Employ Candidates Compliantly in Iceland

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  1. Overview: Iceland
  2. Global HR Compliance
  3. Global PEO and payroll
  4. Work permit for hiring expats via PEO
  5. Expand without a company set up
  6. Contractor vs. employee: which is better?
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Global HR Compliance in Iceland

If you hire international workforce, or plan to hire, then Hiring and Firing Workforce in Iceland Guide below will help you understand the nuances of labor legislation in the country.

There are two main reasons for companies hiring foreign workforce:

  • Expanding into foreign markets to sell company product or products there. In this case, companies hire sales representatives who would exclusively represent their product in the target market and sell it to their local client base.
  • Hiring the right foreign talent with a unique expertise, often related to IT sphere that cannot be found in the home country or that costs less compared to local specialist with similar skills.

After you have found the right candidate, the question is how to hire and provide compensation to this person so you as a business remain 100% compliant when working with global workforce. Another thing to consider is whether you want to keep the talent long-term and how you can do that.

If you need to hire foreign workforce in Iceland so you can expand there, then our Global Employer of Record solution may be of help. We help you legally hire and reward your foreign workforce by making them employees via a global employment outsourcing service. This is simple as employ your in-house workforce with the only difference that workers can live anywhere in the world and Acumen International would be their legal employer on your behalf. This means we would bear all employment risks, not you. Also, we manage bonuses, vacations, sick leave and can rent the office and a car for your foreign sales representatives if that is what you need.

With our solution, you can test new foreign markets before deciding whether you are going to get established there. You gain flexibility and expand with reduced costs, and easily withdraw from the unattractive countries.

We are experts in global workforce employment in Iceland, and our goal is to become your single provider. Instead of working with numerous local staffing agencies and legal advisors, Acumen International can solve your global business challenges and save you time, costs, and resources.

Our team of English-speaking professionals frees you from working through language nuances. Acumen International works 24/7 and can assist you whenever you need, regardless of time zones. Our goal is to create tailored labor solutions for you that are managed legally and in full compliance with the local employment laws.

With our knowledge and deep understanding of local nuances, you easily satisfy your need for skilled professionals in your global industry. With our qualified local partners, you can trust that your global workforce satisfies all local tax, social security, and immigration requirements in Iceland.

See the guide below for a general overview of labor rules and regulations in Iceland. Or contact us if you need to employ workers in Iceland or would like to get more details.

Hiring and Firing Workforce in Iceland Guide

# Employment contracts
If a worker is hired for longer than one month and on average for more than 8 hours per week, a written contract of employment must be made, or terms of employment confirmed by the employer in writing, no later than 2 months after the work began.

The majority of workers on the Icelandic labour market are employed on a full-time basis under an open-ended employment contract. Other employment arrangements, such as part-time work and fixed-term work are permissible and exist in various sectors of the labour market.

Part-time workers are according to a general provision in collective agreements to be treated equally as full-time workers on a pro-rata basis. Fixed-term workers are not to be treated in a less favorable manner than comparable permanent workers in respect of employment conditions, solely because they have a fixed-term contract or relation unless different treatment is justified on objective grounds.

# Minimum (Statutory) Employment Rules and Regulations in Iceland

# Hours of work:
Hours of daytime work are according to collective agreements defined as 40 hours pr. week, divided into five eight hours working days from Monday to Friday, and wages determined as weekly or monthly wages. Paid coffee brakes, usually 35 minutes, are included in the 8-hour work day.

Day time hours usually start at 07:00 (general workers, industrial workers) but the time they end differs based on what collective agreement applies. For general workers, it ends at 17:00 hours but for industrial workers it is usually at 18:00 hours.

The decision as to when during this period of daily hours, the workers shall work their 8 hours day time work is made at each workplace by the workers and their employer.

# Probation period:
Generally, an engagement is initially probation, the probationary period being six months. This allows time to assess whether the position will be suited to the employee on a permanent basis, and vice versa. It should be a priority to use the probationary period well to assess this, e.g. by conducting an interview.

# Annual leave:
The Act provides for a minimum of two working days’ holiday for each month in employment during the past holiday allowance year (May 1st to April 30th), two weeks or more constituting one month in this respect, shorter periods not being counted. The minimum holiday for each year is therefore 24 working days. Sundays and other public holidays do not count as holidays in this respect, nor the first five Saturdays during holidays. This rule applies regardless of the worker being employed by one or more employers during the past holiday allowance year.

