Iceland

499 EUR per employee per month

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Hire in Iceland at a glance

Here ares some key facts regarding hiring in Iceland

Capital: Reykjavik
Currency: Iceland Krona
Language: Icelandic
Population: 341,243
GDP growth: 3.64%
GDP world share: 0.03%
Payroll frequency: Monthly
Working hours: 36 hours/week

Overview in Iceland

Iceland, a Nordic island nation in the North Atlantic, is known for its dramatic landscape of volcanoes, glaciers, and geothermal areas. It has a temperate climate influenced by the Gulf Stream, featuring cool summers and mild winters. Historically, settled by Norse Vikings in the 9th century, Iceland boasts the world's oldest parliament, the Althingi, established in 930 AD. It gained independence from Denmark in 1918 and became a republic in 1944.

Economically, Iceland is developed and modern, driven by fisheries, aluminum smelting, tourism, and renewable energy, with nearly all its electricity and heat sourced from geothermal and hydroelectric power. It ranks highly in quality of life, happiness, and gender equality, supported by a strong social welfare system and a highly educated, unionized workforce. The labor market is dynamic, with a significant focus on the service sector, including tourism and technology.

Workplace culture in Iceland is characterized by direct communication, informal interactions, and non-hierarchical organizational structures. Decision-making tends to be collaborative, and there is a strong emphasis on work-life balance, reflected in policies like generous parental leave and flexible work arrangements. The country continues to lead in gender equality and is known for its high life satisfaction levels. Emerging sectors include technology and creative industries, contributing to its economic diversity and sustainability focus.

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Employer of Record in Iceland

Rivermate is a global Employer of Record company that helps you hire employees in Iceland without the need to set up a legal entity. We act as the Employer of Record for your employees in Iceland, taking care of all the legal and compliance aspects of employment, so you can focus on growing your business.

How does it work?

When you hire employees in Iceland through Rivermate, we become the legal employer of your staff. This means that we take on all the responsibilities of an employer, while you retain the day-to-day management of your employees.

You as the company maintain the direct relationship with the employee, you allocate them the work and manage their performance. Rivermate takes care of the local payrolling of the employee, the contracts, HR, benefits, and compliance.

Responsibilities of an Employer of Record

As an Employer of Record in Iceland, Rivermate is responsible for:

Creating and managing the employment contracts
Running the monthly payroll
Providing local and global benefits
Ensuring 100% local compliance
Providing local HR support

Responsibilities of the company that hires the employee

As the company that hires the employee through the Employer of Record, you are responsible for:

Day-to-day management of the employee
Work assignments
Performance management
Training and development

Taxes in Iceland

In Iceland, employers have various tax obligations including paying social security contributions at 6.35% of an employee's gross salary, and contributing 0.1% to the Icelandic Rehabilitation Fund (VIRK). Employers must also contribute at least 11.5% to pension funds, with an option for additional contributions if employees opt into private pension schemes.

Other taxes include a 0.05% Wage Guarantee Fund Fee and a 0.05% market fee to support tourism. Financial and insurance firms face an additional 5.5% payroll tax. Employers are responsible for withholding income tax, which is progressive and includes a municipal tax rate, commonly around 14.45%.

Most employer contributions are tax-deductible. Employees contribute 6.35% to social security and have options for additional pension contributions. Taxpayers benefit from a personal tax credit and may deduct union fees and charitable contributions.

VAT in Iceland is generally 24%, with a reduced rate of 11% for specific services and exemptions for sectors like healthcare and education. Businesses must register for VAT if annual turnover exceeds ISK 2,000,000 and can deduct VAT paid on business expenses.

Iceland offers tax incentives for R&D, with credits up to 35% for SMEs. The Act on Incentives for Initial Investments promotes large-scale investments with various tax benefits. Additional support is available for training, job creation, and green investments, particularly in designated regional development zones and for environmentally focused businesses.

Leave in Iceland

In Iceland, employees who have worked a full accrual year are entitled to at least 24 paid vacation days annually, accruing at a rate of 2 days per month, as per the Act on Holidays and Holiday Allowance. The vacation accrual year runs from May 1st to April 30th. Employers must pay a vacation allowance of at least 10.17% of total wages, with potential increases through collective agreements or based on tenure. Employees can earn additional vacation days after 5 or 10 years with the same company or sector, up to a maximum of 30 days.

Vacation is typically taken between May 2nd and September 1st, though arrangements can be made for other times. Part-time employees receive prorated vacation benefits, and unused vacation should generally be taken in the following year. Public holidays in Iceland include religious dates such as Easter and Christmas, as well as seasonal and historical holidays like the First Day of Summer and Icelandic National Day.

