Hire in Iceland

An employment agreement may include a probationary period lasting up to a maximum of three months.

In Iceland, a standard office work week spans from Monday to Friday, totaling 37.5 hours per week, with a half-hour lunch break. It is against the law for employers to schedule a workday exceeding 13 hours.

Employees are entitled to an uninterrupted rest period of 11 hours within each 24-hour cycle. Regardless of the nature of work and the employment contract, Sundays should consistently be designated as a day of rest.

Similar to other Scandinavian nations, flexible working arrangements are widespread in Iceland, provided they do not adversely impact business operations.

Work exceeding eight hours per day is classified as overtime, unless the employment contract explicitly states that the salary encompasses occasional overtime compensation. If an agreement specifies overtime, employees can request the employer to specify the threshold before overtime pay applies.

Overtime pay is calculated at 0.875% of the monthly salary per hour for the initial 162.5 hours of overtime per month. Any additional overtime, beyond 162.5 hours, is remunerated at 1.0385% of the monthly salary per hour worked.

Employees have the option to request overtime compensation in the form of additional holiday days instead of monetary payment. In this scenario, one hour of overtime equates to one hour and forty minutes of holiday time.

If an employee is summoned to work on a Saturday or Sunday, they are entitled to four hours of overtime pay merely for attendance. This rule applies irrespective of whether the task takes four hours or not.

Either the employee or the employer possesses the authority to terminate the employment contract. Nevertheless, written notice is obligatory, and the notice period initiates at the beginning of the subsequent month. Typically, the notice period spans three months, unless a different duration is mutually agreed upon, with the minimum period set at one month. While the employer is not obligated to specify a reason for termination, it must not violate any employee protections, such as dismissal due to pregnancy, trade union representation, family responsibilities, or absence due to illness. Throughout the notice period, employees are expected to fulfill their work responsibilities, unless an alternative arrangement is established.

Termination notices must be formally documented and align with the turn of the month. If an employee does not receive official dismissal notice by the last working day of the month, the notice period automatically extends to the commencement of the next month.

An employment terminated by either party remains in effect until the conclusion of the notice period. This implies that rights and obligations outlined in the agreement persist during this timeframe. However, the parties have the option to mutually agree to terminate the relationship before the designated notice period expires.

In Iceland, there is no legal entitlement to severance pay. Nevertheless, the employee remains eligible for their regular salary and additional contractual benefits throughout the notice period, in accordance with the terms of employment.

Furthermore, employers not bound by any Collective Bargaining Agreement (CBA) have the option to provide a severance package, encompassing elements such as severance pay, educational benefits, and relief from work duties. The calculation of any severance payment under such an arrangement typically considers a span of one to 24 months of salary, factoring in elements like seniority, age, social considerations, and other relevant factors. The right to these benefits usually hinges on the employee entering into a termination agreement, wherein they voluntarily forgo the option to pursue legal actions under the Employment Act. Termination agreements may be established either before the employee receives notice or after notice has been given, depending on the mutual agreement of the parties involved.

In Iceland, it is customary to have a notice period of three months, with a minimum allowable notice period of one month. There is no prescribed upper limit for the notice period.

Termination of employees is not uncommon in other sectors as well.

Non-Compete and Non-Solicit (Customer and Employee) Clauses

As per Icelandic law, post-termination restraint clauses outlined in employment agreements typically hold legal validity and are enforceable between employers and employees, a practice commonly observed in the Icelandic job market. Such clauses may lead to damages owed by the employee to the former employer and could be upheld through measures like injunctions.

Non-compete provisions are subject to reasonableness and must not excessively limit the employee’s freedom of employment. The clause involves a careful balancing act, weighing the employer’s interests against the employee’s right to pursue alternative employment. Generally, non-compete clauses are not legally binding for senior management employees beyond 12 to 24 months, as determined by case law.

Employees’ salaries during their employment should reflect any post-employment restrictions. In certain instances, employees may receive compensation during these restrictive periods, while in others, the salaries and benefits during employment justify periods of restriction without remuneration. This aspect is usually addressed in the employment agreement.

The law also provides for adoption leave of 12 weeks for women adopting a child under three months old. A commissioning mother, who provides her egg for embryo implantation in another woman, is entitled to 12 weeks of leave from the date the child is handed over to her. The woman giving birth, known as the host or surrogate mother, is not eligible for this leave.

Employers are required to inform female workers of their rights under the Act at the time of appointment, both in writing and electronically.

While paternity leave is offered to government employees, it is not mandated in the private sector, and its provision is at the discretion of the employer.

Every moment dedicated to the employer’s service must be documented as working hours. Employers are required to establish a systematic procedure for recording working hours, which should be communicated to the employees. The documentation of working hours must be transparent and easily comprehensible, typically including the commencement and conclusion times of each day or shift as a standard practice.

