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In Iceland, the applicable minimum wage is complex. There is no national minimum wage by law. Instead, the minimum wage is determined by which Trade Union an employee is part of. Trade Unions determine minimum wage based on the age of the employee and job type.

CBA Mandatory Salary Increases:

Employees in Iceland may be entitled to salary increases depending on whether they have joined a Union and the respective CBA. For 2025, most CBAs in Iceland will require employees’ salaries to be increased annually by 3.5%, with a minimum of ISK 23,750.

The individual income tax ranges from 31.48% to 46.28%. Income tax is calculated according to progressive rates. Multiple additional factors may impact overall rates such as the household status and the number of children.

The employer cost 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%

These costs are provided as estimates and are intended solely for general informational purposes. To fully comprehend all associated costs and fees related to the terms of any employment agreement for this country, please contact our Sales team for a quote.

Standard working hours are 8 hours per day, 40 hours per week. The standard workweek is from Monday to Friday. For Deel EOR employees, the standard working hours are 36,75 hour per week with 7,35 hours per day.

Overtime payment is mandatory and cannot be included in the salary. Hours outside of standard work hours are considered overtime. Employees can work a maximum of 162.5 hours of overtime a month. For additional hours, employees are paid:

• 0.875% of the hourly rate, the first 162.5 hours of overtime a month.
• 1.0385% of the hourly rate, the first 162.5 hours of overtime a month if they work from home.

Overtime payment is not mandatory for managerial roles in Iceland.

Terminations must respect complex rules and the rules of an employee’s employment country. The off-boarding is always handled by the Employer with the primary stakeholders. It may include ad-hoc fees as well as required or recommended steps on specific termination cases.

Terminations in Iceland can be complex. There is no at-will termination in Iceland for employers outside the probation period and termination must be done for just cause.

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

The minimum notice period is 7 days and will be increased according to the length of the employment.

• 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

PTO and accrual rates for full-time employees vary depending on how long the employee has been employed. 

Part-time employees are entitled to a prorated portion of PTO.

Iceland celebrates 12 national holidays a year.

National public holidays include:

1. New Year's Day
2. Good Friday
3. Easter
4. The First Day of Summer
5. Labor Day
6. Pentecost
7. Fishermen's Day
8. Icelanders' National Holiday
9. President's Birthday
10. Icelandic Language Day
11. Sovereignty Day
12. Christmas Day

Contracts can be in English or Icelandic. They must be in writing and signed by both parties. All employment contracts are according to the trade union.

A contract must include:

• Name
• Start date
• Length of the employment
• Job description
• Termination conditions.