HR Software for Iceland
Leave Policy
Maternity Leave
Pregnant employees who have worked for six months are entitled to six months of paid leave. One month can be transferred between parents.
Social Security covers 80% of the employee’s salary up to an amount of ISK 600,000 per month (before taxes), and Social Security is responsible for this salary.
The employee can extend this leave for another 3 months, which are unpaid.
You can use the leave module in IceHrm to manage maternity leave in Iceland.
Paternity Leave
Employees who have worked for six months are entitled to six months of paid leave. One month can be transferred between parents.
Social Security covers 80% of the employee’s salary up to an amount of ISK 600,000 per month (before taxes), and Social Security is responsible for this salary.
The employee can extend this leave for another 3 months, which are unpaid.
Parental Leave
Employees are entitled to unpaid leave from work for up to 13 consecutive weeks to care for a child up to the age of 8.
Sick Leave
Employees are entitled to 2 days of sick leave per month, 24 days per year. The first 2 days per month are paid 100% by the employer. After the first 2 days, the amount of compensation and the duration of the vacation depend on the union chosen by the employee.
Pay & Tax
Minimum Wage Requirements
In Iceland, the applicable minimum wage is very complex. There is no national minimum wage by law. Instead, the minimum wage is determined by the union to which an employee belongs. Trade unions set the minimum wage based on the age of the worker and the type of job.
Individual Income Tax
The individual income tax ranges from 31.48% to 46.28%. Income tax is calculated according to a progressive rate. Several additional factors can affect overall rates, such as: B. the household status and the number of children.
| Gross Annual Income | Tax Rate (%) |
|---|---|
| ISK 0 –446 ,136 | 31.48% |
| ISK 446,137 – 1,252,501 | 37.98% |
| Over ISK 1,252,501 | 46.28% |
Payroll Cost
The cost to the employer 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
The standard working hours are 8 hours per day and 40 hours per week. The normal working week lasts from Monday to Friday.
Pay for overtime is mandatory and cannot be counted towards salary. Hours outside of standard working hours are considered overtime. An employee can work a maximum of 162.5 hours of overtime per month. Employees receive compensation for additional hours:
- 0.875% of the hourly rate for the first 162.5 hours of overtime per month.
- 1.0385% of the hourly rate for the first 162.5 hours of overtime per month when working from home.
Overtime pay is not mandatory for managerial positions in Iceland.
Termination
Termination Requirements
Dismissals must take into account complex rules and the regulations of the country in which an employee is employed. Off-boarding is always carried out by the employer with the main participants. It may include ad hoc fees as well as required or recommended steps for specific termination cases.
Terminations in Iceland can be complex. In Iceland, employers cannot terminate at will outside of the probationary period and the termination must be for a valid reason.
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 notice period is at least 7 days and is increased depending on the length of the employment relationship.
- 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
The law does not provide for any specific severance pay. However, the employer must pay out all accumulated benefits, leftover PTO, Christmas bonus, summer vacation bonus, etc.
Statutory Time Off
Paid Time Off
For full-time employees, PTO and accumulation rates vary depending on length of employment.
| Years of service | PTO days | Monthly accrual |
|---|---|---|
| Less than 5 years | 24 | 2 days/month |
| 5 – 10 years | 27 | 2.25 days/month |
| 10+ years | 30 | 2.5 days/month |
Part-time employees are entitled to a prorated portion of PTO.
Public Holidays
Iceland celebrates 12 public holidays every year.
National holidays include:
- New Year’s Day
- Good Friday
- Easter
- The First Day of Summer
- Labor Day
- Pentecost
- Fishermen’s Day
- Icelanders’ National Holiday
- President’s Birthday
- Icelandic Language Day
- Sovereignty Day
- Christmas Day
Onboarding
Onboarding
Onboarding takes 2 working days after the customer signs the SOW.
Additional Info
Employment Contract Details
The contracts can be written in English or Icelandic. They must be in writing and signed by both parties. All employment contracts are subject to unionization.
A contract must contain:
- Name
- Start date
- Length of the employment
- Job description
- Termination conditions.
Probation Period
The probationary period is not mandatory. The minimum duration of the probationary period is 3 months and the maximum duration is 6 months.