Additionally, Icelandic labor laws provide for various other types of leave, including sick leave, parental leave (up to 12 months shared between parents), maternity and paternity leave, bereavement leave, and provisions for jury duty, military service, and educational leave.

Benefits in Iceland

Iceland offers a robust set of mandatory employee benefits, ensuring a strong social safety net and promoting a healthy work-life balance. Key benefits include:

Paid Leave: Employees enjoy a minimum of 24 weekdays of paid annual leave, increasing with tenure, along with paid public holidays and sick leave that extends with service time.
Parental Leave: Both mothers and fathers are entitled to parental leave, supported by parental leave insurance.
Social Security Contributions: Employers withhold contributions for unemployment insurance, parental leave insurance, and bankruptcy insurance.
Additional Benefits: These include a standard probationary period, overtime pay, notice periods, and severance pay in some cases.
Health and Wellness: Some employers offer private health insurance and contribute to gym memberships or fitness facilities.
Work-Life Balance: Flexible working hours and generous vacation time are common.
Financial Security: Additional pension contributions and profit-sharing schemes are offered by some employers.
Family Support: Employers may provide childcare assistance and parental leave top-ups.
Personal and Professional Development: Opportunities for education, attending workshops, and language courses are provided by some companies.

Healthcare is universally accessible, with automatic enrollment in the national health insurance system for residents domiciled for six months or more. Foreign employees have specific insurance requirements based on their origin and duration of stay.

Iceland's retirement system includes a public pension from the Social Security Administration and mandatory occupational pensions, with contributions from both employers and employees. The standard retirement age is 67, with options for early or deferred retirement affecting benefits.

Workers Rights in Iceland

Icelandic employment law provides robust protections for employees, encompassing fair dismissal practices, anti-discrimination measures, and workplace safety regulations.

Termination of Employment:

Employers must have lawful grounds for dismissal, which can be objective (e.g., poor performance, misconduct), subjective (e.g., loss of trust), or due to redundancies.
Written justification and documentation are required for terminations.
Notice periods vary based on factors like length of service and are sometimes defined in collective wage agreements.

Severance and Redundancies:

There is no universal entitlement to severance pay, though it may be included in collective agreements.
Large-scale layoffs require consultations with employee representatives and notification to the regional employment office.

Anti-Discrimination Laws:

Discrimination is prohibited on various grounds including gender, race, and age.
Employers must develop anti-discrimination policies, provide employee training, and investigate complaints thoroughly.
Victims of discrimination have multiple avenues for redress, including internal reporting, the Directorate of Equality, labor unions, and the courts.

Workplace Safety and Health:

The Act on Working Environment, Health and Safety in Workplaces outlines employer obligations for a safe work environment, including risk assessments and providing personal protective equipment.
Employees have rights to participate in safety activities, refuse unsafe work, and report unsafe conditions.
The Icelandic Administration of Occupational Safety and Health enforces safety regulations, with additional support from elected safety representatives in larger workplaces.

Work Hours and Ergonomics:

A full-time job is capped at 40 hours per week, with mandated overtime pay for additional hours.
Workers are entitled to significant rest periods and paid vacation days.
Ergonomic requirements are emphasized, though specifics may vary by workplace or industry.

Overall, Iceland's employment laws focus on creating a fair, safe, and inclusive working environment, with specific provisions for employee protection, workplace safety, and equality.

Agreements in Iceland

In Iceland, employment is governed by either individual employment contracts or collective bargaining agreements.

Individual Employment Contracts are recommended to be in written form, especially for employment exceeding one month or eight hours per week. These contracts must include basic information such as the identities of the employer and employee, job description, workplace location, and start date. They must adhere to the minimum standards set by any applicable collective bargaining agreements, ensuring that employees cannot be offered terms less favorable than those specified in these agreements.

Collective Bargaining Agreements play a crucial role in setting employment standards across various sectors, including minimum wages, working hours, and vacation entitlements. These agreements automatically integrate their terms into individual contracts, providing a baseline that individual contracts cannot undercut.

Probationary Periods are optional in Iceland, with a legal maximum duration of three months, extendable to six months for managerial positions. These periods allow both employer and employee to assess suitability before committing fully. During this time, either party can terminate the employment with a shorter notice period.

Confidentiality and Non-Compete Clauses are also recognized in Icelandic employment law. Confidentiality clauses protect sensitive employer information, while non-compete clauses prevent employees from joining competitors immediately after leaving the company. However, non-compete clauses must be reasonable in scope, duration, and geographic reach, and are only enforceable if they do not exceed 12 to 24 months for senior employees and include compensation for the imposed restrictions.

Remote Work in Iceland

Remote work in Iceland is supported by existing labor laws, though not explicitly detailed in any single legislation. The Working Environment Act and the Act on Working Hours ensure safety and compliance in work conditions, including for remote employees. A strong internet infrastructure in Iceland aids in successful remote work, necessitating secure communication tools and possibly employer-provided equipment.

