Hire employees and contractors in Iceland

Remote’s guide to employing in Iceland.

  • Capital city

    Reykjavík

  • Currency

    Icelandic krona
    (kr, ISK)

  • Population size

    364,134
    (est. 2020)

  • Languages spoken

    Icelandic

  • Availability

    Remote-Owned Local Entity

    We own our own entity in the countries where we operate to shield your company from risk and provide you and your employees with the signature Remote experience.

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.

  • Capital city

    Reykjavík

  • Currency

    Icelandic krona
    (kr, ISK)

  • Languages spoken

    Icelandic

  • Population size

    364,134 (est. 2020)

  • Ease of doing business

    Very easy

  • Cost of living index

    $$$$ (2021)

  • Payroll frequency

    Monthly

  • VAT - standard rate

    24%

  • GDP - real growth rate

    0.1%

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.

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.

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
Saturday, January 1, 2022New Year's Day
Thursday, April 14, 2022Maundy Thursday
Friday, April 15, 2022Good Friday
Sunday, April 17, 2022Easter Sunday
Monday, April 18, 2022Easter Monday
Thursday, April 21, 2022First day of summer
Sunday, May 1, 2022International Worker Day
Thursday, May 26, 2022Ascension Day
Sunday, June 5, 2022Whitsun
Monday, June 6, 2022Whit Monday
Friday, June 17, 2022Icelandic National Day
Monday, August 1, 2022Commerce Day
Saturday, December 24, 2022Christmas EveFrom noon
Sunday, December 25, 2022Christmas Day
Monday, December 26, 20222nd Day of Christmas
Saturday, December 31, 2022New Year's EveFrom noon

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 installments on or before the last working day of each calendar month, payable in arrears.

Onboarding Time

We can help you get a new employee started in Iceland fast. The minimum onboarding time we need is only 20 working days.

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 onto the Remote platform. 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. Remote has a payroll cut-off date of the 10th of the month unless otherwise specified.

Competitive benefits package in Iceland

At Remote, we’re obsessed with helping you craft the best possible employee experience for your team. We are leading the way in practicing “fair equity,” which means making sure employees everywhere have access to both the required and supplemental benefits they need to thrive (and that will allow you to attract the best local talent).

Our benefits packages in Iceland are tailored to fulfill the local needs of your employees. Typically, our packages contain some or all of the following benefits:

  • Health Insurance
  • Dental Insurance
  • Vision Insurance
  • Mental Health Support
  • Pension or 401(K)
  • Life and Disability Insurance

Taxes in Iceland

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

  • Employer

    • 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)

  • 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)

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

Icelandic 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.

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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