Capital City
Reykjavík
Currency
Icelandic Krona
(
kr
)
Timezone
GMT +0
Payroll Frequency
monthly
Tax Year
1 January - 31 December
Employer Tax
22.07%
Languages
Icelandic
Capital City
Reykjavík
Currency
Icelandic Krona
(
kr
)
Timezone
GMT +0
Payroll Frequency
monthly
Tax Year
1 January - 31 December
Employer Tax
22.07%
Languages
Icelandic
Iceland's competitive operating environment positions it among leading industrial nations globally.
With low taxes, high education standards, and competitive skilled labor costs, it attracts international businesses.
s an EEA member, Iceland aligns closely with EU commercial legislation, offering tariff-free access to key EU markets.
Its increasingly favorable business climate, coupled with the lowest corporate income tax rates in the EU, make it an attractive investment destination, supported by industrial sites and skilled labor availability.
Businesses can only operate smoothly in Iceland if they comply with local labor laws including drafting compliant employment contract agreements and meeting taxation and payroll obligations. Learn more about the employment laws and regulations in Iceland below, to avoid any compliance issues.
Icelandic labour law categorises contracts as either fixed-term or permanent, with no requirement for contracts to be in Icelandic. However, for employment lasting more than one month with a commitment of more than 8 hours weekly, a written employment contract is mandatory. This contract must include the following basic terms of employment:
We can help you get a new employee started in Iceland quickly, with a minimum onboarding time of just 1-2 working days. The timeline starts once the employee submits all required information onto the Playroll platform and completes any necessary local authority registrations. For non-nationals, the Right to Work assessment (if applicable) may add up to three extra days. Additional time may be needed for follow-ups on this assessment. Please note, payroll cut-off dates can impact the actual start date. Playroll's payroll cut-off date is the 10th of each month unless otherwise specified.
The standard workweek in Iceland consists of 40 hours, distributed across five 8-hour days.
According to Icelandic Labour Law, any work exceeding the standard 8-hour workday qualifies for overtime compensation. The official hourly overtime pay rate is 1.0385% of the regular pay rate. Specific regulations exist for shift workers, and the total working hours, including overtime, should not surpass 48 hours per week.
Typically, probation periods in Iceland extend for about 3 months.
1 January - 31 December is the 12-month accounting period that businesses in Iceland use for financial and tax reporting purposes.
The payroll cycle in Iceland is usually monthly, with employees being paid by the 1st of the following month.
In Icelandic law, there is no national minimum wage; instead, it is established by the Trade Union to which the employee belongs. These Trade Unions set the minimum wage, taking into account factors such as the employee's age and job type.
Icelandic law does not mandate a 13th or 14th-month salary. Nevertheless, collective agreements specify that employees are entitled to a Christmas bonus in December and a holiday bonus given between 1 May and 15 August.
Employer payroll contributions are generally estimated at an additional 22.07% on top of the employee salary in Iceland.
In Iceland , the typical estimation for employee payroll contributions cost is around 4%.
Income tax in Iceland follows a progressive rate structure, with various factors, including household status and the number of children, potentially influencing the overall tax rates.
Individuals aged 16 to 70, both employees and employers, are required to contribute to a pension fund in Iceland. The minimum contribution rate stands at 15.5%, with employers contributing 11.5% and employees contributing 4%. The employee's contribution is deducted from their taxable income.
The annual leave entitlement in Iceland is 24 days for a full time worker. These can include public holidays on top of that or within those days, which would otherwise be unpaid.
Employees are entitled to paid holidays during festival holidays, which encompass both public and religious celebrations. This includes memorial holidays and religious holidays of Christian origin. The following are the 15 public holidays in Iceland:
Both full-time and part-time employees receive 24 days of paid time off (PTO) annually. PTO accrues at a rate of 2 days per month.
In Iceland, employees with 6+ months of service are entitled to 12 months of paid maternity and paternity leave:
Paternity leave and maternity leave is the same in Iceland.
Employees in Iceland are entitled to 24 days of paid sick leave per year. The initial 2 days per month are fully paid by the employer, and thereafter, the payment amount is determined by the employee's Trade Union.
Employees have the right to take a single period of unpaid leave from work for a continuous duration of up to 13 weeks to care for a child up to the age of 8.
In Iceland, employers are not permitted to terminate employment at will outside the probation period and must have a just cause for termination. Compliant terminations include:
The minimum notice period for Icelandic employees is set at 7 days and will be increased according to the length of employment:
Icelandic labour law lacks specific provisions regarding severance payments. Nevertheless, employers are obligated to settle accrued benefits such as unused paid time off, Christmas bonuses, vacation bonuses, etc. upon termination.
Disclaimer
THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL OR TAX ADVICE. You should always consult with and rely on your own legal and/or tax advisor(s). Playroll does not provide legal or tax advice. The information is general and not tailored to a specific company or workforce and does not reflect Playroll’s product delivery in any given jurisdiction. Playroll makes no representations or warranties concerning the accuracy, completeness, or timeliness of this information and shall have no liability arising out of or in connection with it, including any loss caused by use of, or reliance on, the information.
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