Employers are encouraged to create a supportive remote work environment through clear policies, training on remote tools, and ergonomic setups. Maintaining a positive workplace culture and addressing potential remote work challenges like isolation are also important. Flexitime and job sharing are not specifically regulated but can be arranged through employer-employee agreements, with equipment reimbursements depending on the job requirements.

Data protection is crucial, governed by the Act on the Processing of Personal Data, requiring employers to safeguard employee data with strong security measures and transparency. Employees have rights to access and correct their data, and must be trained on data security practices. Employers should implement robust security protocols like strong passwords, data encryption, and separate work and personal devices to ensure a secure remote working environment.

Working Hours in Iceland

In Iceland, working hours are governed by the Act on Working Hours, Work Environment and Safety, which sets a standard 40-hour workweek, with a maximum of 13 hours per day. Collective agreements between trade unions and employers can provide more specific regulations, such as reduced workweeks or flexible hours for certain sectors. Overtime is regulated by law and collective agreements, with compensation typically at 0.875% of regular pay for the first 162.5 overtime hours monthly, unless otherwise specified.

The law mandates 11 consecutive hours of rest every 24 hours and at least one weekly rest day, usually Sunday. Breaks are required for workdays longer than 6 hours, with specifics on duration and pay status often detailed in collective agreements. Night work is defined as at least 7 hours including the timeframe from midnight to 5:00 am, with health and safety considerations for night workers. Weekend work is not specifically restricted, but workers are entitled to a rest day, which often falls on Sunday. Additional compensation for night and weekend work is common, as outlined in collective agreements.

Salary in Iceland

Understanding competitive salaries in Iceland involves multiple factors including industry, experience, qualifications, location, company size, and unionization. Salaries vary widely with Reykjavík offering the highest averages. Collective bargaining agreements, covering about 90% of the workforce, play a crucial role in setting minimum wages and employment conditions across various industries. These agreements also mandate certain bonuses like holiday and Christmas bonuses, and may include additional benefits such as profit-sharing and meal vouchers. Iceland follows a PAYE system for tax, with specific regulations for overtime and payroll cycles. Overall, there is no national minimum wage, but sector-specific minimum wages are established through collective bargaining, ensuring fair compensation across different job markets.

Termination in Iceland

In Iceland, the minimum notice period for terminating an indefinite employment contract varies based on the employee's tenure and age, ranging from 1 week to 6 months.
Notice periods are applicable for both employer and employee-initiated terminations.
Employees with 10 years of tenure and aged 55 or older are entitled to extended notice periods, up to 6 months.
Collective bargaining agreements can override statutory notice periods and may include different terms for specific industries or job categories.
There are no statutory requirements for severance pay in Iceland, but severance entitlements can be specified in collective bargaining agreements or individual employment contracts.
Legal protections against unfair termination include prohibitions against discrimination, retaliation, and termination due to pregnancy or parental leave.
Termination procedures require written notice, the right for the employee to request an interview, and possibly union representation.
Special rules apply to collective redundancies, including consultations and notifications to the Directorate of Labour.

Freelancing in Iceland

In Iceland, the classification of workers as employees or independent contractors involves multiple factors, including control, financial arrangements, and the nature of the work relationship. Employees are typically under the employer's control, receive regular wages with benefits, and have an ongoing relationship with the company. Independent contractors, however, manage their own schedules and methods, are paid per project or on a fixed-fee basis, and handle their own taxes and social security contributions.

The Icelandic Directorate of Labour oversees labor laws and provides guidance on worker classification. Misclassification can lead to legal and financial consequences. Independent contractors can use various contract structures such as Independent Contractor Agreements, Fixed-Fee Contracts, and Hourly Rate Contracts, and should ensure clarity and fair terms during negotiations.

Independent contractors are prevalent in industries like IT, creative sectors, construction, and consulting. They are responsible for their own tax and social security payments and must consider additional costs like insurance. Intellectual property (IP) created by contractors generally belongs to them unless otherwise agreed in a contract. Protecting IP rights through copyright, trademarks, patents, and non-disclosure agreements is crucial.

Freelancers in Iceland must manage their tax obligations carefully, including making advance tax payments and covering both employer and employee portions of social security contributions. While insurance is not mandated, obtaining coverage for health, accidents, disability, and liability is advisable to mitigate potential risks.

Health & Safety in Iceland

Iceland places a strong emphasis on workplace safety and health, adhering to regulations largely influenced by European Union directives. The primary legislation governing this area is the Act on Working Environment, Health, and Safety in Workplaces, No. 46/1980, which outlines the responsibilities of employers and the rights of employees to ensure a safe working environment.

