How to Hire Remote Employees In 

Iceland

The Basics

Currency
Employer Taxes
Payroll Frequency
Official Language

Employment in 

Iceland

Hire Independent Contractors

Independent contractors or freelancers are self-employed individuals who provide services to companies as a non-employee. This is one of the most common ways companies tend to hire non-local designers, engineers, support reps, etc.

For legal and tax purposes, independent contractors are not classified as employees. They may work for multiple clients, set their own work hours, negotiate their pay rate, and decide how a job gets done.

For example, the IRS says that if an independent contractor or freelancer does work that can be controlled (what will be done and how it will be done) by an employer then they are, in fact, classified as an employee.

As you can imagine, hiring someone as an independent contractor versus an employee is a fine line to tread.

While there are benefits when you choose the contractor route, there are quite a few drawbacks to consider and you’ll need to weigh them carefully to determine the best fit for your company.

Benefits of Hiring Independent Contractors
Reduced overhead: Lower cost in expenses, payroll, benefits, and more.
Greater flexibility: Contractors can be brought on as-needed. If not a good fit, you simply don’t have to move forward with the contract.
Reduced legal risk: Contractors aren’t usually protected by employment anti-discrimination and workplace safety laws.
Disadvantages of Hiring Independent Contractors
Risk of Misclassification: Not only does this deny workers their proper protections, it can also result in steep penalties and damage to your company. If the IRS determines that employee misclassification has occurred, you will be liable for a percentage of the employees wages, FICA contributions, penalty fines, unpaid taxes, up to a year in prison, and more.
Lack of Control: Contractors are drawn to being independent because it gives them greater control over the work they perform and who they work with. Because they’re not employees, you can’t tell them what to work on and how it should be done.
Lack of Loyalty: Contractors come and go as-needed. Many companies hire contractors for short-term work, which makes it difficult to cultivate loyalty.
Increased Scrutiny: Using Independent Contractors typically leads to an increased risk of being audited.

Set up a subsidiary in 

Iceland

A foreign subsidiary is a company that operates overseas as part of a larger company who’s HQ is in another country.

Establishing a foreign entity is great for having an international presence and accessing new markets. Though, setting up a subsidiary in Iceland can be expensive, stressful, and time-consuming. It's not for the faint of heart.

To set up a subsidiary in Iceland, you have to:

  1. Register your business name and file articles of incorporation
  2. File for local bank accounts
  3. Learn and keep track of the local employment laws
  4. Set up local payroll
  5. Hire local accounting, legal, and HR people

If you're lucky, this process can take months. If you're not so lucky, it can take up to a year. And on average, it costs about $50k-$80k, all-in-all, to get setup. And that's just for Iceland.

Use an Employer-of-Record (EOR)

An employer-of-record (EOR) is a company that hires and pays an employee on behalf of another company.

An EOR is typically used to overcome the financial and regulatory hurdles that often come with employing remote workers.

Each country has its own payroll, employment, and work permit requirements for non-resident companies doing business in their jurisdiction. Meeting those demands can be a huge obstacle when it comes to hiring remotely.

At Panther, we help companies employ and pay people in over 160 countries, without having to set up a foreign subsidiary. Payroll, benefits, taxes, compliance, and more are all handled by us, at a fraction of the cost.

Outside of saving you months and tens of thousands of dollars, other advantages of using Panther are:

  • Ability to attract talented and motivated employees from all over the world.
  • Full legal compliance: There is no risk of violating local employment laws.
  • Transparency: Employees are still your employees. All the work, processes, operations and day-to-day business belong to you, the company, just like with any other employee. Panther just takes on all of the responsibilities, obligations and admin work related to your team's employment.
  • No risk of misclassification

Because you no longer have to set up your own subsidiary, you’ll save a ton of time and tens of thousands of dollars using Panther.

Paying Remote Employees

Paying employees in Iceland is not the same as paying workers in your own country. Employees have to be paid using Iceland’s employment and payroll standards.

This means that you have to know, understand, and keep up with 1) fluctuating currency changes, and 2) local payroll and tax laws in the countries you’re looking to hire in.

Outside of the laws and regulations around payroll, there may be different conditions surrounding leave, overtime, termination, and more. As you can imagine, maintaining this kind of regulatory knowledge can be challenging. But it is crucial and necessary to follow local legislation.

After, you’ll have to determine the best way to pay your international employees. This can be done in a number of ways, including but not limited to:

Pay through a local entity

One of the most challenging (and expensive) parts of paying international employees is setting up the infrastructure to do so.

Before you start to run payroll, you have to register your company as the local employer in the country the worker resides in. As you can see in the “Set up a subsidiary” section, this is a multi-step process that can take up to a year and put you on your way to bankruptcy.

Work with an EOR

Outside of EORs acting as the full admin employer, many also provide remote payroll.

