entitled to 25 weekdays off, paid at 10.64$ 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.

Public
holidays

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.

Sick
leave

Finnish employees are entitled to paid sick leave proportional to their tenure with an employer.

During the first year of employment, an employee is entitled to two days of sick leave per month, which increases to two months of paid sick leave annually after the first year.

After an employee’s fifth year, they’re entitled to four months of sick leave, capped at six months off after the 10th year.

Maternity
leave

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.

Parental
leave

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.

Other
leave
  • 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.
07

Employment
termination

Termination process

Employee contracts can be terminated at will if prior notice is provided. Employers are not required to provide any specific reason for terminating an employee.

Notice period

Both employers and employees are required to provide notice three months before resignation or termination unless otherwise specified in the employment contract.

Severance pay

There is no legally mandated severance pay, but unions can negotiate a mutual rate applicable to their members.

Probation periods

Probations periods are typically capped at three months into the new job.

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