Employer Responsibilities include:

Conducting risk assessments and implementing preventive measures.
Providing information and training regarding workplace hazards.
Establishing safety committees and electing safety representatives in larger workplaces.
Supplying necessary personal protective equipment at no cost.

Employee Rights and Responsibilities involve:

The right to refuse dangerous work.
Participation in safety and health matters.
Compliance with established safety measures.

Additional regulations address specific hazards and industries, such as chemical agents, work equipment, and construction site safety.

The Administration of Occupational Safety and Health (AOSH) is the key regulatory body responsible for enforcing these laws through workplace inspections, issuing notices, and imposing fines.

Overall, Iceland's comprehensive legal framework and enforcement mechanisms aim to foster safe and healthy work environments across all industries.

Dispute Resolution in Iceland

Iceland's labor relations system includes a specialized Labor Court and arbitration panels, primarily handling disputes related to labor law and collective bargaining agreements. The Labor Court, composed of a chairperson and representatives from labor and employer confederations, deals with cases such as wage disputes, discrimination, and unfair dismissals, with decisions appealable under limited circumstances. Arbitration panels focus on issues within collective agreements, issuing binding awards after reviewing evidence.

Regulatory agencies in Iceland, such as the Icelandic Food and Veterinary Authority and the Environment Agency of Iceland, conduct compliance audits and inspections across various sectors to enforce standards and regulations. These audits follow a structured process, including planning, notification, on-site assessment, reporting, and follow-up, with non-compliance potentially leading to fines, restrictions, or legal action.

Whistleblower protections are robust, with mechanisms for both internal and external reporting of wrongdoing, safeguarding whistleblowers against retaliation and ensuring confidentiality.

Iceland adheres to international labor standards as part of its EEA membership and ILO conventions, influencing its domestic labor laws to align with global standards on issues like collective bargaining, equal remuneration, and occupational safety. The country continuously updates its legislation to meet evolving international norms, ensuring comprehensive worker protections.

Cultural Considerations in Iceland

Communication Style: Icelanders are known for their direct and honest communication in the workplace, emphasizing efficiency and clarity. This directness is often accompanied by significant non-verbal cues, such as body language and silence, which are crucial for understanding the full context of discussions.
Workplace Structure: The hierarchical structure in Icelandic organizations is relatively flat, promoting a collaborative and egalitarian environment. Employees are typically addressed by their first names, regardless of their position, which supports a more informal and open communication style.
Negotiation and Decision-Making: Negotiations in Iceland focus on collaboration and finding mutually beneficial solutions, with a strong emphasis on building trust and long-term relationships. Decision-making tends to involve a consensual approach, with a preference for empowerment and shared responsibility due to the flat organizational structure.
Team Dynamics and Leadership: Teams in Icelandic companies are often self-organized and project-based, which fosters collaboration and knowledge sharing. Leadership styles commonly include transformational and servant leadership, both of which prioritize empowerment and support for team members.
Statutory Holidays and Business Impact: Iceland observes several statutory holidays, such as New Year's Day, Good Friday, Easter Monday, and Christmas, during which businesses experience significant slowdowns. These holidays, along with others like the First Day of Summer and National Day, impact work schedules and general business activity, often leading to closures or reduced hours.

Frequently Asked Questions for Employer of Record services in Iceland

Who handles the filing and payment of employees' taxes and social insurance contributions when using an Employer of Record in Iceland?

When using an Employer of Record (EOR) in Iceland, the EOR handles the filing and payment of employees' taxes and social insurance contributions. This includes the calculation, withholding, and remittance of income taxes, as well as contributions to the Icelandic social security system. The EOR ensures compliance with local tax laws and regulations, thereby relieving the client company of the administrative burden and complexities associated with payroll and tax compliance in Iceland. This service allows the client company to focus on its core business activities while ensuring that all legal and regulatory requirements are met.

What options are available for hiring a worker in Iceland?

In Iceland, employers have several options for hiring workers, each with its own set of legal and administrative requirements. Here are the primary options available:

Direct Employment:
- Permanent Contracts: These are the most common form of employment in Iceland. Employees are hired on an indefinite basis, and both parties must adhere to the terms outlined in the employment contract and Icelandic labor laws.
- Fixed-Term Contracts: These contracts are for a specific duration or project. They must be justified by a legitimate reason, such as seasonal work or a specific project, and cannot be used to circumvent the rights of permanent employees.
Temporary Employment Agencies:
- Employers can hire workers through temporary employment agencies. These agencies handle the recruitment, payroll, and compliance with labor laws, while the workers perform their duties at the employer's premises.
Independent Contractors:
- Hiring independent contractors is another option. Contractors are self-employed and handle their own taxes and social security contributions. However, it is crucial to ensure that the relationship genuinely reflects an independent contractor status to avoid misclassification issues.
Employer of Record (EOR) Services:
- An Employer of Record, like Rivermate, can be an excellent solution for companies looking to hire in Iceland without establishing a legal entity. The EOR becomes the legal employer of the worker, handling all employment-related responsibilities, including payroll, taxes, benefits, and compliance with local labor laws. This allows the hiring company to focus on managing the worker's day-to-day activities and performance.

