An Employer of Record in Iceland provides a wide range of services to businesses, encompassing payroll management, compliance with employment regulations, recruitment support, expatriate assistance, contract drafting, onboarding procedures, employee benefits administration, social security program management, healthcare and insurance coordination, leave policies, public holidays, work permit and visa support, probation periods, termination procedures, severance arrangements, and guidance on personal income tax obligations.
| Continent | Europe |
| Country | Iceland |
| Time zone | UTC±00:00 |
| Total Time zones | 1 |
| Working hours per week | 40 |
| Personal Tax filing deadline | March 10th |
| Financial Year | 1st January to 31st December |
Employer and Employee Contributions in Iceland:
Payroll Tax:
There is no separate payroll tax imposed on companies based on their total payroll expenditure. Instead, employers are responsible for withholding income tax and social security premiums from their employees' salaries through the PAYE system.
Social Security Employer Contribution:
Employers are required to make social security contributions at a rate of 6.35% (increased from 6.10% as of 1 January 2022) on all remuneration paid to employees. Fishermen have an additional 0.65% contribution. Employers are also obligated to contribute 11.5% of employee remuneration to a pension fund. Additionally, employers must pay 0.1% of employees' salaries to VIRK, The Icelandic Rehabilitation Fund.
Social Security Employee Contribution:
Employees are obligated to contribute 4% of their remuneration to a pension fund.
Employer Payroll Contributions in Iceland
- Mandatory Pension Fund: 11.50%
- Supplementary Pension Fund (Optional):
- Employee contribution: 2%
- Employer matching contribution: 2%
- Social Security Contribution: 6.10%
- Union Fee: 1.55%
- Rehabilitation Fund: 0.10%
- Vacation Allowance (Once annually):
- Minimum: 10.17% of annual gross salary
- Maximum: Up to 13.04% of annual gross salary (based on employee's tenure)
Employee Payroll Contributions
- Pension Fund Contribution: 4%
Personal Income Tax Rates in Iceland
- 31.45% on the first ISK 4,188,216 ($34,147.70)
- 37.95% on the next ISK 7,569,948 ($61,719.92)
- 46.25% on any income over ISK 11,758,159 ($95,867.58)
The Icelandic Pension System
The foundation of the Icelandic pension system rests upon three primary components: the social security system, an occupational pension system, and supplementary pension savings.
Social Security System
The social security system is a public pension scheme that encompasses all Icelandic citizens and aims to offer mutual insurance, income equalization, and a safety net for pension beneficiaries. It comprises various benefits such as pensions, health insurance, and disability insurance.
State Social Security Institute
Under the Social Security Act, No. 100/2007, the State Social Security Institute administers basic disability and retirement pensions. Additionally, it handles social assistance and related entitlements governed by the Social Assistance Act, No. 99/2007.
Icelandic Health Insurance
The implementation of the Act on Health Insurance, No. 112/2008, the Act on Social Security Occupational Injury Insurance, No. 45/2015, and the Act on Patient Insurance, No. 111/2000, falls under the responsibility of Icelandic Health Insurance.
Occupational Pension System
Occupational pension funds are mandatory for all employed individuals aged 16 to 70. They serve the purpose of providing retirement pensions and mutual insurance.
Supplementary Pension Savings:
Supplementary pension savings are voluntary savings made by individuals, providing them with additional benefits.
The entitlement to these savings can be inherited in accordance with the rules of the Inheritance Act.
Other Types of Pensions and Supplements in the Social Insurance System:
- Child's pension
- Spouses' pension
- Disability grant
- Age-related disability supplement
- Guaranteed income
- Household supplement
- Pensions from pension funds
Entitlement to Payments from an Icelandic Pension Fund:
If you have made contributions to an Icelandic pension fund during your employment in Iceland, you may be entitled to receive payments from the fund.
To obtain information about your entitlement, you can contact the specific pension fund to which you contributed during your employment, or visit the website www.lifeyrismal.is/en for further details.
In general, pension funds typically start paying pensions at the age of 67, although some funds may begin payments at age 65.
When relocating to other Nordic countries, pension payments are usually transferred accordingly, but it is advisable to contact the relevant pension funds for specific arrangements.
Supplementary Pension Savings:
Supplementary pension savings are considered personal property and are in addition to the mandatory pension savings.
If you decide to accumulate supplementary pension savings, you can contribute a percentage of your salary, typically ranging between 2% and 4%, and your employer may provide a matching contribution.
You can access your supplementary pension savings if you experience a severe accident or illness that significantly reduces your ability to work.
Payments from supplementary pension savings can commence at the age of 60 or later and are distributed in equal installments until the age of 67 or beyond.
Upon the death of a pensioner, the supplementary pension savings can be inherited based on the regulations outlined in the Inheritance Act.
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