Hire employees in

Iceland, hassle-free

Hire employees in Iceland, hassle-free

With Deel, your business can easily hire employees in Iceland. No more worrying about local laws, complex tax systems, or managing international payroll. Deel takes care of everything in 150+ countries.

The average onboarding time frame in Iceland is 2 days with Deel.

Download the Guide

Currency

Icelandic króna ISK

Capital

Reykjavík

Official Language

Icelandic

Payroll Cycle

Monthly

Hire employees in Iceland. No entity needed.

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.

Iceland also treats contractors differently than full-time employees, so misclassifying a contractor could lead to fines. Deel lets you hire employees in Iceland quickly, easily, and compliantly. We even automate tax document collection, payroll, benefits, and more.

All the necessary benefits for Iceland
built right in

Deel allows you to provide localized benefits for employees in Iceland within minutes. All in one manageable online dashboard.

  • Employee Sickness Fund
  • Pension Fund
  • Provident Fund
  • Trade Union Fund

Our quickstart guide to hiring in Iceland

Navigate the tabs below to learn everything you need to know about hiring an employee in Iceland

Minimum Wage Requirements

In Iceland, the applicable minimum wage is complex. There is no national minimum wage by law. Instead, the minimum wage is determined by which Trade Union an employee is part of. Trade Unions determine minimum wage based on the age of the employee and job type.

Individual Income Tax

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.

Gross Annual Income Tax Rate (%)
0 Up to ISK 349,018 31.45%
349,019 Up to ISK 979,847 37.95%
Over ISK 979,847 46.25%

Employer Cost

The employer cost is approximately 22.07% of the employee's salary.

  • Provident Fund - 11.5%
  • Pension Fund - 2.0%
  • Insurance Fund - 6.92%
  • Employee Sickness Fund - 1.0%
  • Employee Training Fund - 0.3%
  • Trade Union - Summer house benefits - 0.25%
  • Recreational Fund - 0.1%

Overtime Pay & Maximum Hours

Standard working hours are 8 hours per day, 40 hours per week. The standard workweek is from Monday to Friday.

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. For additional hours, employees are paid:

  • 0.875% of the hourly rate, the first 162.5 hours of overtime a month.
  • 1.0385% of the hourly rate, the first 162.5 hours of overtime a month if they work from home.

Overtime payment is not mandatory for managerial roles in Iceland.

Maternity Leave

Pregnant employees who have worked for 6 months are entitled to 6 months of paid leave. One month is transferable between the parents. 

Social Security will cover 80% of an employee's salary up to ISK 600,000 per month (before taxes), and Social Security will be responsible for this pay. 

The employee can extend this leave an additional 3 months which is unpaid.

Paternity Leave

Employees who have worked for 6 months are entitled to 6 months of paid leave. One month is transferable between the parents. 

Social Security will cover 80% of an employee's salary up to ISK 600,000 per month (before taxes), and Social Security will be responsible for this pay. 

The employee can extend this leave an additional 3 months which is unpaid.

Parental Leave

Employees are entitled to take one period of unpaid leave from work for up to 13 consecutive weeks to care for a child up to age 8.  

Sick 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. 

Termination Requirements

Terminations in Iceland can be complex. There is no at-will termination in Iceland for employers outside the probation period and termination must be done for just cause.

Compliant terminations include:

  • Voluntarily by the employee
  • By mutual agreement
  • Unilaterally by the employer based on:
    • probation period
    • objective grounds
    • disciplinary dismissal
    • performance due to unsuitability for the job
  • By the expiration of the contract

Notice Period

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

Severance for Employees

There is no specific severance to be paid by law. However, employers need to pay all accumulated benefits; for example, leftover PTO, Christmas bonus, Summer Vacation Bonus etc.

Paid Time Off

Both full-time and part-time employees are entitled to 25 days of paid time off (PTO) a year. PTO accrues monthly at 2.1 days per month. 

Public Holidays

Iceland celebrates 12 national holidays a year.

National public holidays include:

  1. New Year's Day
  2. Good Friday
  3. Easter
  4. The First Day of Summer
  5. Labor Day
  6. Pentecost
  7. Fishermen's Day
  8. Icelanders' National Holiday
  9. President's Birthday
  10. Icelandic Language Day
  11. Sovereignty Day
  12. Christmas Day

Onboarding

1 business day after deposit payment

Employment Contract Details

Contracts can be in English or Icelandic. They must be in writing and signed by both parties. All employment contracts are according to the trade union.

A contract must include:

  • Name
  • Start date
  • Length of the employment
  • Job description
  • Termination conditions.

Probation Period

Probation periods are not mandatory. the minimum probation perido is 3 months and the maximum probation period is 6 months.
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Download the complete guide to hiring in Iceland

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Hiring in Iceland, hassle-free

With Deel, your business can easily hire employees in Iceland. No more worrying about local laws, complex tax systems, or managing
international payroll. Deel takes care of everything in 150+ countries.

Group (8)

599 USD

Management fee

Group (9)

22%

Estimate Employer Cost

*of employee salary

Want to learn the cost of hiring an employee in Iceland?

View our Employee Cost Calculator

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