Currency
Icelandic Króna (ISK)
EOR IN Iceland
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A guide to employing and growing your team in Iceland
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Iceland, in particular, has managed an incredible feat by holding the #1 spot on the Global Peace Index every single year since 2008. Iceland is often cited as the best place in the world to be a woman. It consistently tops the World Economic Forum’s Gender Gap Index. Iceland’s labor market is characterized by exceptionally high trade union density (approx. 90%) and a robust “Nordic Model” of social welfare. Employment conditions are primarily governed by Collective Bargaining Agreements (CBAs) rather than a single statutory labor code. As of 2026, Iceland does not have a single national minimum wage; instead, minimum pay is determined by the specific union and industry the employee belongs to. However, in practice, wages rarely fall below ISK 368,000 per month for full-time adult workers.
Employer Contributions
Social Security Contribution: 6.35%
Mandatory Pension Fund: 11.5%
Rehabilitation Fund: 0.10%
Total Employer Contribution: ~17.95%
Employee Payroll Taxes
Social Security Rate: 4.0%
Mandatory Pension Fund: 4.0% (Deducted from gross salary).
Income Tax (PAYE): Variable (Progressive brackets).
Total Employee Contribution: 8.0%
Employee Income Tax Rates
Iceland utilizes a progressive three-tier tax system.
Up to ISK 498,122: 31.49%
ISK 498,123 – ISK 1,398,450: 37.99%
Above ISK 1,398,451: 46.29%
Statutory Leave
Employees are entitled to a minimum of 24 working days of paid annual leave per year (accrued at 2 days per month). Iceland observes 13 to 15 public holidays annually. If a holiday falls on a weekend, it is typically lost, though many CBAs provide for “shorter” work weeks during holiday seasons (e.g., 37.5 hours).
Pregnancy and Maternity Leave
The Icelandic system is world-renowned for its gender equality. For children born in 2026, parents are entitled to a total of 12 months of parental leave. Each parent is granted 6 months, of which 6 weeks are transferable to the other parent. The mother is legally required to take the first two weeks following childbirth. During this leave, parents receive 80% of their average income, capped at ISK 600,000 per month, paid by the Maternity/Paternity Leave Fund.
Paternity Leave
As noted above, fathers (or non-birthing parents) have an equal individual right to 6 months of leave. This leave is protected by law, and an employee cannot be dismissed for taking it. It can be taken in a single period or split, subject to agreement with the employer.
Work-Related Injury Leave
Sick Leave: Entitlements are strictly governed by CBAs. Generally, during the first year, an employee earns 2 days of paid sick leave per month. After one year, this usually increases to 2 months of full pay per year.
Temporary Parental Leave: In addition to birth leave, each parent is entitled to 16 weeks of unpaid leave per child until the child reaches age 8.
Termination Process
Dismissal must be conducted in writing and, while “at-will” dismissal exists, it must not be discriminatory or in violation of CBA protections. For union members, the employer must often provide a reason if requested. Unlike many EU countries, there is no statutory “severance pay” unless specified in the CBA; the employee is simply paid through their notice period.
Notice Period
Notice periods are tenure-based and usually mirror the following:
Probation: Often 1 week to 1 month.
After 1 year: 1 month.
After 3 years: 2 months.
After 5 years: 3 months.
Probation Period
The standard probation period in Iceland is 3 months, though this can vary by union agreement. During this time, the notice period is usually shorter, allowing both parties to terminate the contract easily if the fit is not correct.