- An introduction on employment contract
- What does it mean to have an employment contract?
- What includes employment contracts?
- What are the types of employment contracts?
- When the contract can be terminated?
- Employment contracts and individuals with a foreign background
Employment contracts are important in all employment relationships, they are an agreement between the employer and the worker or employees, where the worker offers his services to the employer in exchange for salary.
An employment relationship between an employer and employee is documented through a contract, the Icelandic law however does not formalize employment contracts, so they are equally valid both orally and in writing. However, it is always better to have the contract in written form, as proof.
The employment relationship ends when the employment contract is void. This can happen when the employer decides, unilaterally, the termination of mentioned contract, either invoking a cause or not, in this case the worker is fired. Another possibility is the termination of the employment contract, which implies prior agreed obligation and rights are not valid anymore.
Employment contracts should be made and signed within two months of the employment and the obligation to do so lies with the employer.
“Having an employment contract means having information on all the rights, responsibility, duties, and conditions that make up the relationship between an employer and employee”
Having a contract gives you an agreement from the employer about your role in the workplace, and their obligation to them such as wages, vacation time, overtime and more.
This is especially important if the employer doesn’t hold up his end of the agreement.
As employment contracts in Iceland are not formalized there are not specific rules on what should be included in the contract. However, most contracts have the following;
- Name and addresses of employer and employee.
- Start and duration of employment
- Type of activity and description of tasks
- Workplace location
- Base salary and supplements
- Workdays and holidays
- Deadline for termination of the employment contract
- Reference to applicable collective agreements.
- Pension fund
If the contract doesn’t have the minimum standards according to the wage agreements, the contract is not deemed valid, even though he has been signed by the employee.
To see the minimum standards and wage agreements you can look at the website or contact the unions – you can go to their information material to see more about the unions and collective bargaining and wage agreements.
There are several types of employment contracts that you should be aware of, they are important because they make it clear what the status of the employer is to the company that he works for.
Permanent employment contracts
For employees (workers) that work regular hours and count on a regular salary or hourly rate. Permanent contract is ongoing until terminated by either the employer or employee. Under these contract’s employees can enjoy full range of employment rights.
There are two types of Permanent Contract
Full time contract: is the most common contract, these employees usually work full week, or around 35 hours or more.
Part time contract: are contracts for part-time workers. They are similar to those who have a full-time contract but with more emphasis on the number of hours worked and how overtime is handled but can have the same stability as the full-time contract.
Fixed-term employment contract
Are contracts that already have a start and end date, for example, six months or one year. Fixed term employees have protection and can count on the same rights as permanent employees.
Apprentice and trainee employment contract
Are used to register the period that the employee was in training or learning in the company.
There are certain rights you have to be aware if your employment is terminated or if you yourself want to terminate the contract.
However, this period differs between unions, so the employees need to be aware of their union and under which contract their employment falls.
All terminations of the work contract should be writing, and it is important that all dates and information on the terminations are clear. Employees have a right to an interview with the employer about the reasons for the termination, this request should be made within 4 days of the notice of termination.
The employer must pay out December bonuses and holidays in connection with the time the employee has worked in the company.
Here you can find the information from the two biggest unions about notice period for terminations, and other important information.
It is important for all individuals to check if their professional qualification is valid in Iceland, and if they are not how you can get them validated. You can get assistance with academic recognition at the ENIC/NARIC office Iceland (http://english.enicnaric.is/).
It is also important to know that individuals coming from outside the EEA-area must obtain a working permit before they enter the employment market, and in most cases, individuals must leave the country before the permit is granted. Work and residency permits are issued by The Directorate of Immigration, see www.utl.is
In special cases, individuals from outside the area can work without permits, this is only if it is temporary work, they are resided in a country within the European area and are working less than 90 days in a year. For this the employer however must notify the Directorate of Labour (www.vmst.is) in Iceland, before this actually takes place.
- Health insurance in Iceland
- When are you included into the national health incurrence?
- What falls under national health incurrence in Iceland?
