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Employ Candidates Compliantly in Iceland

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  1. Overview: Iceland
  2. Global PEO and payroll
  3. Global HR Compliance
  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 in Iceland Guide

#Employment Agreements

Permanent employment contract 

The contract/statement must include the following information:

  • Identities of the parties.
  • The place of work and domicile of employer; where there is no fixed or main place of work, the principle that the worker is employed at various places.
  • The title, grade, nature or category of the work for which the worker is employed, or a brief specification or description of the work.
  • The date of commencement of the contract or employment relationship.
  • In the case of a temporary employment, the duration thereof.
  • Holiday entitlement and holiday allowance.
  • Length of the notice periods to be observed by the employer and the worker.
  • Monthly, bi-weekly or weekly pay, other wage items and the frequency of payment of the remuneration to which the worker is entitled.
  • Length of the worker’s normal working day or week.
  • Pension Fund affiliation.
  • The collective agreement governing the worker’s terms and conditions of work and the relevant Trade Union.

Fixed-term contract

Fixed-term workers are not to be treated in a less favourable 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. The use of successive fixed term contracts is to be limited. The Act on Fixed Term Employment prohibits the extension or renewal of fixed term agreements in the case they last continuously for a period longer than two years. It is nonetheless allowed to renew fixed term contracts of managerial personnel which have been completed for a period of four years or longer, for the same period each time.

#Employment Termination and Severance Pay (Dismissal)

If employee wasn’t to resign, it must happen via a formal resignation in writing. Collective agreements state the notice period. The notice period starts at the beginning of the next month. Employee must work through the notice period and maintain all rights during that time as a regular worker. Employers have greater flexibility to terminate employment in Iceland than in most other European countries. Dismissals can be with or without cause, and no specific reason is required. A statutory minimum notice period is generally required by collective agreements. Employers can dismiss employees without notice, provided that there is a legitimate cause, and the employee has received prior warning.

#It is prohibited to dismiss

Employers cannot dismiss a worker because he or she has given notice of intended maternity, paternity or parental leave or during maternity, paternity or parental leave without reasonable cause. The same rule applies to pregnant women and women who have recently given birth. An employee may not be dismissed solely due to family responsibilities. Trade union members are protected against dismissals which are based on their duties as union representatives.

#Notice period

Employees are entitled to a statutory minimum notice period

  • After one year of continuous employment with the same employer – one month’s notice.
  • After three years of continuous employment with the same employer – two months’ notice.
  • After five years of continuous employment with the same employer – three months’ notice.

An employee who is entitled to one of the above notice periods must give the same notice if he or she wants to terminate his or her employment. 

Collective agreements contain provisions on notice periods which are applicable during and after the first year of employment. The length of an employee’s notice period varies between collective agreements but is usually three months for long-term employment. Employers must respect the rules on notice of termination, unless the employee has, by intent or gross negligence, seriously violated the employment contract. Serious violations can justify rescission of the employment contract. Employees who are deprived of their right to notice of termination can claim damages equivalent to his or her loss during the notice period.

#Severance payments

Severance pay is not typically provided beyond the agreed salary during the notice period, unless otherwise agreed by the parties.

#Employee Benefits and Contributions

Mandatory benefits required by law to be provided by an employer: annual holiday leave, public holidays entitlement, Christmas and Holiday bonus payment, sick leave, maternity and paternity leave, mandatory pension fund contribution.

Non-mandatory benefits that are offered by an employer: free transportation back and forth to work, free meals, performance-based bonuses.

#Probationary period

Probation period is typically 3 months in an indefinite contract.


It is possible to request overtime as extra holiday days instead of pay, in which case one hour of overtime translates to one hour and forty minutes of a holiday. If you are called into work on a Saturday or Sunday, you are entitled to four hours overtime pay for showing up, even if the task at hand only takes a half-hour to complete. Special provisions apply for overtime under collective agreements.

#Work hours

Icelandic law sets a general rule, defining a full job as five 8-hour days per week, or 40 hours in total. However, the collective agreements of the individual unions define in detail how the working time of workers should be organized. Active working time for workers and craftsmen is 37. 5 hours per week. Other working hours should be paid with overtime pay.

#Annual leave

The minimum holiday for each year is 24 working days. Sundays and other public holidays are not count as holidays in this respect; nor are the first five Saturdays during holidays.

#Sick leave

The minimum requirements expanded upon within collective agreements:

  • During their first year of service with an employer, employees are entitled to two days of sick leave each month.
  • After one year of employment, employees are entitled to their full wages for one month out of every 12 months.
  • After three years of employment, this increases to one month of full wages and one month of day wages every year.
  • After five years of employment with the same employer, employees are entitled to one month of full wages and two months of day wages every year.

#Parental leave

Parents who are active on the labour market have a right to maternity or paternity leave and parental leave. Currently, maternity and paternity leave in Iceland is 10 months with equal rights for the mother and father. A parent is eligible for payments from the Maternity/Paternity Leave Fund if he or she has worked on the domestic labour market for six consecutive months before the first day of his or her maternity or paternity leave.

Parents with a child under eight years old are entitled to 13 weeks of unpaid independent parental leave in order to care for the child. Parental leave is not accompanied by payment from the Maternity/Paternity Leave Fund. An employee can take parental leave after six consecutive months of employment with the same employer. The employment relationship must remain unchanged during maternity, paternity and parental leave.

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