Benefits of Using an Employer of Record in Iceland:

Compliance: Iceland has specific labor laws and regulations that must be adhered to, including those related to working hours, minimum wage, termination procedures, and employee benefits. An EOR ensures full compliance with these laws, reducing the risk of legal issues.
Cost-Effective: Setting up a legal entity in Iceland can be time-consuming and expensive. Using an EOR eliminates the need for this, allowing companies to hire quickly and efficiently without the overhead costs associated with establishing a local presence.
Speed and Efficiency: An EOR can expedite the hiring process, enabling companies to onboard employees swiftly. This is particularly beneficial for businesses looking to scale rapidly or enter the Icelandic market without delay.
Local Expertise: EORs possess in-depth knowledge of the local labor market and employment practices. This expertise ensures that employment contracts, benefits packages, and other HR-related matters are handled in accordance with Icelandic standards.
Focus on Core Business: By outsourcing employment responsibilities to an EOR, companies can concentrate on their core business activities, such as product development, sales, and customer service, without being bogged down by administrative tasks.

In summary, while there are multiple options for hiring workers in Iceland, using an Employer of Record like Rivermate offers significant advantages in terms of compliance, cost savings, speed, and local expertise. This makes it an attractive option for companies looking to expand their workforce in Iceland efficiently and effectively.

What is the timeline for setting up a company in Iceland?

Setting up a company in Iceland involves several steps and can vary in duration depending on the complexity of the business and the efficiency of the processes. Here is a detailed timeline for setting up a company in Iceland:

Preparation and Planning (1-2 weeks):
- Business Plan: Develop a comprehensive business plan outlining your business objectives, market analysis, financial projections, and operational strategy.
- Legal Structure: Decide on the legal structure of your company (e.g., private limited company, public limited company, partnership, etc.).
Name Registration (1-2 days):
- Company Name: Choose a unique company name and check its availability with the Icelandic Company Registry (Ríkisskattstjóri).
- Reservation: Reserve the company name if it is available.
Drafting Documents (1-2 weeks):
- Articles of Association: Draft the Articles of Association, which outline the company's purpose, share capital, and governance structure.
- Founding Documents: Prepare other necessary founding documents, such as the memorandum of association and shareholder agreements.
Capital Requirements (1-2 weeks):
- Share Capital: Deposit the minimum required share capital into a bank account. For a private limited company (Einkahlutafélag or ehf.), the minimum share capital is ISK 500,000.
- Bank Certificate: Obtain a bank certificate confirming the deposit of the share capital.
Registration with Authorities (1-2 weeks):
- Company Registration: Submit the necessary documents to the Icelandic Company Registry, including the Articles of Association, bank certificate, and identification documents of the founders.
- Tax Registration: Register the company for tax purposes with the Directorate of Internal Revenue (Ríkisskattstjóri).
Licenses and Permits (2-4 weeks):
- Business Licenses: Apply for any specific business licenses or permits required for your industry. This step can vary significantly depending on the nature of your business.
- Municipal Permits: Obtain any necessary permits from local municipalities.
Operational Setup (2-4 weeks):
- Office Space: Secure office space and set up the physical infrastructure for your business operations.
- Employment Contracts: Draft employment contracts and hire staff if needed.
Opening Bank Accounts (1-2 weeks):
- Corporate Bank Account: Open a corporate bank account for your company to manage financial transactions.
Compliance and Reporting (Ongoing):
- Annual Reports: Prepare and submit annual financial statements and reports to the relevant authorities.
- Tax Filings: Ensure timely tax filings and compliance with Icelandic tax regulations.

In total, the process of setting up a company in Iceland can take anywhere from 6 to 12 weeks, depending on the efficiency of each step and the specific requirements of your business. Using an Employer of Record (EOR) service like Rivermate can significantly streamline this process by handling many of the administrative and compliance tasks on your behalf, allowing you to focus on your core business activities.

Is it possible to hire independent contractors in Iceland?

Yes, it is possible to hire independent contractors in Iceland. However, there are several important considerations to keep in mind to ensure compliance with Icelandic laws and regulations.