- Private health incurrence and migrant workers
- Cash Sickness benefits and The Trade Unions Sickness Fund
- Unemployment benefits, and what and where to go
- Is there any Social/Financial assistance?
- Can foreigners apply for financial assistance?
Healthcare in Iceland is subsidized, and all residents are automatically covered by the Icelandic Health Insurance. That means that all individuals legally resided in Iceland for 6 months or more are automatically covered.
Temporary workers from another EU country should have the European Health insurance card and should because of that be provided healthcare during their temporary stay. This service should be with the same conditions and cost as the local residents in Iceland.
Migrant individuals that are originally citizens of a country within the EEA must register to the system. Once you have your legal residence in Iceland the system will take effect, before the health insurances in the country of origin should cover your health expenses in Iceland. Excepted from this procedure are individuals moving to Iceland from a Nordic country who can apply for health insurance the day they apply for legal residence in Iceland. All individuals that are sent to Iceland for work, must either be a citizen or have residency and work permit in an EU country. Posted workers should in all cases have health insurance and be able to apply for an A1 certificate.
More information on health insurance can be found on the site of Icelandic Health Insurance
More information on specific certificates or permits can be found on the site of Directorate of Labour and The Directorate of Immigration in Iceland:
The Directorate of Immigrant in Iceland
The Directorate of Labour Iceland
Once individuals have registered to the system, the maximum payments per month is 27.756 ISK or 18.317 ISK for retirees and children.
Once the maximum payment is paid is one month, they do not have to pay more for healthcare and doctors this month.
Exempt from this are pregnant women who do not pay for healthcare during their pregnancy. The only exception is the 12-week ultrasound that is optional.
Admission fees for health care are free of charge for 18 years and younger, the elderly, the disabled and individuals who come to the maternity care.
For prescription medications, the maximum amount per month is 22.000 ISK or 14.500 ISK for children and retirees.
For more information on the Icelandic Health Insurance, but they also provide further information through their service phone.
More information on the status and your services can also be found on the website Heilsuvera, where individuals use electronic identification to book appointments, contact doctors and more;
Most forms of health care services are subsidized or covered by the national health insurance.
For example; Physiotherapy is subsidized by the national health insurance and the services of psychiatrists.
However dental care is not fully covered but is free of charge for children under 18 years of age, and pensioners pay 50% and psychological services are not covered by the health care system, unless individuals use the psychologist in the health care centres.
For temporary workers from outside the EU health insurance is one of the primary conditions for issuing a residence permit for individuals who move to Iceland and are citizens outside the EU area. As temporary workers from outside the EEA do not have public health coverage, they must apply for coverage from private incurrence companies.
Here below you can see a list of temporary insurance companies in Iceland, but there are also some foreign companies that are accepted in Iceland:
If individuals are unable to work due to sickness or injury outside their workplace, they may be entitled to cash sickness benefits.
Chas sickness benefit is a set amount that can be paid at the 15th day of sickness, or when the individuals have finished their sick leave days gathered during their employment.
To be entitled to the cash sickness benefits, individuals have to meet a certain criteria;
- They must have health insurance in Iceland.
- They must have been unable to work for at least 21 consecutive days.
- They must have been working or studying in Iceland in the months before they became unable to work.
- They must no longer receive any payments from their workplace, including sick leave payments.
- They must not benefit from a full disability pension, rehabilitation pension, retirement pension, maternity/paternity leave payments or unemployment benefits.
- They must be at least 16 years of age.
The full amount of the monetary sick benefits in 2020 are 1.873 ISK per day with additional 514 ISK per day for each child at home. If your work percentage was less than 100% you will receive half payments.
The trade unions sickness fund has the role to pay compensations to the union member in the event of illness and accidents after the end of salary payments. All employers are obligated to pay at least 1% of wages to the health fund unless a higher percentage has been agreed upon in the collective agreements.
The daily allowance for sickness or accidents is paid for 120 days (4 months), should not be more than 80% of the average of the wages that have been paid as union fees in the last 6 months. Individuals can also apply for payments from the sickness fund up to 90 days (3 months) in case of sickness of children under 18 or spouse.
