Hiring in Iceland: Employer Costs, Labor Laws and How to Hire
Icelandic employers pay a 6.35% social security tax (tryggingagjald) on all pay in 2026, plus 11.5% to the employee's pension fund under collective agreements: 17.85% in total. The employee pays 4% to the pension fund. On an ISK 10,800,000 salary, the employer's cost is ISK 12,727,800 a year.
Hiring someone in Iceland? This guide covers what an employee costs, the social security tax and pension premiums, the labor rules that apply, pay without a statutory minimum wage, income tax, work permits and the ways a company outside Iceland can employ someone there.
Employer and employee contributions in Iceland, 2026
Key employment rules in Iceland
How to hire in Iceland
Hiring in Iceland comes down to two decisions: who you hire, and how you employ them.
- Find the person. Write the role, set the salary against Icelandic pay levels, then source and interview candidates. You can run the search yourself with a job post, or use a placement service that delivers a shortlist.
- Choose how to employ them. An Icelandic entity running payroll, an employer of record or a contractor agreement. Each option is explained below.
- Make the offer. The contract has to meet the rules in the employment table above, and the collective agreement for the occupation, which sets minimum pay. The pension fund the employee joins must be named in the written employment contract.
Your options for employing someone in Iceland
- Icelandic entity: you register a company in Iceland, run payroll, withhold tax and pay the social security tax and pension premiums yourself. It suits a team of several people in Iceland.
- Employer of record (EOR): a third-party provider becomes the legal employer and runs Icelandic payroll for a monthly fee per employee. Your company directs the work.
- Contractor: the person invoices you through their own business. The relationship has to be genuinely independent, or it can count as employment.
Euro Remote Talent does not employ people on your behalf. We handle the placement: we find and shortlist the candidate, and you employ them through the route that fits.
What an employee costs in Iceland
The employer pays a 6.35% social security tax (tryggingagjald) on all pay, with no ceiling, and a pension premium. The law sets a minimum premium of 15.5% of pay, and collective agreements split it into 11.5% from the employer and 4% from the employee. Take a salary of ISK 900,000 a month, or ISK 10,800,000 a year. The employer pays:
- Social security tax: ISK 10,800,000 x 6.35% = ISK 685,800
- Pension premium: ISK 10,800,000 x 11.5% = ISK 1,242,000
The employer's cost is ISK 12,727,800 a year, or ISK 1,060,650 a month. On top of that, the employer pays at least 1% to the union sick fund, and collective agreements add other union funds. The employee pays 4% to the pension fund, or ISK 432,000, and it is deducted before income tax.
Minimum wage and pay
Iceland has no minimum wage set by law. Under Act 55/1980, the pay and terms agreed by the labor market organizations in collective agreements are minimum terms for all workers in the occupation in the area the agreement covers. Agreements on worse terms are void. Full-time employees earned an average of ISK 1,058,000 a month in total earnings in 2025, and the median was ISK 948,000, according to Statistics Iceland (Hagstofa). See our average salary in Iceland page for pay by industry and occupation.
Income tax in Iceland
The employer withholds income tax every month. For 2026 the withholding rates on monthly pay are:
| Monthly pay, 2026 | Withholding rate | Of which state income tax |
|---|---|---|
| Up to ISK 498,122 | 31.49% | 16.55% |
| ISK 498,123 to ISK 1,398,450 | 37.99% | 23.05% |
| Above ISK 1,398,450 | 46.29% | 31.35% |
Each rate includes the average municipal tax of 14.94%; the actual municipal rate varies by municipality. The personal allowance is ISK 72,492 a month (ISK 869,898 a year), deducted from the tax. The bracket limits and the allowance rose 5.5% from 2025, and the rates did not change.
Work permits
- EEA and EFTA citizens: do not need a work permit. Iceland is in the European Economic Area (EEA) and EFTA, but not in the EU.
- Citizens of other countries: need a temporary work permit before they start work. The employer applies for the work permit together with the residence permit, through the Directorate of Immigration. The permit is tied to that employer. One permit type covers workers with expert knowledge.
Public holidays in 2027
Iceland has 14 public holidays in 2027, plus the afternoons of Christmas Eve and New Year's Eve from 13:00. 9 of them fall on a weekday. See every date on our Iceland public holidays 2027 page.
How Euro Remote Talent can help
We do placement. We source, screen and interview remote professionals across Europe, then deliver a shortlist of 3 candidates within 21 days for a flat $6,500, or your deposit back. Prefer to run the search yourself? Post a job for $299 and reach candidates who want to work remotely.
See how placement works, post a job or book a 30-minute call. Browse remote jobs in Iceland to see who is hiring there now.
This is general information, not legal or tax advice. Rules change and collective agreements can set different terms. Confirm with a local accountant or lawyer before you hire.
Frequently asked questions
How much does an employer pay on top of salary in Iceland?
A 6.35% social security tax (tryggingagjald) on all pay in 2026, and 11.5% to the employee's pension fund under collective agreements. That is 17.85%, plus at least 1% to the union sick fund.
Is there a minimum wage in Iceland?
No minimum wage is set by law. Under Act 55/1980, pay agreed in collective agreements is the minimum for all workers in the occupation, and agreements on worse terms are void.
How much paid leave do employees get in Iceland?
2 days for each month worked, so 24 working days a year under the Holidays Act. Holiday pay is at least 10.17% of total pay. Collective agreements often add days.
How long is the notice period in Iceland?
Under Act 19/1979, 1 month after 1 year of work, 2 months after 3 years and 3 months after 5 years with the same employer. Notice is written and ends at the end of a month.
Can a company outside Iceland hire someone there without a local entity?
Yes. The usual routes are an employer of record, a third-party provider that employs the person for you, or a genuine contractor agreement. Euro Remote Talent handles the placement: we find, screen and shortlist the person, and you choose the route.
Sources
- Skatturinn, Staðgreiðsla 2026. Checked 3 Nov 2026.
- Fjármála- og efnahagsráðuneytið, Breytingar á staðgreiðslu um áramótin, 22 Dec 2025. Checked 3 Nov 2026.
- Alþingi, Act 129/1997 on mandatory pension insurance. Checked 3 Nov 2026.
- Mannauðstorg ríkisins, Lífeyrismál. Checked 3 Nov 2026.
- Alþingi, Act 88/1971 on the 40-hour week. Checked 3 Nov 2026.
- Alþingi, Act 46/1980 on working environment. Checked 3 Nov 2026.
- Alþingi, Holidays Act 30/1987. Checked 3 Nov 2026.
- Alþingi, Act 19/1979 on notice and sick pay. Checked 3 Nov 2026.
- Alþingi, Act 55/1980 on terms of employment. Checked 3 Nov 2026.
- Vinnumálastofnun, Umsókn um fæðingarorlof. Checked 3 Nov 2026.
- Hagstofa Íslands, Wage distributions in the Icelandic labour market 2025. Checked 3 Nov 2026.
- Útlendingastofnun, Apply for a work permit. Checked 3 Nov 2026.
