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Employment contracts in Iceland
Iceland’s labor laws allow verbal contracts in some cases. If the length of employment is longer than one month or more than 8 hours per week, employers will have to provide a written contract. This agreement should cover a variety of details, including:
- Identities of both parties
- Location of employment
- Description of work
- Start date and duration
- Pay schedule
- Working hours
- Holiday entitlement
- Termination policy
- Collective agreement terms
Working hours in Iceland
In Iceland, the standard workweek is 40 hours, 8hours a day, from Monday through Friday. Full-time workers are entitled to a 1-hour unpaid lunch break and 1 paid 15-minute coffee break each day. Collective agreements may specify different workdays, hour limitations, or break provisions for employees in specific sectors.
Employees have the right to a minimum uninterrupted break or rest period of 11 hours within a 24-hour timeframe. In practical terms, it ensures that after completing their work, employees have at least an 11-hour gap before starting their next shift or duty. Rest days are usually on Saturdays and Sundays.
Overtime is defined as any hours beyond the typical 40-hour week. Employees are not obligated to work overtime hours, but they may agree to do so. A workday must not exceed 13 hours, and overtime wages equal 0.875% of the employee’s monthly salary per hour for the first 162.5 hours. After that, overtime wages equal 1.0385% of monthly wages.
Vacation leave in Iceland
Employees accrue at least 2 days of holiday for each month of employment during the holiday year, which runs from May 1 to April 30. The minimum holiday entitlement is therefore 24 days a year, based on the full-time job ratio.
The number of holidays increases with age for public sector employees, and the increase is based on length of service in the labor market. Arrangements differ between collective wage agreements.
Employees are entitled to take their entire holiday allowance at once during the period between May 2 and Sept. 15, unless otherwise provided for in collective wage agreements. Decisions concerning holidays, however, must always be made in consultation with the employer and take the nature of the operation into account.
Holiday allowance is calculated at each payment of wages and is at least 10.17% of the total wages. This proportion may be higher according to some collective wage agreements.
Holiday allowance can be paid either at the beginning of the holiday period or throughout the holiday period, in which case it is paid at the same time wages are usually paid.
Sick leave in Iceland
Employees earn sick leave payments based on how long they’ve worked with an employer. The labor laws outline the minimum sick day requirements and the additional sick day provisions set by the various trade unions in the country. The minimum requirements are:
- 2 days of sick leave per month within the first year worked
- 2 months of sick leave after the first year worked
- 4 months of sick leave after 5 years worked
- 6 months of sick leave after 10 years worked
Regarding children’s sick leave, employees are entitled to 2 days per month within the initial 6 months of employment, provided the child is under the age of 13. After 6 months, children’s sick leave rights become 12 days per year. Keep in mind that employers are entitled to request a medical note from the employee’s doctor to confirm the illness.
Public holidays in Iceland
If employees work on public holidays, they are entitled to overtime pay at 1.375% of monthly wages. The main holidays in Iceland are:
- Maundy
- Good Friday
- Easter Monday
- First Day of Summer
- Labor Day
- Ascension Day
- Whit Monday
- Independence Day
- Commerce Day
- Christmas Eve
- Christmas Day
- Boxing Day
- New Year’s Eve
Parental leave in Iceland
Parents can take 3 months of leave for birth, adoption, and fostering. They also receive an additional 3 months to divide between them. Wages during this time are equal to 80% of standard pay. Parents also receive 13 weeks of unpaid leave to use as they see fit.
Termination and severance in Iceland
Employers and employees have the right to terminate a contract at any time without reason. However, an employee may request a meeting with the employer to learn about the reason for termination. Employers must provide 96 hours of notice for this meeting.
The terminating party must provide notice in writing and deliver it to the opposing party. While notice periods may vary based on collective agreements, the most common notice period is 3 months. The minimum notice requirements are:
- 1 month of notice for 1 year of service
- 2 months of notice for 3 years of service
- 3 months of notice for 5 years of service
In Iceland, the standard probationary period is 3 months. During the probationary period, an employer can terminate the employment by providing 1 weeks’ notice.
The labor laws do not detail any required severance payments. However, collective agreements in some sectors may include severance requirements.
Taxes in Iceland
Iceland operates on a progressive tax system. Employees and employers also make compulsory pension fund contributions.
For 2023, the tax brackets in Iceland were as follows:
| income | tax percentage |
|---|---|
| ISK 0 – 409,986 | 31.45% |
| ISK 409,987 – 1,151,012 | 37.95% |
| ISK 1,151,012+ | 46.25% |
Health insurance in Iceland
The country has national healthcare coverage for citizens, so employers are not obligated to pay for private insurance. However, employers are responsible for covering injury expenses that occur on the job.
Bonuses and additional benefits in Iceland
Employers must provide a Christmas bonus in December and a holiday bonus between May 1 and August 15.
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