For example, at Panther, in just 1-click, you’re able to pay your entire global team, anywhere in the world. We send you an invoice each month, charge you in US Dollars, and pay your employees the same amount in their local currency.

We factor in currency fluctuations and use the mid-market rate plus any applicable fee passed on by our provider at cost at the time of billing.

Iceland

 Specific Information

Working Hours

Hours of daytime work are according to collective agreements defined as 40 hours per week, divided into five eight hours working days from Monday to Friday, and wages determined as weekly or monthly wages.

Paid coffee brakes, usually 35 minutes, are included in the 8-hour work day.

Day time hours usually start 07:00(general workers, industrial workers) but the time they end differs based on what collective agreement applies.

For general workers it ends at 17:00 hours but for industrial workers it is usually at 18:00 hours.

Overtime

Overtime pay is paid work in excess of 8 hours per day and 40 hours per week.

Work performed outside day time hours is remunerated with overtime pay.

It is not permitted to pay day-time wages for work performed during hours outside daytime hours even though the worker in question has not done his full 8 hours in day-time.

Overtime is paid at an hourly rate equaling 1.0385% of the monthly wages for regular day work.

Work on major holidays is paid with an hourly pay equaling 1.375% of the monthly wages for regular day work, in addition to the 8 hours' day-time wages.

Payroll Tax

Employer

Employer

Minimum Wage

Payroll

Pay Cycle

Salaries are paid monthly.

13th Salary

13th month pay is not mandatory in iceland.

However, collective agreements provide for the payment by employers of a fixed Christmas bonus payable in December and a Holiday bonus payable from 1 May to 15 August.

Leave

Paid Time Off (PTO)

PTO is calculated by the:

Public Holidays

There are 15 public holidays.

Sick Days

The duration of sick leave entitlement provided to workers is dependent on how long they have been employed by their employer:

  • A worker, who is unable to perform his normal duties at work due to sickness or accidents occurring in the worker's free time is entitled to wages from his employer for a certain period of time.
  • The minimum rights during the first year of service with an employer are 2 days in respect of each month.
  • After one year of employment a worker is entitled to total wages for 1 month out of every 12 months.
  • After three years with the same employer, 1 month of total wages and 1 month with day wages out of every 12 months.
  • Finally, after five years with the same employer, 1 month of total wages and 2 months with day wages out of every 12 months.

Maternity Leave

Both parents have an equal, non-transferable, right to take three months’ leave in connection with:

  • the birth,
  • first-time adoption, or
  • fostering of a child

irrespective of whether they work in the private or the public sector, or are self-employed.

They are also able to divide a further three months’ leave between themselves as they wish.

A parent obtains the right to payments from the Maternity/Paternity Leave Fund after it has been active on the domestic labor market for six consecutive months prior to the first day of the maternity/paternity leave.

A parent’s working time in other EEA countries is taken into account if the parent has been employed in Iceland for at least one month during the last six months prior to the first day of the maternity/paternity leave.

These payments amount to 80% of average gross wages or calculated remuneration being based on a continuous twelve-month period ending six months prior to the birth of child.

Paternity Leave

There are no provisions in the law regarding paternity leave.

Parental Leave

There are no provisions in the law regarding paternity leave.

Other Leave

None.

Marriage Leave

None.

Bereavement Leave

None.

Termination

Termination Process

The principal rule in Iceland is that employers and employees are equally authorized to cancel employment

contracts without stating the reason for this.

Employees are generally hired without time limits, in which instance the employment contract is cancelled with a termination notice period as stated in the collective agreements.

The employment termination notice is mutual and such employment cancellations shall be in writing and in the same language as the employee’s employment contract.

The employee has the right to an interview regarding the end of his employment and the reasons for the termination of his employment and can request them to be stated in writing.

A request for the interview shall be given within 96 hours from the employees’ knowledge of the contract ́s termination.

Should the employer fail to fulfil the said request the employee is entitled to another interview with the employer in the presence of his or her union representative or other representative of the union, should he or she request so.

Notice periods range from 12 days to six months (three months are common), depending on rules of the applicable collective agreement.

Notice Period

The notice period in Iceland is:

Notice periods range from 12 days to six months (three months are common), depending on rules of the applicable collective agreement.

An employment which has been terminated by either party remains intact until the end of the notice period, which means that rights and obligations under the agreement remain unchanged during the period.

The parties can however come to an agreement to end their relationship before the notice period expires.

The notice periods are as follows:

  • After one-year continuous employment with the same employer = one month's notice.
  • Continuous employment for three years with the same employer = two months' notice.
  • Five years of continuous engagement with the same employer = three months' notice.

Severance Pay

There is no legal right to severance pay.

Probation Period

The probation or trial period is of 3 months.