Employer of Record in Faroe Islands

Expanding your team into new international markets requires a clear understanding of local employment regulations and practices. In the Faroe Islands, bringing on new employees necessitates navigating specific legal frameworks related to payroll, taxes, benefits, and labor laws, which can be complex for foreign companies without a local presence. Successfully hiring in this unique region ensures compliance and a smooth operational experience.

When considering hiring talent in the Faroe Islands, companies generally have a few primary options for establishing an employment relationship:

• Establishing a local legal entity: This involves setting up a subsidiary or branch office in the Faroe Islands, which can be a time-consuming and resource-intensive process, requiring registration, legal counsel, and ongoing administrative management.
• Utilizing an Employer of Record (EOR): Partnering with an EOR service allows you to legally employ individuals in the Faroe Islands without needing to establish your own entity. A reputable EOR like Rivermate takes on the legal responsibilities of employment.
• Engaging independent contractors: While offering flexibility, this option carries the risk of misclassification, where a contractor may be deemed an employee under Faroese law, leading to significant penalties and back-pay obligations.

How an EOR Works in the Faroe Islands

An Employer of Record acts as the legal employer for your workforce in the Faroe Islands, handling all local compliance while you retain full control over day-to-day management and assignments. This partnership allows you to focus on your core business without the administrative burden of international employment. The EOR typically takes care of:

• Legal employment: Acting as the official employer, ensuring all employment contracts and practices comply with Faroese labor law.
• Payroll processing: Managing local payroll, including salary disbursements, tax withholdings, social security contributions, and other statutory deductions.
• Benefits administration: Administering mandatory benefits such as pension contributions, health insurance, and paid leave in accordance with Faroese regulations.
• HR compliance: Ensuring adherence to local HR regulations, including onboarding, performance management, and termination processes.
• Risk mitigation: Minimizing your legal and financial risks associated with international employment by staying updated on ever-changing local laws.

Benefits of Using an EOR in the Faroe Islands

For companies looking to tap into the talent pool of the Faroe Islands without the commitment and complexity of establishing a local entity, an EOR provides significant advantages:

• Rapid market entry: Hire employees quickly and efficiently, bypassing the typical delays associated with setting up a foreign subsidiary.
• Reduced compliance burden: Offload the intricate and often changing local labor laws, tax regulations, and payroll requirements to experts.
• Cost-effective expansion: Avoid the substantial costs and administrative overhead of forming and maintaining a local legal entity.
• Access to talent: Secure top Faroese talent without geographical limitations, expanding your team globally while remaining fully compliant.
• Flexibility and scalability: Easily scale your team up or down based on business needs, with the EOR handling the associated employment processes.

Rivermate's transparent pricing model eliminates complexity with a single, competitive monthly fee per employee. Unlike traditional PEO providers, our pricing in Faroe Islands includes comprehensive HR support, benefits administration, compliance management, and access to our proprietary dashboard for real-time workforce analytics. No hidden costs, no setup fees—just straightforward pricing that scales with your business needs while ensuring full legal compliance in Faroe Islands.

Employers in the Faroe Islands must withhold and remit social security contributions and income tax monthly. Social security contributions typically range around 2-3%, while unemployment insurance is about 1%. Employers are also responsible for deducting income tax based on a progressive system, with rates varying by income bracket. Employees receive a tax card (Skattakort) indicating withholding rates, and both parties must adhere to strict monthly and annual reporting deadlines to avoid penalties.

Key tax obligations include calculating contributions, withholding income tax, and claiming employee deductions such as pension contributions, mortgage interest, travel expenses, and charitable donations. Deadlines are critical: employers must report monthly and perform annual reconciliations, while employees file their tax returns in spring. Foreign workers and companies face additional considerations, including potential benefits, exemptions, and double taxation treaties, emphasizing the importance of professional advice for compliance and optimization.

Salaries in the Faroe Islands vary by industry and role, with key benchmarks including fishing vessel captains earning DKK 600,000–900,000 annually and software developers earning DKK 500,000–800,000. The dominant fisheries sector offers high compensation for captains, while fish processing workers earn DKK 250,000–400,000. Other notable sectors include tourism, IT, healthcare, and education, with salaries generally reflecting industry standards.

There is no statutory minimum wage; instead, wages are set through industry-specific collective bargaining agreements. Employers must comply with these standards and ensure fair pay. Compensation packages often include bonuses (annual, holiday), pension contributions, travel or housing allowances, and overtime pay. Payroll is typically processed monthly via bank transfer, with payslips detailing earnings and deductions.

Salary trends for 2025 are expected to rise in high-demand sectors like IT and aquaculture, influenced by economic growth, skills shortages, and inflation. Overall, competitive compensation and benefits are essential for attracting talent in this small but growing economy.