Legal Classification: In Iceland, the distinction between an employee and an independent contractor is crucial. Independent contractors are typically self-employed individuals who provide services to a company under a contract for services, rather than a contract of employment. This classification affects tax obligations, social security contributions, and employment rights.
Contractual Agreement: When hiring an independent contractor, it is essential to have a clear and detailed contract that outlines the scope of work, payment terms, duration of the contract, and other relevant conditions. This contract should explicitly state that the individual is an independent contractor and not an employee.
Taxation: Independent contractors in Iceland are responsible for their own tax filings and payments. They must register with the Icelandic tax authorities and obtain a tax identification number. Contractors are required to pay income tax, value-added tax (VAT) if applicable, and social security contributions.
Social Security and Benefits: Unlike employees, independent contractors do not receive benefits such as paid leave, health insurance, or pension contributions from the hiring company. They must manage their own social security contributions and insurance coverage.
Compliance and Misclassification Risks: It is important to ensure that the working relationship with the contractor does not resemble that of an employer-employee relationship. Misclassification can lead to legal and financial penalties. Factors such as control over work hours, provision of tools and equipment, and the degree of independence in performing tasks are considered when determining the nature of the relationship.
Local Regulations: Iceland has specific labor laws and regulations that must be adhered to when engaging independent contractors. It is advisable to consult with legal experts or use services like an Employer of Record (EOR) to navigate these complexities and ensure compliance.

Using an Employer of Record (EOR) service like Rivermate can simplify the process of hiring independent contractors in Iceland. An EOR can handle administrative tasks, ensure compliance with local laws, manage payroll and tax filings, and mitigate the risks associated with misclassification. This allows companies to focus on their core business activities while ensuring that all legal and regulatory requirements are met.

What legal responsibilities does a company have when using an Employer of Record service like Rivermate in Iceland?

When a company uses an Employer of Record (EOR) service like Rivermate in Iceland, several legal responsibilities are managed by the EOR, simplifying the process for the client company. Here are the key legal responsibilities that are typically handled:

Employment Contracts: The EOR ensures that employment contracts comply with Icelandic labor laws. This includes drafting, issuing, and maintaining contracts that meet all legal requirements, such as terms of employment, job descriptions, and compensation details.
Payroll Management: The EOR is responsible for processing payroll in accordance with Icelandic regulations. This includes calculating wages, withholding taxes, and ensuring timely payment to employees. They also handle statutory deductions and contributions to social security and pension funds.
Tax Compliance: The EOR manages all aspects of tax compliance, including the calculation and remittance of income tax, social security contributions, and any other applicable taxes. They ensure that all tax filings are accurate and submitted on time to the relevant Icelandic authorities.
Employee Benefits: The EOR administers employee benefits as required by Icelandic law, such as health insurance, pension plans, and any other statutory benefits. They also manage any additional benefits that the client company wishes to offer.
Labor Law Compliance: The EOR ensures that all employment practices comply with Icelandic labor laws, including working hours, overtime, leave entitlements, and termination procedures. They stay updated on any changes in legislation to ensure ongoing compliance.
Work Permits and Visas: If the client company hires foreign employees, the EOR handles the application and renewal of work permits and visas, ensuring compliance with Icelandic immigration laws.
Employee Onboarding and Offboarding: The EOR manages the onboarding process for new hires, including necessary documentation and orientation. They also handle the offboarding process, ensuring that terminations are conducted in compliance with Icelandic labor laws and that all final payments and entitlements are settled.
Record Keeping: The EOR maintains accurate and up-to-date records of all employees, including personal information, employment history, and payroll records, in compliance with Icelandic data protection regulations.

By using an EOR like Rivermate in Iceland, the client company can focus on its core business activities while the EOR handles these complex legal responsibilities, ensuring full compliance with local laws and regulations.

What are the costs associated with employing someone in Iceland?

Employing someone in Iceland involves several costs that employers need to consider. These costs can be broadly categorized into direct compensation, mandatory benefits, and other employment-related expenses. Here is a detailed breakdown:

Direct Compensation:
- Gross Salary: This is the primary cost and varies depending on the role, industry, and experience of the employee. Iceland has a high standard of living, and salaries tend to reflect this.
- Bonuses and Incentives: Depending on the employment contract and company policy, bonuses and performance incentives may be part of the compensation package.
Mandatory Benefits and Contributions:
- Social Security Contributions: Employers are required to contribute to the social security system. The employer's contribution rate is approximately 6.35% of the employee's gross salary.
- Pension Contributions: Employers must contribute to the employee's pension fund. The mandatory employer contribution is 11.5% of the employee's gross salary.
- Unemployment Insurance: Employers contribute to the unemployment insurance fund, which is around 1.35% of the employee's gross salary.
- Health Insurance: While the public healthcare system is funded through taxes, employers may also offer private health insurance as a benefit.
Other Employment-Related Expenses:
- Vacation Pay: Employees in Iceland are entitled to a minimum of 24 days of paid vacation per year. Vacation pay is typically calculated at 10.17% of the employee's annual salary.
- Sick Leave: Employers must provide paid sick leave, which can vary depending on the length of employment and collective bargaining agreements.
- Parental Leave: Iceland has generous parental leave policies. Employers may need to cover part of the cost, depending on the specific arrangements and collective agreements.
- Training and Development: Investing in employee training and development can be a significant cost but is essential for maintaining a skilled workforce.
- Workplace Safety and Compliance: Ensuring compliance with Icelandic labor laws and workplace safety regulations can incur additional costs.
Administrative and Operational Costs:
- Recruitment and Onboarding: The process of hiring and onboarding new employees involves costs related to advertising, interviewing, and training.
- Payroll Processing: Managing payroll, including tax withholdings and benefits administration, can require dedicated resources or outsourcing to a payroll service provider.
- Legal and Compliance Costs: Ensuring compliance with Icelandic labor laws and regulations may require legal consultation and regular updates to employment practices.