Once individuals have finished their sick leave days, then they can apply for sickness benefits from The Icelandic Health Insurance (SÍ) and from the Trade Unions Sickness Fund, it is possible to receive payments from SÍ and the Unions at the same time.
More information on the union sickness fund can be found on the website of the trade unions;
And on Cash Sickness Benefits
Unemployment benefits are divided into two phases: basic and income related. Basic unemployment benefits are paid for the first 10 working days of unemployment, income-related unemployment benefits then take up to three months, after which basic unemployment benefits are paid again.
- Being unemployed.
- Being domiciled in Iceland and being in the country.
- Actively seeking employment.
- Being fit for work.
- Prepare to take any job.
The benefits amount – Basic unemployment benefits (1 January 2021:
- 430 ISK per month (100% entitlement)
- 572 ISK per month (75% entitlement)
- 715 ISK per month (50% entitlement)
- 857 ISK per month (25% entitlement – minimum entitlement).
- 18.445 ISK is paid for each child under the age of 18 for whom the individual is responsible for.
The maximum of income-related unemployment benefits is 473.835 ISK per month on income related benefits.
For more information and to apply for unemployment benefits go to the site of The Directorate of Labour;
It is important for migrant workers who don’t have a permanent ID number (kennitala) to contact The Directorate of Labour services specially before applying, as there have been problems relating to that in the past.
Social and financial assistance in Iceland comes mainly from the municipalities, where it depends on where you live in the country.
All individuals have access to social workers through the municipalities that can help them with financial and social assistance.
In situations where individuals need financial assistance, they can seek support from their municipalities. According to Icelandic law financial help should always be made to prevent families or individuals from ending up in situations where they cannot manage their own affairs.
Access to financial assistance can differ depending on the municipalities that the individual is living, but for example you can apply for it on Reykjavík city website;
The Housing and Construction Authorities handle the implementation of housing benefits. Housing benefits are monthly payments intended to assist those who rent residential premises.
The conditions for housing benefits
- Applicants and household members must be resident in the residential premises and must be domiciled there.
- Must have reached the age of 18.
- The residence must include at least one-bedroom, private cooking facilities, private toilet, and bathroom facility.
- Must be a party to a registered lease valid for at least three months.
- Must grant access for gathering of information.
Individuals or families that are in urgent need of housing and cannot provide or find housing for themselves can apply for social housing through their municipalities.
For more information on social housing visit;
More information on social assistance
Please visit the site or contact the service centre of your municipality.
Foreigners who are residents in Iceland should have the same rights to social services as everyone in Iceland.
For more information on financial support:
- The minimum wage
- What taxes must be paid?
- Personal Tax Credit
- What are the payroll expenses/taxes?
Minimum wage refers to the minimum amount of wage that the employer is obligated to pay its employees for the work they have done during a certain period.
In Iceland, the minimum wage is based on the wage agreements made through collective bargains and vary between occupations and unions.
Minimum terms for professions are based on;
- The job
- Employee’s education
- Employee’s experience
- Other factors
Though different agreements are between unions and employers, most lower paying employment are covered by the minimum wage agreement between the biggest unions and SA Confederation of Icelandic Enterprise.
According to that agreement, the minimum wage for full time (40 hours a week) for individuals 18 years old and over, who have been with the employer or company for more than 4 months is;
May 2021 kr. 351.000 a month (2.248,51 Euro)
May 2022 kr. 368.000 a month (2.357,31 Euro)
An agreement that is below these minimum terms in any given time is invalid, and these terms also apply to those who are not members of unions.
Migrant workers in Iceland are entitled to the same rights and terms as that of other workers in Iceland with regards to minimum wages and other wage related issues, overtime payments, the right to vacation pay, maximum working hour and minimum rest periods.
Taxes in Iceland
All working individuals in Iceland must pay tax on personal income. This tax is then divided to the state and municipalities, the percentage of the tax and more information on where your taxes go can be seen on the website of the Skatturinn (Icelandic tax) and on your homepage.
