Hire in Iceland

Icelandic contracts of employment fall under the regulation of the Labor Code, which is overseen by the Ministry of Social Affairs. Employment contracts may not specify inferior terms than are provided for by law or in CBAs, even with the agreement of the employee.

A written employment contract is mandatory for any employment engagement. Furnishing this is the responsibility of the employer and it should be presented to the employee no later than two months after they commence work.

An employment contract can be entered into for a fixed or indefinite period. If it is a fixed period, the end date must be clearly stated in the contract.

An employment contract can contain a probationary period up to a maximum of three months.

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 a workday longer than 13 hours.

Employees also have the right 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 should always be a day of rest.

As with other Scandinavian countries, flexible working arrangements – when they do not cause any disruption to the business – are very common.

All work beyond eight hours per day is considered overtime unless the employment contract states explicitly that the salary is deemed to compensate for occasional overtime. If a contract stipulates overtime, an employee can ask an 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 paid at 1.0385% of monthly salary per hour of overtime worked. It is possible for employees to 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 called into work on a Saturday or Sunday, they are entitled to four hours overtime pay just for showing up. This rule stands regardless of whether the task takes four hours or not.

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 commences at the start 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, such as a 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.

A notice of termination must be concluded in writing and is based on the turn of the month. If the employee does not receive formal notice of dismissal at least on the last working day of the month, the notice period is automatically pushed back to the start of the next month.

An employment which has been terminated by either party remains intact until the end of the notice period. This means the rights and obligations under the agreement remain unchanged during the period. However, the parties can reach an agreement to end the relationship before the notice period ends.

There is no statutory right to severance pay in Iceland. The employee is, however, still entitled to their ordinary salary payment and additional contractual benefits during the period of notice in accordance with the terms of employment.

In addition, employers who are not bound by any CBA may choose to offer some kind of severance package including severance pay, education, release from work duties, etc. Any severance payment, according to this type of agreement, is typically based on one to 24 months of salary. This also takes into account seniority, age, social factors and other factors. The right to such benefits is normally conditional upon the employee entering into a termination agreement, whereby the employee waives the right to take legal proceedings pursuant to the Employment Act. Termination agreements may be entered into before the employee receives notice. Alternatively, the parties may reach an agreement after notice is given.

A notice period of three months is common in Iceland. The minimum notice period allowed is one month. There is no upper limit.

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

According to Icelandic law, post-termination restraint clauses in employment agreements are generally binding and enforceable between the employer and the employee. These are common in the Icelandic market. Such provisions may give rise to damages payable from the employee to the previous employer. They may also be enforceable by other measures such as injunctions.

Non-compete provisions must be within reasonable limits and may not unduly restrict the employee’s freedom of employment. The clause contains a balancing exercise whereby the interests of the employer are weighed against the employee’s right to freedom of employment. Non-compete clauses are generally not binding for more than 12 to 24 months for senior management employees, according to case law.

The employees´ salaries, when they are employed, must reflect the restrictions imposed post-employment. In some cases, employees receive payments during the restrictions. However, in other cases, the employees’ salaries and benefits (while employed) justify restriction periods where no remuneration is paid during such periods. This is usually addressed in the employment agreement.

All time spent in the service of the employer must be registered as working hours. The employer must have a routine system in place for recording working hours. Employees must be informed of this routine. The recording of working hours must be clear and easy to understand. As a rule, the start and end times of the day or shift must be recorded

Much of the employer-employee relationship is governed by CBAs and there are three main union federations in Iceland.

The Federation of General and Special workers in Iceland (SGS) is a federation of trade unions in the private sector and part of the public sector. SGS is the largest association of workers in Iceland, encompassing 19 trade unions of general and special workers. It has approximately 53,000 members. The five main branches of SGS are food and agriculture, building and construction, service and tourism, industry and public services.

Samiðn is a nationwide federation of labor unions whose members work in engine mechanics, hairdressing, metal mechanics, technical drafting, building industries, horticulture and shipbuilding.