Using an Employer of Record (EOR) like Rivermate can help manage these costs more efficiently. An EOR handles payroll, benefits administration, compliance, and other HR functions, allowing companies to focus on their core business activities. This can be particularly beneficial for companies looking to expand into Iceland without establishing a legal entity, as it simplifies the complexities of local employment laws and reduces administrative burdens.

What is HR compliance in Iceland, and why is it important?

HR compliance in Iceland refers to the adherence to the country's labor laws, regulations, and standards that govern the relationship between employers and employees. This includes a wide range of legal requirements such as employment contracts, working hours, minimum wage, health and safety standards, anti-discrimination laws, and employee benefits.

Key Aspects of HR Compliance in Iceland:

Employment Contracts: In Iceland, it is mandatory to provide written employment contracts that outline the terms and conditions of employment, including job duties, salary, working hours, and notice periods.
Working Hours and Overtime: The standard working week in Iceland is 40 hours. Any work beyond this is considered overtime and must be compensated at a higher rate, typically 1.0385 times the regular hourly rate for the first 8 hours of overtime per week and 1.375 times thereafter.
Minimum Wage: Iceland does not have a statutory minimum wage. Instead, wages are determined through collective bargaining agreements between employers and unions. Employers must comply with these agreements to ensure fair compensation.
Health and Safety: Employers are required to provide a safe working environment and comply with the Occupational Safety and Health Administration (OSHA) regulations in Iceland. This includes conducting risk assessments and implementing necessary safety measures.
Anti-Discrimination Laws: Icelandic law prohibits discrimination based on gender, age, race, religion, disability, sexual orientation, and other protected characteristics. Employers must ensure equal treatment and opportunities for all employees.
Employee Benefits: Employers must provide certain benefits, such as paid annual leave (minimum of 24 days), sick leave, and parental leave. Additionally, contributions to pension funds are mandatory.

Importance of HR Compliance in Iceland:

Legal Protection: Adhering to HR compliance helps protect the company from legal disputes and potential lawsuits. Non-compliance can result in significant fines, penalties, and damage to the company's reputation.
Employee Satisfaction and Retention: Compliance with labor laws ensures fair treatment of employees, which can lead to higher job satisfaction, increased morale, and better retention rates. Employees are more likely to stay with a company that respects their rights and provides a safe and equitable working environment.
Operational Efficiency: By following established regulations, companies can avoid disruptions caused by legal issues or employee dissatisfaction. This leads to smoother operations and a more stable workforce.
Reputation Management: Companies that are known for complying with labor laws and treating their employees well can build a positive reputation, which can be beneficial for attracting top talent and maintaining good relationships with stakeholders.
Risk Mitigation: Compliance helps in identifying and mitigating risks associated with employment practices. This includes avoiding potential conflicts, ensuring workplace safety, and maintaining a harmonious work environment.

Using an Employer of Record (EOR) like Rivermate in Iceland:

An Employer of Record (EOR) service like Rivermate can be highly beneficial for companies looking to ensure HR compliance in Iceland. Here’s how:

Expertise in Local Laws: Rivermate has in-depth knowledge of Icelandic labor laws and regulations, ensuring that your company remains compliant with all legal requirements.
Streamlined Processes: Rivermate handles all HR-related tasks, including payroll, benefits administration, and employment contracts, allowing your company to focus on core business activities.
Risk Management: By using Rivermate, you can mitigate the risks associated with non-compliance, as the EOR takes on the responsibility of adhering to local laws and regulations.
Cost-Effective: Outsourcing HR compliance to Rivermate can be more cost-effective than maintaining an in-house HR department, especially for small to medium-sized enterprises.
Scalability: Rivermate provides the flexibility to scale your workforce up or down as needed, without the complexities of managing HR compliance in-house.