In general, the monthly deduction of payroll tax serves as a contribution for:
- Public spending like education-, health- and welfare- system.
- Retirement pension.
- Unemployment benefits and paternity leaf.
- Accidents derived from work.
All taxes are shown on the paycheck each month, and it is important to keep your paycheck for at least a year, for proof of taxation.
All individuals in Iceland have a personal tax credit, that accumulated over the year, but starts at zero every January.
The personal tax credit in 2021 is
50.792 kr. per month
- All personal tax credits are digital.
- You must give your employer access to your tax credit to be used.
- You can share your tax-credit with your spouse (if married or living together).
Video on tax credit:
Information on balance regarding your personal tax credit can be seen on RSK website.
To be able to log on to the website all individuals need to have an electronic ID or RSK password key.
The website for all information on tax in Iceland
Rates and amount in Iceland: 2021
The Icelandic taxing system is divided into three part:
31,45 % of wages 0-349.018 kr.
37,95 % of wages 349.019 – 979.847 kr.
46,25% of wages over 979.847 kr.
Individuals who have two jobs must make sure that if the monthly salary exceeds ISL 336.916 from one employer to another, that latter has to calculate income tax in a higher bracket for additional amounts.
Individuals must be filed a tax return once a year. Most commonly in March.
Few important things to have in mind:
- Tax return is done online through skattur.is
- You must have an electronic ID or web key.
- You can apply for delay.
- Cash payments
- Sickness allowance
- Benefits of any kind
Individuals that stay in Iceland for less than six months in a twelve-month period have limited tax liability in Iceland. They are also allowed the same deduction for expenses as residents and have personal tax credit.
- An introduction on unions
- The role of the unions on the labor market
- Services to union members
- Collective bargaining and collective agreements
- About the unions
- Workplace representation
- Other important organizations that migrant workers can reach for help or information
Trade unions play a vital role in the employment market in Iceland, with 85 percent of the labor force being members of a union.
Unions do not only take part in the collective bargaining, but also provide support, legal advice, and race awareness in society about the situation and salary of workers. There are also other benefits of being a union member, such as scholarships, medical support, grants for purchase of glasses, holiday houses accommodation and more (differs between unions).
In Iceland there are four federations of unions:
- Kennarasamband Íslands
- Bandalag Háskólamenntaðra
And many unions, depending on your employment or education. The biggest unions in Iceland are VR and Efling.
Their main roles on the labor market are:
- Decision making on labor rights of workers.
- Negations with employers
- Collective bargaining
- Support, legal advice and awareness
The unions provide a vast service to union members. Employees can in most cases go to the union and seek help on all issues regarding the employment market.
They provide services or information on:
- Legal or legal proceedings
- Legal assistance
- Administrative assistance
- Social action and funds
Available funds and assistance differ between unions, but members can always seek help from their services regarding above mentioned topics or visit their website. Most of them however provide help in funding for education and health issues.
Collective bargaining is when representatives from the unions and the employers negotiate salary, working hours, holiday, bonuses etc.
Different agreements are made depending on the unions involved and this is why it is important that workers know what unions they are a part of.
However even members who are not in a union still fall under the collective agreements made in the workplace, and any contracts made that do not fall under the agreements are not valid.
The biggest unions in Iceland are Efling and VR. Union members do not have to have a specific job or education to be members of them.
For more information on the unions, you can visit their website or contact them by phone. On their website you can look at minimum rights according to the collective bargaining and the funds you have access to.
VR is the biggest union in Iceland, on their site you can find all the information you should need about your rights, calculator on wages, grants, funds and contact information.
Efling has the highest percentage of migrant workers of the Unions in Iceland and have been involved in workplace inspection. You can look at their information on their page in Icelandic, English and Polish. There you will find all the information on working rights and collective agreements.
In Iceland, every workplace should elect a confidant, that should serve as the connection between the unions and the workplaces.
Every workplace with 5 or more employees must have at least one confidant, and if employees are more than 50 the minimum is 2.
