Make sure to review your contract in writing and sign it within two months before beginning your employment. Please check your employment contract for your personal rights and know which union and collective wage agreements apply to you. The aim here is to give you an idea of what to expect while employed in Iceland.
The details listed here are the minimum rights for office workers based on the collective agreements of the VR Union and the SA Confederation of Icelandic Enterprise. These websites have information relevant to working in the service industry, in a shop, wait staff, bartender, hotel employee, or related. If you are working in construction, as a builder, plumber, electrician, or similar in Iceland, you will find more information about your general rights on this site from the Directorate of Labour.
For further information on Icelandic Labour Law, refer to The Icelandic Confederation of Labour (ASÍ). On the sidebar on the left-hand side, you will find the rules regarding contracts, wages, holidays, sickness, rest time, gender equality, maternal and paternal rights, health and safety, and more.
Office hours and lunch breaks
A normal office workweek in Iceland is Monday through Friday, 8 hours per day. That is 37.5 hours per week, including lunch (usually a half-hour to one hour), equaling a 40-hour workweek. Additionally, you are entitled to a 15-minute "coffee" break. Most offices start working between 8 and 10 AM. It is illegal for employers to schedule a workday that is longer than 13 hours.
You also have the right to a minimum rest period of 11 hours of continuous rest per 24 hours. For example, if you are traveling for work and arrive home late in the evening, your workday will start 11 hours later, even after your usual scheduled start. Depending on your contract, Sundays should always be free, and usually Saturdays too.
Here is where your contract really matters. All work after eight hours per day is considered overtime unless your contract includes overtime explicitly. If your contract stipulates overtime, you can ask your employer to specify how many hours are included before overtime pay starts.
Overtime is calculated as 0.875% of your monthly salary per hour for the first 162.5 hours of overtime per month.
If you work more, the rate changes to 1.0385% of your monthly salary per hour of overtime worked. Overtime is during night shifts (between midnight and 7 AM) the first 162.5 hours are calculated at the rate of 0.9375% of your monthly salary.
It is possible to request overtime as extra holiday days instead of pay, in which case one hour of overtime translates to one hour and forty minutes of a holiday. If you are called into work on a Saturday or Sunday, you are entitled to four hours overtime pay for showing up, even if the task at hand only takes a half-hour to complete.
For your first year with a new employer, you are entitled to two sick days of sick leave per month. After one year, you are entitled to two months away from work due to illness. Your employer has the right to demand a note from your doctor to verify your illness. To obtain one, contact your local health care clinic (heilsugæsla).
After five years, you are entitled to four months of sick leave and six months after ten years. If you change employers after five years, you are still entitled to at least two months of sick leave with your new employer.
During the first six months at a new job, you are also entitled to two days each month you have worked with your employer for children's sick leave if your child is under the age of 13. After the first six months, children's sick leave rights become 12 days per year.
You have rights to occupational injury insurance from Icelandic Health Insurance in the case of a work-related accident.
While working in Iceland, you accumulate paid holiday. The minimum holiday you are entitled to per year is 24 weekdays of paid leave. Holiday pay is 10.17% of total wages. After five years in the same line of work, it increases to 25 weekdays. It is paid at 10.64% of total wages. After five years with the same employer, it increases to 27 weekdays and is 11.59% of total wages. After ten years with the same employer, it is 30 weekdays and 13.04% of total wages.
There are 16 public holidays (rauðir dagar) per year in Iceland, most of them right around Christmas and Easter. If you are asked to work on a public holiday, you will be paid 1.375% of your monthly salary for each hour worked on that day.
Christmas and holiday bonuses
Fixed Christmas bonuses are payable on December 1st, and holiday bonuses are payable in summer, between May 1st and August 15th. If you have only worked for part of the year, your bonus will be proportional to your time.
Termination of employment
Either the employee or the employer has the right to terminate the employment contract. However, notice must be given in writing, and the resignation period commences at the start of the next month. The termination period usually lasts three months, unless both parties agree to a different date. The employer does not need to state a reason for the termination of an employee, but you may request a meeting to discuss your termination. Unless otherwise agreed upon, you are expected to continue your work during your resignation period.
Health and safety in the workplace
Employers must provide a safe and healthy working environment.
If you are unsure whether your work environment complies with these standards, contact the Administration of Occupational Health in Iceland (Vinnueftirlitið). See also the Legislation on Health and Safety.
The exact amount of your union fees will depend on what union (stéttarfélag) is responsible for the applicable collective agreement that regulates your minimum rights. Expect it to be around 0.7-1% of your salary. Your employer will also pay the various union welfare dues (including sick, holiday, education, and rehabilitation funds) to provide you with extra benefits under the collective wage agreements.
Identify those unions that other employees in similar positions to you have. Most likely, this union will best represent you. Your employment contract will stipulate which union applies to you. You can choose whether you become a full member of that union (with voting rights and the right to stand for office). For some unions, you must apply to become full members, although this is only a formality, and acceptance is not an issue.
The union you choose will have a website with all the details about the average salary for your position, your rights, various funds, and often information about the gender pay gap in your profession. For a work permit in Iceland, the relevant union must approve that your salary and benefits are according to the applicable collective agreement and that your employment contract is fair and comparable to the local workforce in similar jobs.
You are entitled to many benefits as a union member. Familiarize yourself with your union's website—even visit their office— to learn about the benefits. Often, these include affordable summer house rentals, partial reimbursement for gym memberships, continuing education funds, support for job-related training, and entitlements if you are unable to work because of injury or illness.
For further information, visit the Icelandic Confederation of Labour.
Pension fund premium
Mandatory pension fund payments
Your minimum contribution to a pension fund is 4% of your total wages. Your employer will pay a minimum contribution of 8% or more of your total salary, often 11.5%. The exact amounts will be stated on your payslip. Your pension contributions are decided by your collective wage agreement or by you opting for a particular fund. The pension fund must be active in Iceland. FAQ about pensions.
Additional pension savings (Viðbótarlífeyrissparnaður, séreignarsparnaður).
You are allowed to make a higher contribution to your pension fund than 4%, max 8% (of which 4% is to the compulsory pension saving account and 2% or 4% to the additional pension saving account). If you do so, your employer is forced to contribute 2% extra to your additional pension savings. Many select this option and look at it as a salary raise. In recent years, it has been possible to use this extra payment, the specified additional pension savings, to pay down housing loans faster, and to utilize it when purchasing one's first apartment. The main benefit being that the payment is made without deducting income tax first.
Income tax on pensions
Icelandic pension can be paid out starting between ages 60 and 70, depending on your pension fund. The usual pension-taking age in Iceland is 67. You pay income tax on Icelandic pensions, your personal tax credit can lower the tax burden if you reside in Iceland. If you live abroad, it will depend on your country of residence and whether this income will be taxed in that country or Iceland.
Leaving Iceland and pensions
If you are a national of the European Economic Area (EEA), your pension fund payments will remain in the Icelandic pension fund system. You will have the same rights regarding them as Icelanders. You will need to apply for this pension when you reach the appropriate age (60 at the earliest) and have an active Icelandic bank account to receive the deposits. Payments will not be paid automatically, you must apply. If you are a foreign national from a state outside of the EEA, EFTA, and the Faroe Islands, you may apply for a refund of these payments when you leave Iceland.
Here is a list of pension funds operating in Iceland, certain funds are related to specific industries or towns, others will accept any members. Your employer can tell you which pension fund most employees at the company are members of. To compare pension funds, you can do so at the Icelandic Pension Funds Association.