Iceland Employment Guide

Iceland, located in the North Atlantic, has a population of about 370,000. Its economy is driven by fisheries, tourism, renewable energy, and technology. Employment in Iceland is regulated by labor laws that cover working hours, minimum wages, leave entitlements, and employee protections. Collective bargaining agreements are common and play a significant role in setting wages and conditions. Employers must comply with mandatory social security contributions, pension plans, and workplace safety regulations. Iceland offers a stable labor market for both local and international employees.

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Currency

Icelandic Króna (ISK)

Capital

Reykjavik

Official language

Icelandic

Salary Cycle

Monthly

Our Employment Guide in Iceland

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Understanding Iceland's Minimum Wage Structure

Iceland's approach to minimum wage differs significantly from many other countries. Rather than implementing a nationwide statutory minimum wage, Iceland relies on a system where trade unions negotiate minimum compensation levels based on specific factors such as employee age and occupational category.

Mandatory Salary Increases Through Collective Agreements:

Employees in Iceland may be entitled to annual salary increments depending on their union membership status and applicable collective bargaining agreements. For 2025, most collective agreements stipulate a minimum wage increase of 3.5% annually, with a floor increase of 23,750 ISK.

Iceland's Personal Income Tax System

Iceland employs a progressive income tax system with rates ranging from 31.48% to 46.28%. The final tax liability is influenced by multiple factors including marital status and number of dependents, making personalized tax planning essential for foreign workers.

Annual Income Range (ISK)	Tax Rate (%)
0-446,136	31.48%
446,137-1,252,501	37.98%
Over 1,252,501	46.28%

Employer Costs in Iceland

Companies employing staff in Iceland should anticipate additional costs averaging 22.07% of gross salary. These mandatory contributions include:

Pension Fund - 11.5%
Social Security - 2.0%
Insurance Premium - 6.92%
Sick Leave Fund - 1.0%
Training Levy - 0.3%
Vacation Property Fund - 0.25%
Recreational Fund - 0.1%

For precise calculations tailored to your specific employment arrangements, SailGlobal's HR experts provide detailed cost breakdowns.

Working Hours and Overtime Regulations

Standard working hours in Iceland typically follow an 8-hour daily and 40-hour weekly pattern, Monday through Friday. SailGlobal EOR employees benefit from a slightly reduced schedule of 36.75 hours weekly (7.35 hours daily).

Overtime compensation is mandatory and cannot be incorporated into base salary. The regulations distinguish between:

Standard overtime: 0.875% of hourly rate for first 162.5 monthly hours
Remote work overtime: 1.0385% of hourly rate for first 162.5 monthly hours

Managerial positions are generally exempt from overtime payment requirements, though specific role definitions should be verified.

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