The confidant job is to be a representative of the employees and speak on their behalf regarding issues within the workplace. This role however differs depending on the unions he is affiliated to.
The most common roles are;
- To monitor if the employer is violating the collective agreement made by the union and the employers, and to step up and react if the employer is violating the rights of workers.
- Be aware and have knowledge of the collective agreements and issues that would need changes/modifications and be in contact with the union with ideas for improving agreements.
- Be the representative of the other employees when it comes to communication with the employer and bring up any issues or problems to them.
- Introduce the activities of the trade unions to their colleagues.
- Welcoming new employees to the workplace, informing them of their rights, the trade unions roles and how they can assist them.
Directorate of Labor
The Directorate of Labor is responsible for various issues on the labor market. The agency handles the unemployment benefit payments and service for jobseekers. The agency also operates the Maternity/Paternity leave fund and the Wage Guarantee Fund, in addition to issuing work permits to nationals of countries outside the EEA. The agency also supervises the activities of temporary staffing and foreign services companies that send employees in Iceland temporarily. The Directorate of Labor is a member of the EURES European Employment Services, a partnership of public employment services in the European Economic Area, a partnership of public employment services in the European Economic Area. The role of EURES is to promote labor mobility between countries in the EEA.
The agency’s services for jobseekers of foreign origin are diverse and information on the resources are available on their website. These include language courses, scholarships, and internships. The agency’s website also contains a large amount of information about the services that the agency offers to different groups, job search tips, information about rights and obligations of jobseekers as well as an overview of the jobs advertised.
Information in Icelandic, English and Polish can be found on the institute’s website www.vinnumalastofnun.is
The Icelandic Conformation of Labor (ASÍ)
ASÍ consists of 47 trade unions within various industries, and plays a vital role in the employment market, with 2/3 of labor unions affiliated.
ASÍ, the trade unions affiliated, and Administration of Occupational Safety and Health have been working together on inspection of the workplaces, often associated with illegal workforce, such as migrant workers without the right permits. ASÍ has also been pressuring the government for more regulation, stronger laws against illegal employment and exploitations of foreign workers in Iceland.
On their website you can find information on rights on the labor market, collective agreements, research and more on the employment market.
Information in Icelandic, English and Polish can be found on their website: www.asi.is
- Safety at work
- Work accidents
- Organizations you can go for a help
- What is the work and rest time of the worker?
- Holiday and Vacation time
- Sick days and illness
- What about an employee's professional development?
Safety at work is a right and a duty for both workers and employers, and must always be presented regardless of the sector, company or job function.
The Occupational Safety and Health Act seeks to:
- Ensure a safe and healthy working environment, which is generally in line with social and technological development in society.
- Ensure conditions for the safety and health problems to be solved within the workplaces themselves, in accordance with applicable laws and regulations.
Each workplace should have an elected safety representative. Safety representatives, role in the workplace is to cooperate with the employer, monitor that the environment, hygiene and safety at the workplace is in accordance with the law. In companies or workplaces with 1-9 employees it is the employer job to act as the safety representative, in companies with over 10 employees, safety representative should be elected from two individuals, one selected from the employer and one from the employees, and in workplaces with over 50 employees, it is obligated to establish a so-called safety committee.
It is an important factor in safety measurements that all employers fill out a variety of reporting to The Occupational Safety and Health Administration. Employers should always fill out a form if accidents happen in the workplace, and this can also be important regarding the incurrences of the companies, if the accident leads to sickness or injury.
All employers are also obligated to carry out a risk assessment regarding the working conditions of pregnant women or women who have recently given birth or are breastfeeding. This is done to protect mothers and pregnant women from effects of the workplace and minimize the risk to the child and the mother.
It is also important to know that employers are obligated to take special measures to prevent employees from being sexually harassed in the workplace. Employers have a duty to not allow bullying or other behaviour to persist in the workplace.
According to law, all workers absent from work due to accidents at work, on the way to work or due to occupational disease caused by it, should be paid wages for daytime work for up to 3 months according to the rates agreed in the wage agreements.
