Spotlight on Iceland

Beautiful scenery of Iceland

Iceland, despite its small size and population, has earned a stellar reputation on the world stage for its diversified economy, social stability and technological innovation. Owing to these features along with its low tax structure, high education levels and competitive operational costs, multinational companies (MNCs) are increasingly turning to Iceland for expansion, investment and hiring. 

Why Iceland?

  • Iceland ranks among the world’s top 20 (#20) for innovation, according to the 2022 Global Innovation Index, earning particularly high marks for educational institutions, human capital and research and development (R&D). 
  • The Nordic island country also ranks highly (#13) for its workforce productivity, according to Our World in Data. 
  • Located between Europe and North America, MNCs in Iceland can tap into key consumer markets and regional supply chains. 
  • Companies can gain access to rich resources of green energy and long-term energy contracts, which enables them to cut costs and reduce their carbon footprint.
  • Iceland is a part of the European Economic Area (EEA), which unites member states into a single market regulated by the same basic rules regulating competition as well as facilitating the free movement of goods, services and capital. 

What do MNCs need to be aware of before hiring in Iceland for the first time?

Because Iceland is part of the EEA-Agreement with the EU, it implements most EU regulations and directives regarding labor law into Icelandic law. 

However, there are several key sources of legislation and rules governing employment that MNCs should be aware of, including:

What are the typical working hours in Iceland?

A normal office work week in Iceland is Monday through Friday at 37.5 hours per week, excluding a half hour lunch break. It is illegal for employers to schedule an employee for a single workday longer than 13 hours.

Employees in Iceland are also entitled to a rest period of 11 hours of continuous rest per 24 hour period. Depending on the nature of work and the employment contract, Sundays are typically a day of rest.

As with other Scandinavian countries, flexible working arrangements are very common, as long as they do not cause a major disruption to the business.

How is overtime regulated?

Any work beyond eight hours per day is considered overtime unless the employment contract states explicitly that the salary is deemed to account for occasional overtime. If a contract stipulates overtime, the employee can ask the employer to specify how many hours are included before overtime pay starts.

Overtime is calculated as 0.875% of monthly salary per hour for the first 162.5 hours of overtime per month. Any overtime work greater than 162.5 hours is then paid at 1.0385% of monthly salary per hour of overtime worked.

Employees may request overtime as extra holiday days instead of pay. In this case, one hour of overtime translates to one hour and forty minutes of a holiday. If an employee is scheduled to work on a Saturday or Sunday, they are entitled to four hours of overtime pay just for showing up. This rule holds up regardless of whether the task takes four hours or not.

How are terminations handled?

Either the employee or the employer has the right to terminate the employment contract. However, notice must be given in writing and the notice period starts at the beginning of the following month. The notice period usually lasts three months, unless both parties agree to a different date. The minimum period is one month. 

The employer does not need to state a reason for the termination of an employee but the reason for the termination must not contravene any protections for employees, including dismissal on the grounds of pregnancy, trade union representation, family responsibilities or absence due to illness. Employees are expected to continue to work during the notice period, unless otherwise agreed upon.

What are the greatest challenges MNCs face in hiring in Iceland? 

With its small population, Iceland has had a tight labor market for many years. As a result, companies may have difficulty tapping into top talent. In order to do this, they may need to offer supplemental benefits and a great employee experience. 

Labor law in Iceland is also derived from a multitude of sources, including its own legislation as well as EU regulations and directives. It may be difficult for an MNC’s HR team, if they are unfamiliar with Iceland’s labor framework, to learn all of these various provisions and manage a workforce successfully.

What makes the Employer of Record (EOR) hiring model an attractive option in Iceland?

Instead of setting up a legal entity, MNCs may find the EOR model to be a more agile, cost-effective solution for hiring in Iceland. By working with an EOR like GoGlobal, the MNC avoids the challenging process of establishing a company and the internal HR team does not need to learn Icelandic labor laws nor administer payroll in-country. 

The EOR hiring model essentially helps a company mitigate many of the risks, requirements and restrictions that typically come along with hiring in Iceland – while still being able to tap into the country’s innovative, talented workforce. 

How is the GoGlobal experience different?

At GoGlobal, our approach to HR is different from many other service providers. Our team members work from all around the world, so we have a global mindset that understands business expansion. At the same time, we maintain a dedicated team of local experts on the ground in every country we serve.  Our team members in Iceland know the local regulatory environment as well as cultural customs in the workplace resulting in a positive, tailored hiring experience that makes both our clients and our client-workers happy. 

How does the hiring process with GoGlobal work?

In order to onboard a new worker, GoGlobal’s team in Iceland will arrange a meeting with him or her to go over the specifics of the EOR arrangement and answer any questions they may have. Once the worker is onboarded and working for the hiring company, this same dedicated team serves as the point of contact for both the client and the client-worker. We’re available 24/7 to address any issues that come up in payroll, benefits or taxation. 

What is GoGlobal’s goal in serving clients and client-workers?

We are here to address the pain points of hiring in Iceland, whether it’s mitigating compliance risks or administering payroll, statutory benefits and taxation requirements. We even help clients design supplemental benefits, which can serve as a tool for tapping into top talent in Iceland’s competitive labor market.

When we work with our clients and our client-workers, our goal is to provide agility, efficiency and peace of mind to all parties.

Find additional details on benefits and hiring in Iceland, or get in touch to talk with an international HR expert.