Collective agreements contain provisions on broader leave entitlement according to the worker’s length of service. In the collective agreements signed by ASI and SA in February 2008 provisions were made regarding longer vacations. Entitlements for longer vacations are achieved much quicker than before. Thus it should be noted that by the time present union contracts expire, vacation entitlement extends by 30 days after 10 years of work for the same company.

Absence from work due to sickness or accident while the worker is receiving wages, or is on holiday, constitutes working hours for the purpose of calculating the number of holidays.

# Parental leave:
Parents that are active on the labour market have a right to be granted maternity/paternity leave and parental leave according to Act No. 95/2000. The same applies to parents who are self-employed and to parents who are not active on the labour market and parents attending full-time educational programs as to receiving a maternity/paternity grant.

The aim of the Act is two fold:

  • to ensure children’s access to both their parents
  • to enable both women and men to co-ordinate family life and work outside the home.

Employers are obliged to make efforts to meet workers’ wishes with regard to the taking of maternity/paternity leave. Both parents have an equal, non-transferable, right to take three months’ leave in connection with the birth, first-time adoption, or fostering of a child irrespective of whether they work in the private or the public sector, or are self-employed. They are also able to divide a further three months’ leave between themselves as they wish. Each parent is entitled to unpaid independent parental leave for 13 weeks to care for his/her children. This right is non-transferable.

Parental leave is not accompanied by payment from the Maternity/Paternity Leave Fund. The right to parental leave ends when the child reaches the age of eight years. A worker acquires the right to parental leave after completion of work for six consecutives months by the same employer. A worker who intends to exercise his right to parental leave has to notify his employer thereof in writing, as soon as possible, and at the latest six weeks prior to the first day of the intended leave. The worker has to state the starting day of the intended leave, its length and its structure.

The employer shall record the taking of parental leave, enabling the worker to obtain a certificate stating the number of days of parental leave if he/she wishes to do so.

# Sick leave:
A worker, who is unable to perform his normal duties at work due to sickness or accidents occurring in the worker’s free time, is entitled to wages from his employer for a certain period of time. Minimum rights of workers are regulated in the Act Respecting Labourers’ Right […] to Wages on Account of Absence through Sickness and Accidents No. 19/1979, and further improved upon in collective agreements.

The minimum rights during the first year of service with an employer are 2 days in respect of each month. After one year of employment an worker is entitled to total wages for 1 month out of every 12 months, after three years with the same employer 1 month of total wages and 1 month with day wages out of every 12 months, and finally after five years with the same employer 1 month of total wages and 2 months with day wages out of every 12 months.

# Overtime:
Overtime pay is paid for work in excess of 8 hours per day and 40 hours per week. Work performed outside day time hours is remunerated with overtime pay. It is not permitted to pay day-time wages for work performed during hours outside day-time hours even though the worker in question has not done his full 8 hours in day-time.

Overtime is paid at an hourly rate equaling 1.0385% of the monthly wages for regular day work. If the monthly wages of a construction worker amount to ISK 204.000, for example, the hourly overtime pay is ISK 2.118,54 and the hourly pay for work on major holidays is ISK 2.805,00.

# State minimum salary:
Iceland has no government-mandated minimum wage. However, minimum wages are negotiated in various collectively bargained agreements and applied automatically to all employees in those occupations, regardless of union membership; while the agreements can be either industry- or sector-wide, and in some cases firm-specific, the minimum wage levels are occupation-specific.

# Employee dismissal:
The principal rule in Iceland is that employers and employees are equally authorized to cancel employment contracts without stating the reason for this. Employees are generally hired without time limits, in which instance the employment contract is cancelled with a termination notice period as stated in the collective agreements. The employment termination notice is mutual and such employment cancellations shall be in writing and in the same language as the employee’s employment contract. The employee has the right to an interview regarding the end of his employment and the reasons for the termination of his employment and can request them to be stated in writing. A request for the interview shall be given within 96 hours from the employees’ knowledge of the contract ́s termination. Should the employer fail to fulfil the said request the employee is entitled to another interview with the employer in the presence of his or her union steward or other representative of the union, should he or she request so.

The freedom of the employer to terminate the employment contract is in certain cases restricted by law.

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