The Administration of Occupational Safety and Health (Vinnueftirlitið) is responsible for ensuring that employers comply with laws and regulations.
To report a violation of safety in the job, employees can contact them or send a tip through their website:
You can also seek help from your union about most of these issues and they will guide you towards the right institution or help you with the problem.
Working hours are based on the collective agreements between the unions and the employer or SA confederation of Icelandic Enterprise. They then follow a similar system as the minimum wage, that is that individuals outside the unions also have the same rights under the collective agreements.
As the agreements can vary, here we will mention the most common or general rules, it is though important that for specific job sectors to look at the agreement on the website of the unions or ask for help from their representatives.
Maximum working hours
Maximum working hours in continuation:
A working cycle may generally not be longer than 16 hours per day, however it is not permitted to plan working hours that exceed 13 hours per day.
Maximum working hours per month:
Generally speaking, daytime working time is 8 hours per day, 40 hours per week or 173,33 hour per month. However, with the newly signed collective agreement, Lífskjarasamningar, this has already started to change in some professions, with the shortening of the work week.
The general rule regarding minimum rest is 11 hours per day, but expectations can be found in the collective agreements for specific professions for example craftsmen. There are also special rules in place for children and young individuals.
If the agreed falls under the minimum, and the employee exceeds the 11 hours, he then should have a corresponding holiday in that amount or to a reduction of 11 hours, rest with 50% load, that is if the employees does not get 11 hours rest he should get vacation time or have the overtime paid with next salary payment.
Weekly minimum rest
The maximum working hours of an employee per week on overtime should not be more than 28 hours on average every month. However according to some agreements, the working hours may be calculated based on a reference point up to six months. If there are objectives or technical reasons or due to the special nature of the work, maximum working hours of the employees can be calculated based on reference up to twelve months, but not following the core rules of the law previously mentioned.
Overtime differs between different wage agreements and employment contracts.
Overtime is often paid when:
- Working hours exceed administrative daytime working hours.
- If the employee exceeds the regular amount of working days per month
- If the employee must work during meals and coffee hours during the daytime working hours.
How overtime is calculated depends on the wage agreements and if the hours depend on a day, a week or a month.
Employees also must be aware that not all employers allow overtime, it is important that workers are aware of the agreement in place, in those situations employees will often get vacation time instead of salary that excess time worked.
The work calendar of the workplace should be accessible to the employees and needs to show the minimum of 4 weeks ahead, with 6 weeks as the standard. If any changes are made, they should be made with a 4-week notice.
Employers who do not work shift-work are generally entitled to time off on special holiday days unless agreements have been made between the employer and the employee.
Individuals working shift work get specific pay for working on special holidays. On special holidays overtime is paid for each hour worked, and on public holidays workers should receive a special red day salary.
All employees are entitled to a leave, that is leave from work for a certain number of days in addition to holiday pay that is calculated from all wages.
Statutory leave is 24 working days, which is equivalent to 4 weeks and 4 days based on work from Monday to Friday.
This however can differ from wage agreements, and it is often that employees that have worked for a certain period with the same employer, have increased holiday entitlement.
The main rule due to an employee's illness is that he or she should be financially placed as if he or she had not been absent from work. So, in the first period of illness, they should have the same pay as if they had done the work.
However, the number of sick days depends on the collective agreements, but according to the law the minimum right is 2 days per month, it is common you get more sick days after you have been longer with the company. It is also important to know that if you get sick on your holiday you can have the right to notify your employer and you could get more days added to the holiday.
Regarding sickness of children, it differs on wage agreements but in general wage agreements, parents may spend within the first 6 months of service for the employer, or two days for every month’s work, to support their children under the age of 13, or children under the age of 16 in the event of serious illness. After 6 months of service, the right will be 12 days within every 12 months. This right to sickness is independent and is not deducted from the general right to sickness because of one’s own illness.
Study leave and unpaid leave vary between contracts, but are always done in collaboration with the employer, however in most cases employees are entitled to such leaves.
Most of the unions support members financially to obtain education and courses, through special educational funds.