Employees in the Faroe Islands are entitled to a minimum of 25 days of paid annual leave per year, based on a five-day workweek, with the leave year running from May 1 to April 30. Unused leave may be carried over if agreed with the employer. Public holidays include notable dates such as New Year's Day, Easter (varies), Ólavsøka (July 28-29), and Christmas (Dec 24-26), with employees generally entitled to time off, though pay regulations may differ.

Parental leave comprises maternity (around 6 months), paternity (about 2 weeks), and adoption leave, with financial support during these periods. Sick leave is granted upon medical certification, with employers typically paying full salary during a certain period, after which social security benefits may apply. Other leave types like bereavement, study, and sabbatical are available depending on employment agreements.

Employee benefits in the Faroe Islands are governed by Faroese law and collective bargaining agreements, which set mandatory standards for wages, working conditions, and benefits. Employers must provide key benefits such as paid holidays, sick pay, parental leave, occupational injury insurance, and contribute to unemployment insurance funds. These benefits are often supplemented by industry-specific agreements to attract and retain talent.

Key mandatory benefits include:

Compliance with these legal requirements, along with competitive perks, is essential for employers operating in the Faroes.

Employment agreements in the Faroe Islands are essential for defining the employer-employee relationship, ensuring legal compliance, and protecting rights. They must include key clauses such as parties involved, job description, start date, compensation, working hours, place of work, holiday entitlement, notice period, confidentiality, non-compete provisions, and applicable law. Agreements can be fixed-term (for specific periods, e.g., seasonal or project-based) or indefinite (long-term, offering more job security).

Probationary periods typically last 1-3 months, during which employment can be terminated with shorter notice, and regular feedback is recommended. Post-probation, employment is confirmed under full contract terms. Confidentiality clauses protect proprietary information indefinitely, while non-compete clauses are limited to reasonable scope, duration (generally up to 12 months), and geographic area, subject to judicial scrutiny.

Employers must follow legal procedures for contract modifications and terminations, including providing written notices and ensuring fairness. Severance pay may be applicable depending on circumstances and length of employment. Overall, well-drafted, compliant employment agreements are vital for avoiding disputes and maintaining positive employment relations in the Faroe Islands.

The Faroe Islands are increasingly adopting remote work, driven by global trends and technological progress. While no specific remote work laws exist, existing Faroese labor laws, aligned with Danish regulations, apply equally to remote employees, emphasizing fair treatment, safe conditions, and clear contracts. Employers must define remote work terms in employment agreements, ensure health and safety, and adhere to standard working hours (37-40 hours/week), with remote workers protected against discrimination. For non-Nordic EU citizens and others outside the EU, work permits are required.

Flexible arrangements are popular, offering employees control over schedules and locations. Common options include telecommuting, flexible hours, and part-time work, which enhance productivity and work-life balance but require careful policy management to address legal compliance and company culture. Key data points include:

In the Faroe Islands, employment termination is governed by laws requiring adherence to specific notice periods, grounds for dismissal, and procedural steps. Notice periods depend on employee tenure, with minimum durations as follows:

Severance pay is typically applicable in redundancy cases, calculated based on the employee's salary and years of service, often 2-3 months' salary for 10 years of work. Grounds for termination include gross misconduct (with cause) or redundancy, restructuring, or illness (without cause). Employers must follow procedural requirements such as providing written notices, consulting with unions if applicable, maintaining documentation, and settling final payments, including accrued benefits.

Employees are protected against wrongful dismissal on grounds of discrimination, procedural violations, or retaliation. Claims can be brought to court, with potential remedies including reinstatement or compensation. Employers should ensure compliance with procedural rules and valid grounds to mitigate legal risks.

The Faroe Islands, part of the Kingdom of Denmark, offer a distinct environment for independent contractors, reflecting global trends towards flexible work arrangements. The legal framework requires careful navigation, particularly in worker classification, contractual agreements, intellectual property, and tax obligations. Misclassification of workers can lead to significant penalties, emphasizing the importance of understanding the distinctions between employees and independent contractors. Key factors include control over work, integration into the business, economic dependence, provision of tools, risk and reward, and the duration of the relationship.

Engaging independent contractors typically involves comprehensive written contracts detailing the scope of work, payment terms, confidentiality, intellectual property rights, and governing law. Contractors are responsible for their own tax obligations, including income tax, social contributions, and potentially VAT, depending on their turnover. Insurance, such as professional indemnity and public liability, is recommended to mitigate risks. Independent contractors are prevalent in various sectors, including fisheries, tourism, construction, IT, creative services, consulting, and energy, providing specialized skills and flexibility.

Foreign nationals seeking employment in the Faroe Islands require specific work permits, as the territory is not part of the EU. Non-EU citizens generally need both a visa and a work permit, with the process involving employer sponsorship and meeting eligibility criteria. The main visa types include:

The application process requires a job offer, employer sponsorship, and submission of documents such as passport, employment contract, qualifications, proof of accommodation, health insurance, and a criminal record certificate. Processing times range from several weeks to months. Once approved, the permit allows foreign nationals to apply for a visa to enter and work in the Faroe Islands.