In summary, HR compliance in Iceland is crucial for legal protection, employee satisfaction, operational efficiency, reputation management, and risk mitigation. Using an Employer of Record like Rivermate can help ensure compliance, streamline processes, and provide cost-effective solutions for managing your workforce in Iceland.

Do employees receive all their rights and benefits when employed through an Employer of Record in Iceland?

Yes, employees in Iceland receive all their rights and benefits when employed through an Employer of Record (EOR) like Rivermate. An EOR ensures compliance with local labor laws and regulations, which is crucial in a country like Iceland where labor laws are stringent and employee rights are strongly protected.

Here are some key aspects of employee rights and benefits in Iceland that an EOR like Rivermate would manage:

Employment Contracts: Icelandic law requires that employment contracts be in writing and include specific details such as job description, salary, working hours, and notice periods. An EOR ensures that all employment contracts are compliant with these requirements.
Working Hours and Overtime: The standard working week in Iceland is 40 hours. Any work beyond this is considered overtime and must be compensated accordingly. An EOR ensures that employees are paid correctly for any overtime worked.
Minimum Wage: Iceland does not have a statutory minimum wage, but wages are typically determined by collective agreements. An EOR ensures that employees are paid in accordance with these agreements.
Leave Entitlements:
- Annual Leave: Employees are entitled to a minimum of 24 days of paid annual leave. An EOR tracks and manages leave entitlements to ensure compliance.
- Sick Leave: Employees are entitled to paid sick leave, the duration of which depends on the length of employment. An EOR manages sick leave policies in accordance with Icelandic law.
- Parental Leave: Iceland has generous parental leave policies, including both maternity and paternity leave. An EOR ensures that employees can take advantage of these benefits.
Social Security and Taxes: Employers in Iceland are required to contribute to social security and withhold taxes from employees' salaries. An EOR handles these contributions and withholdings, ensuring compliance with local tax laws.
Health and Safety: Icelandic law mandates that employers provide a safe working environment. An EOR ensures that health and safety regulations are followed, protecting employees' well-being.
Termination and Severance: Termination of employment must follow specific procedures, including notice periods and, in some cases, severance pay. An EOR ensures that any terminations are handled in accordance with Icelandic law.

By using an EOR like Rivermate, companies can ensure that their employees in Iceland receive all the rights and benefits they are entitled to under local law. This not only helps in maintaining compliance but also in fostering a positive and fair working environment.

How does Rivermate, as an Employer of Record in Iceland, ensure HR compliance?

Rivermate, as an Employer of Record (EOR) in Iceland, ensures HR compliance through a comprehensive understanding and application of Icelandic labor laws and regulations. Here are several ways Rivermate achieves this:

Local Expertise: Rivermate employs local HR professionals who are well-versed in Icelandic employment laws, including the Act on Working Environment, Health and Safety in Workplaces, and the Act on Equal Status and Equal Rights of Women and Men. This local expertise ensures that all HR practices are compliant with national regulations.
Employment Contracts: Rivermate ensures that all employment contracts are drafted in accordance with Icelandic law. This includes adhering to mandatory provisions such as working hours, overtime pay, holiday entitlements, and termination procedures. Contracts are also provided in Icelandic, ensuring clarity and legal compliance.
Payroll Management: Rivermate handles payroll processing in strict compliance with Icelandic tax laws and social security contributions. This includes accurate calculation of income tax, pension contributions, and other statutory deductions, ensuring that employees are paid correctly and on time.
Benefits Administration: Rivermate manages statutory benefits such as parental leave, sick leave, and holiday pay, ensuring that employees receive all entitlements as per Icelandic law. They also assist in providing additional benefits that may be customary or required by collective bargaining agreements.
Regulatory Updates: Rivermate continuously monitors changes in Icelandic labor laws and regulations. This proactive approach ensures that any updates or amendments are promptly incorporated into HR practices, keeping the company and its employees compliant with the latest legal requirements.
Employee Relations: Rivermate provides support in managing employee relations, including handling grievances, disciplinary actions, and terminations in accordance with Icelandic law. This helps mitigate legal risks and ensures fair treatment of employees.
Health and Safety Compliance: Rivermate ensures that workplace health and safety standards are met, in line with Icelandic regulations. This includes conducting risk assessments, implementing safety protocols, and ensuring that employees are trained on health and safety practices.
Data Protection: Rivermate ensures compliance with Icelandic data protection laws, which align with the General Data Protection Regulation (GDPR). This includes secure handling of employee data, obtaining necessary consents, and ensuring data privacy.

By leveraging Rivermate's expertise as an Employer of Record in Iceland, companies can confidently navigate the complexities of Icelandic employment laws, ensuring full compliance and minimizing legal risks. This allows businesses to focus on their core operations while Rivermate handles the intricacies of HR compliance.