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Benefits and Entitlements Overview

Learn about mandatory and optional employee benefits in Iceland

Mandatory benefits

Iceland has a comprehensive set of mandatory employee benefits established by law. These benefits ensure a strong social safety net for workers and contribute to a healthy work-life balance.

Iceland prioritizes worker well-being through generous paid leave entitlements. Here's a breakdown of the main categories:

  • Annual Leave: All employees accrue a minimum of 24 weekdays of paid annual leave per year. This entitlement increases with tenure, reaching 30 weekdays after ten years with the same employer.
  • Public Holidays: Employees are entitled to paid time off on all Icelandic national holidays.
  • Sick Leave: During their first year, employees receive two days of paid sick leave per month. This extends to two months of paid sick leave after one year with the employer, provided with a doctor's note. The duration of paid sick leave further increases with service time.
  • Parental Leave: Both mothers and fathers are entitled to parental leave.

Social Security Contributions

Employers in Iceland are required to withhold social security contributions from employee wages. These contributions fund various social security programs, including:

  • Unemployment Insurance: Provides financial support to unemployed individuals while they seek new employment.
  • Parental Leave Insurance: Contributes to income replacement during parental leave.
  • Bankruptcy Insurance: Offers protection to employees in case of employer bankruptcy.

Additional Mandatory Benefits

Beyond paid leave and social security, Icelandic law mandates other employee benefits:

  • Probationary Period: The law dictates a standard probationary period for new hires.
  • Overtime Pay: Employees working beyond standard working hours are entitled to overtime pay.
  • Notice Period: Both employers and employees must adhere to a minimum notice period when terminating employment.
  • Severance Pay: In some cases, employees may be entitled to severance pay upon termination.

Optional benefits

In Iceland, employers often provide optional benefits to their employees to attract and retain top talent, in addition to the country's comprehensive social safety net.

Health and Wellness

  • Private health insurance: Some employers offer private health insurance that covers additional services like dental care or vision correction.
  • Gym memberships or fitness subsidies: Many companies contribute to gym memberships or offer on-site fitness facilities, recognizing the importance of employee well-being.

Work-Life Balance

  • Flexible working hours: Icelandic companies often allow employees to manage their work schedules around personal commitments, embracing flexible work arrangements.
  • Generous vacation time: Many employers offer extended paid leave, promoting a healthy work-life balance, in addition to the statutory minimum of four weeks paid vacation.

Financial Security

  • Pension contributions: Some employers contribute additional funds to private pension plans for their employees, despite Iceland having a national pension system.
  • Profit sharing: Some companies offer profit-sharing schemes, allowing employees to benefit directly from the company's success.

Family Support

  • Childcare assistance: Employers might provide subsidies for childcare or on-site daycare facilities to ease the burden on working parents.
  • Parental leave top-ups: Some employers offer additional paid leave on top of the statutory minimum, despite Icelandic law guaranteeing generous parental leave.

Personal and Professional Development

  • Educational opportunities: Companies may offer tuition reimbursement or sponsor employees to attend conferences and workshops, fostering continuous learning.
  • Language courses: Given Iceland's position in the global market, some employers provide language courses to enhance employee communication skills.

Health insurance requirements

Iceland's universal healthcare system ensures all residents have access to necessary medical services. However, the legal requirements for health insurance coverage differ based on residency and employment status.

Icelandic Residents

Icelandic law mandates automatic enrollment in the national health insurance system for all individuals who have been legally domiciled in Iceland for six months or more. This applies to both Icelandic citizens and foreign nationals who meet the residency requirement. Dependents under 18 are automatically covered under their parents' health insurance plan in Iceland.

Foreign Employees in Iceland

For foreign employees in Iceland, health insurance requirements vary:

  • EEA, Swiss, and UK Nationals (Short-Term): For EEA nationals, Swiss citizens, and UK nationals who are temporarily posted to Iceland for work (less than two years), they can remain covered under their home country's social security system. An S1 certificate issued by their home country's social security administration needs to be submitted to Iceland Health (Sjúkratrygging Iceland) for registration in the Icelandic health insurance system. This certificate confirms their existing health insurance coverage in their home country.
  • Foreign Employees Outside EEA, Switzerland, and UK: Employees from outside the EEA, Switzerland, and UK must register for Icelandic health insurance upon starting employment. They will be automatically enrolled in the national health insurance system after fulfilling the six-month residency requirement.

Retirement plans

Iceland offers a two-tiered retirement system that combines a public pension from the Social Security Administration and mandatory occupational pensions.

Public Pension from the Social Security Administration

The Icelandic public pension provides a basic level of income security for retirees. Here's a breakdown of eligibility and key points:

  • Eligibility:

    • Must have resided in Iceland for at least three years between the ages of 16 and 67.
    • The amount received is proportional to residency years in Iceland, with a minimum of three years required.
  • Retirement Age:

    • Standard retirement age is 67.
    • Early retirement is not possible for the public pension.
    • You can defer receiving the public pension up to age 72, with benefits increasing slightly for each delayed month.
  • Pension Amount:

    • The full basic pension is around 33% of average worker earnings.
    • The amount is income-tested and may decrease if your income exceeds a certain threshold.

Mandatory Occupational Pensions

In addition to the public pension, employees in Iceland contribute to mandatory occupational pension funds through payroll deductions. Here's an overview:

  • Eligibility:

    • Automatic enrollment upon employment in Iceland.
  • Contributions:

    • Both employers and employees contribute a percentage of salary.
  • Retirement Age:

    • The normal retirement age is 67, though some funds allow claims from age 65.
    • Early retirement options may vary depending on the specific pension fund. There may be penalties for early withdrawal, such as reduced pension amounts.
  • Pension Amount:

    • The amount is typically based on your contributions and investment returns throughout your career.
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