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

Most employees are employed on indefinite contracts in Iceland. However, fixed-term contracts are permissible.

The Icelandic Act No. 139/2003, on Fixed-Term Employment puts forward a framework to prevent abuse arising from the application of successive fixed-term employment contracts or relationships.

The use of successive fixed-term contracts is to be limited. The Act prohibits the use of successive fixed-term contracts to a maximum of three years. Fixed-term contracts for managerial positions are allowed for a period of four years.

A new employment contract is considered as replacing a previous one if it is extended or if a new fixed-term contract is settled between the same parties within three weeks from the completion of the previous agreement.

Employees with fixed-term contracts must not be treated less favorably in terms of compensation and benefits than their counterparts with indefinite contracts.

Salaries are paid on the first day of the following month (e.g. the November salary is paid on December 1). Deductions can only be made if they are statutory or agreed upon in writing, in advance.

The payslip should show line items for all elements of gross salary and all deductions leading to THE net salary.

In Iceland, vacation is earned in one year to be taken in the next. The vacation year runs from May 1 through April 30. Employees who have not worked a full year are entitled to proportional vacation. iF this is the case, the employee is deemed to have earned two vacation days for each month worked during the earning year.

The minimum annual leave entitlement for employees, according to the Holiday Allowance Act, is 24 days. However, it is important to note many CBAs provide for 25 – 30 days of vacation per year.

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

While working in Iceland, employees accumulate paid holiday. The minimum holiday entitlement is 24 weekdays of paid leave. Holiday pay is 10.17% of total wages. After five years in the same line of work, it increases to 25 weekdays and it is paid at 10.64% of total wages. After five years with the same employer, it increases to 27 weekdays and is 11.59% of total wages. After ten years with the same employer, it is 30 weekdays and 13.04% of total wages.

Fixed Christmas bonuses are payable on December 1. Holiday bonuses are payable in the summer between May 1 and August 15th. If an employee has worked only part of the year, their bonus will be proportional to their service time. The bonus is paid together with the salary in the corresponding month.

During their first year with a new employer, employees are entitled to two days of paid sick leave per month. After one year, employees are entitled to be paid for two months away from work due to illness. Employers have a right to demand a sick note from a doctor to verify an illness. After 21 days of consecutive illness, sick pay is offered through social security.

After five years, employees are entitled to be paid for four months of sick leave and six months after ten years. If an employee changes employers after five years, they are still entitled to at least two months of sick leave with the new employer.

There is no legislation in Iceland for paid bereavement leave. The employment contract, CBA or the company’s internal rules will determine whether or not an employee is entitled to such leave and whether the leave is granted with or without pay. In practice, in the absence of a specific agreement, most companies allow at least two days paid bereavement leave in the event of the death of a close family member

Carers’ leave

Children: If a child is sick, the CBA and contract will specify how many days of paid leave an employee may take each year. The standard is 24 days.

Family: Iceland has very family-friendly legislation and so the definition of “family” is broad and not necessarily restricted to blood relatives. There are no legal entitlements to time off to care for family. However, The Equal Status Act specifies employers must do what they can to make it possible for employers to fulfill their responsibilities towards their families. Most CBAs specify a number of leave days allowed for family care.

There are 16 public holidays in Iceland, some of which fall on the weekend and some of which comprise a half-day only.

Maternity Leave and Paternity Leave do not exist separately in Iceland. Instead, it is Parental leave, which is 12 months in duration. It allows both parents to take six months away from work each, with one month transferable between the parents. Mothers may take up to one month off of work before the baby arrives and must take at least two weeks of parental leave following the birth of her child.

The standard monthly parental leave payment is 80% of salary. This is capped at ISK 600,000 before taxes.

During periods of parental leave, the employment contract and all benefits remain intact.

In addition to the leave allowed immediately after childbirth, parents are entitled to take unpaid leave equivalent to four months in total in order to care for a child until he or she is 8 years old.