Guide to employment, payroll and benefits in


Rivermate offers complete payroll, benefits and compliance services for


01. Overview

Last updated: 

August 19, 2021

Iceland Krona
Ease of doing business
GDP growth

02. Grow your team in


with Rivermate

Payroll, benefits, taxes, and compliance can be difficult to manage in


, particularly if you don't have established local relationships. You can hire employees in


effectively, conveniently, and in full compliance with all relevant labor laws using Rivermate's global employment solution. We handle the responsibilities and legal risks associated with foreign employment so you can concentrate on growing your company.

03. Summary

Iceland is a Nordic island country in the North Atlantic Ocean, with a population of 356,991 people and a land area of 103,000 km2. It is Europe's most sparsely populated country, with a population of 356,991 people and a land area of 103,000 km2. Reykjavik is the capital and largest city of Iceland. Over two-thirds of Iceland's population lives in Reykjavik and the surrounding areas in the southwest. Iceland is a hotspot for volcanic and geological activity. The interior is made up of a plateau of sand and lava fields, mountains, and glaciers, and the lowlands are home to several glacial rivers that flow to the sea. Despite its high latitude just outside the Arctic Circle, Iceland is warmed by the Gulf Stream and has a temperate climate. Summers are cool due to the high latitude and maritime presence, and most of the islands have a polar climate. The settlement of Iceland started in 874 AD, according to the ancient manuscript Landnámabók, when the Norwegian chieftain Ingólfr Arnarson became the first permanent settler on the island. Norwegians, and to a lesser degree other Scandinavians, emigrated to Iceland in the following decades, taking with them thralls of Gaelic descent. The Althing, one of the world's oldest operating legislative assemblies, ruled the island as an autonomous commonwealth. In the 13th century, Iceland acceded to Norwegian rule after a time of civil strife. In 1397, the Kalmar Union was formed, bringing together the kingdoms of Norway, Denmark, and Sweden. After Sweden's separation from the union in 1523, Iceland followed Norway's entry into the union and came under Danish control. Despite the Danish kingdom's forceful introduction of Lutheranism in 1550, Iceland remained a remote semi-colonial region with few Danish institutions and infrastructures.In the aftermath of the French Revolution and Napoleonic Wars, Iceland's struggle for independence took shape, culminating in independence in 1918 and the establishment of a republic in 1944. Although the island republic's parliament was suspended from 1799 to 1845, it is credited with being the world's oldest and longest-running parliament. Iceland depended heavily on subsistence fishing and agriculture until the twentieth century. Following World War II, industrialization of the fisheries and Marshall Plan aid brought prosperity, and Iceland became one of the world's richest and most industrialized countries. In 1994, it joined the European Economic Area, broadening its economic base to include sectors such as banking, biotechnology, and manufacturing. Iceland has a market economy with low taxes compared to the rest of the OECD, as well as the world's largest trade union membership. It maintains a Nordic social welfare scheme for its residents, which includes universal health care and tertiary education. Iceland ranks third in the world in terms of median wealth per adult, economic, political, and social stability, as well as equality.

04. Public holidays

05. Types of leave

Paid time off

Employees are entitled to at least 24 days of paid annual leave, but collective agreements may provide for more. Employees frequently take vacation time during the holiday season, which runs from May 2 to September 15.Employees are also paid a holiday allowance, which is usually paid at the start of the vacation or on a monthly basis. The vacation pay is deposited into a separate bank account.

Public holidays

The following public holidays are observed in Iceland:New Year’s DayMaundy ThursdayGood FridayEaster MondayFirst Day of SummerLabor DayAscension DayWhit MondayIcelandic Republic DayCommerce DayChristmas EveChristmas DayBoxing DayNew Year’s Eve

Sick days

During the first year of employment, employees are given two sick days per month. Employees often become entitled to more sick leave as they work for an employer for longer periods of time, and collective bargaining agreements may provide for additional sick leave. If the employer requests it, the employee must notify the employer of his or her illness as soon as possible and provide a doctor's note. Employees are also entitled to paid sick leave to care for sick children under the age of 13 under many collective bargaining agreements. Employees who are unable to work because of illness may be eligible for social security benefits.

Maternity leave

After the birth or adoption of a child, both male and female employees are entitled to five months of paid leave. They also get two additional joint months, which can be split between them or taken by only one parent if they prefer. The leave must be used before the child reaches the age of 18 months.Employees can also take up to 13 weeks of unpaid parental leave if they have a child under the age of eight.

Paternity leave

There is no statutory paternity leave in Iceland.

Parental leave

Other than the already mentioned terms regarding maternity leave in Iceland, there are no other provisions regarding parental leave.

Other leave

06. Employment termination

Termination process

Terminations must be in writing and take effect at the start of the following month.

Notice period

The notice time is usually between one and three months, however a collective agreement may provide for lengthier notice periods.

Severance pay

Severance is not needed but may be provided in accordance with the terms of the agreement.

Probation period

Probation periods in Iceland last for three months.

07. Working hours


Iceland's standard workweek is 40 hours. The majority of employees work eight-hour days, five days a week. Employees may not work more than 48 hours per month on average.


Employees who work more than their regular hours are entitled to overtime pay or compensatory time off.

08. Minimum wage


Iceland has no official minimum wage. Minimum wages, on the other hand, are determined by collective bargaining agreements that typically cover a single economic sector.

Even though Iceland has no official minimum wage, we can estimate what lower-wage jobs pay in the country. The Efling, Iceland's largest labor union, has its own minimum wage figures. As of 2021, the minimum monthly salary in Efling is 351,000 ISK for a full-time position.

While this may not apply to all Icelandic workers, it is a fairly standard figure for the country. These are gross figures for employees who are at least 18 years old and have worked for the same employer for at least six months. As of 2020, the minimum salary of 351,000 ISK is approximately equivalent to 2720 USD.

09. Employee benefits


Iceland has a national healthcare system that is open to all citizens and legal residents who have lived in the country for at least six months. The national system provides almost all medical care, but there are a few private providers.

10. Why Rivermate as your Employer of Record / PEO?

Establishing an entity in


to hire a team takes time, money, and effort. The labor law in


has strong worker employment protection, requiring great attention to details and a thorough awareness of local best practices. Rivermate makes expanding into


simple and effortless. We can assist you with hiring your preferred talent, managing HR and payroll, and ensuring compliance with local legislation without the hassle of establishing a foreign branch office or subsidiary. Our PEO and Global Employer of Record solutions in


give you peace of mind so you can focus on running your business.

Please contact us if you'd like to learn more about how Rivermate can help you hire employees in


via our Employer of Record / PEO solution.

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