A significant portion of the employer-employee dynamic is regulated by Collective Bargaining Agreements (CBAs), and Iceland has three primary union federations.

The Federation of General and Special Workers in Iceland (SGS) operates as a federation of trade unions, covering both the private and certain segments of the public sector. SGS stands as the largest association of workers in Iceland, comprising 19 trade unions representing general and special workers, boasting approximately 53,000 members. Its five main branches include food and agriculture, building and construction, service and tourism, industry, and public services.

Samiðn is a nationwide federation of labor unions, with members engaged in various fields such as engine mechanics, hairdressing, metal mechanics, technical drafting, building industries, horticulture, and shipbuilding.

VM represents the Icelandic Union of Marine Engineers and Metal Technicians.

In Iceland, the prevalent employment arrangement is indefinite contracts for most employees, although fixed-term contracts are permissible.

The Icelandic Act No. 139/2003, on Fixed-Term Employment, establishes a framework to prevent potential abuse arising from the use of consecutive fixed-term employment contracts or relationships.

To mitigate the utilization of successive fixed-term contracts, the Act imposes a restriction, allowing such contracts for a maximum duration of three years. However, fixed-term contracts for managerial positions can extend up to four years.

When a new employment contract is either extended or established within three weeks of the completion of the previous agreement, it is considered as replacing the previous one.

Employees under fixed-term contracts are entitled to receive compensation and benefits on par with their counterparts with indefinite contracts, ensuring equal treatment.

The payslip must display detailed line items for every component of the gross salary and all deductions, ultimately arriving at the net salary.

In Iceland, vacation time is accrued in one year but taken in the following year. The vacation year spans from May 1 to April 30. Employees who have not completed a full year are entitled to a proportionate amount of vacation. In such cases, employees are considered to have earned two vacation days for each month worked during the earning year.

As per the Holiday Allowance Act, the minimum annual leave entitlement is 24 days for employees. It’s noteworthy that many Collective Bargaining Agreements (CBAs) stipulate a range of 25 to 30 vacation days per year.

Additionally, extended vacation time and increased vacation pay are granted to acknowledge length of service:

During employment in Iceland, paid holidays accumulate. The baseline holiday entitlement is 24 weekdays of paid leave, with holiday pay set at 10.17% of total wages. After five years in the same line of work, this entitlement increases to 25 weekdays, with the corresponding pay rising to 10.64% of total wages. After five years with the same employer, it further increases to 27 weekdays, with holiday pay set at 11.59% of total wages. Following ten years of service with the same employer, the entitlement reaches 30 weekdays, and holiday pay increases to 13.04% of total wages.

Fixed Christmas bonuses are disbursed on December 1, while holiday bonuses are paid between May 1 and August 15. If an employee has only worked part of the year, their bonus is proportionate to their duration of service and is paid alongside the salary for the corresponding month.

In the initial year with a new employer, employees have the right to two days of paid sick leave per month. Following the first year, employees are entitled to be paid for up to two months of absence due to illness. Employers retain the authority to request a medical certificate from a doctor to substantiate an illness. In instances of 21 consecutive days of illness, sick pay is facilitated through social security.

Upon completing five years of service, employees are entitled to be remunerated for four months of sick leave, and this extends to six months after ten years. If an employee changes employers after five years, they maintain entitlement to a minimum of two months of sick leave with the new employer.

Iceland lacks specific legislation for paid bereavement leave. Whether an employee is eligible for such leave and whether it is granted with or without pay is determined by the terms of the employment contract, Collective Bargaining Agreement (CBA), or the internal policies of the company. Generally, in the absence of a specific agreement, many companies, as a practice, provide at least two days of paid bereavement leave in the event of the death of a close family member.

Leave for Caretakers

For children: In cases of a child’s illness, the Collective Bargaining Agreement (CBA) and employment contract will outline the number of paid leave days an employee can take annually, typically set at 24 days.

For family: Iceland boasts family-friendly legislation, with the definition of “family” being comprehensive and not necessarily limited to blood relatives. While there are no legal entitlements for time off to care for family, the Equal Status Act mandates employers to facilitate employees in meeting their familial responsibilities. Most CBAs stipulate a designated number of leave days for family care.

In Iceland, there is no distinct Maternity Leave or Paternity Leave; instead, it is encompassed within a 12-month Parental Leave period. This arrangement permits both parents to allocate six months away from work each, with the flexibility of transferring one month between them. Mothers have the option to take up to one month off before the baby’s arrival and are required to take a minimum of two weeks of parental leave following the child’s birth.

The standard monthly payment during parental leave is 80% of the salary, capped at ISK 600,000 before taxes. Throughout the parental leave period, the employment contract and associated benefits remain unchanged.

In addition to the leave immediately following childbirth, parents are entitled to take unpaid leave totaling four months to care for a child until they reach 8 years old.

Iceland observes a total of 16 public holidays, with some occurring on weekends and others lasting only half a day.