GLOBAL EMPLOYER OF RECORD IN ICELAND
Employer of Record in Iceland
Move on critical hires in Iceland while the business case for a permanent entity is still developing. Acumen acts as your Employer of Record, giving you the flexibility to build headcount now and take on the cost and commitment of incorporation only when it makes commercial sense.
GLOBAL EMPLOYER OF RECORD
Global coverage
Acumen International delivers global employment solutions across 190+ countries.
Strategic markets
Hiring and compliance support across North America, Europe, and Asia-Pacific.
Established jurisdictions
Lawful employment and payroll in regulated, compliance-intensive countries.
Growth economies
Expanding into new regions? Hiring support across fast-moving economies.
Risky and remote locations
Compliant employment solutions in jurisdictions with limited infrastructure.
Employing in Iceland through an Employer of Record
With an Employer of Record, the specialists who work for your business in Iceland are employed by Acumen International, which holds their Icelandic employment and everything the law attaches to it. Your business engages them through a service agreement with Acumen, decides their priorities and manages their work day to day. Where the right person has not yet been found, Acumen International can also run the search, from specialist recruitment to executive search, with background and education checks before the offer.
Situations where an Employer of Record serves an Icelandic hire
- Contractor compliance. Specialists working full time for your business in Iceland move onto employment contracts, so withholding tax, payroll tax and pension contributions are paid as they fall due.
- One accountable provider. Registration, payroll, pension funds and collective agreement terms sit with Acumen International rather than with several advisers.
- No entity to set up or maintain. You employ in Iceland without registering a company or running Icelandic payroll yourself.
- Market tests and short-term projects. An energy, data centre or tourism project is staffed for its duration without permanent infrastructure.
- Bridge to your own entity. While your Icelandic company is being set up, the first hires start with Acumen International and transfer once it can employ them.
- Fast team launch. Specialists from the European Economic Area start without work permits, so a team can be assembled quickly.
- Mergers and restructuring. Staff in Iceland stay employed without a break while the group structure around them changes.
- NGO staffing. Research bodies and international organisations employ project and specialist staff on Icelandic terms.
- Employer liability. Acumen International holds the Icelandic employer’s liability, so statutory duties sit with the party the tax authorities and the Administration of Occupational Safety and Health hold accountable.
- Remote team expansion. Team members based in Iceland join a distributed team with Icelandic contracts, tax and pension.
Employing for another business in Iceland: the legal basis and its limits
Iceland regulates the hiring out of employees through the Act on Temporary Work Agencies, No. 139/2005. Acumen International employs your team under that framework and provides their services to your business under a service agreement. These rules apply:
- A temporary work agency must register with the Administration of Occupational Safety and Health no later than the day it starts operating in Iceland, and agencies registered outside the EEA and EFTA may not operate there at all.
- Workers who are hired out are entitled to at least the same wages and terms as if your business had employed them directly for the same job.
- A person who has worked for your business cannot be hired out back to it until six months have passed, and the agency may not restrict their right to join your business directly later.
- Work permits may not be granted in connection with employment by a temporary work agency, so this route serves EEA, EFTA and Faroese nationals and others who already have the right to work.
What Acumen International handles in Iceland, from recruitment to exit
| Stage | What it involves in Iceland |
|---|---|
| Recruitment and checks | Finding the candidate where needed, with background and education checks before the offer |
| Registration | Notifying the authorities of each assignment and the user business, and arranging the employee’s Icelandic ID number |
| Contract | A written contract on terms at least equal to the collective agreement for the role and to your own staff in the same job |
| Pay | Monthly payroll in Icelandic krónur, with withholding tax, payroll tax and pension contributions |
| Holiday | Holiday pay of at least 10.17% and leave taken within the holiday year from 1 May to 30 April |
| Exit | Written notice under the collective agreement, and final settlement of pay and holiday |
Pay rules in Iceland
Iceland has no statutory minimum wage. Minimum pay is set by collective agreements between unions and employers, and an employment contract on less favourable terms than the relevant agreement is void. For skilled roles, salaries are agreed as a monthly gross amount in Icelandic krónur, and overtime is paid as a set percentage of monthly salary for each hour worked.
Employment contracts and working time in Iceland
| Rule | What it means for you |
|---|---|
| Office agreements set a 40-hour week including lunch, with 37.5 working hours | Core hours and overtime follow the agreement that covers the role |
| Workers are entitled to 11 hours’ rest in every 24 hours, and a working day longer than 13 hours may not be scheduled | Peak periods are planned within the rest rules |
| Holiday is at least two days for each month worked, 24 days a year, rising with service under many agreements | Leave planning starts from 24 days and grows with tenure |
| The summer holiday period runs from 2 May to 15 September | Most staff take their main holiday in the summer months |
| Employees can pay up to 4% extra into supplementary pension savings, and the employer then adds 2% under collective agreements | Supplementary pension is part of the standard package |
Ending employment in Iceland
Notice must be given in writing, and its length is set by the collective agreement that covers the role; for office workers under the main private-sector agreement, it is usually three months unless both sides agree otherwise. On exit, outstanding pay and accrued holiday pay are settled with the final salary.
Employment risks in Iceland and how Acumen International covers them
| Risk | Where it arises | How Acumen International covers it |
|---|---|---|
| Worker misclassification | A contractor working full time under your direction can be treated as an employee, with tax, payroll tax and pension due for past periods | Your team is employed on Icelandic terms from the first payroll |
| IP ownership | Rights in work created in the job sit with the local employer unless the contracts pass them on | Contracts confirm the rights and transfer them onward to your business |
| Client liability for pay and contributions | The user business must obtain written confirmation that the agency has met its duty to inform the authorities | Acumen International registers each assignment and provides the confirmation |
| Equal pay for assigned staff | Assigned workers must receive at least the wages and terms your business would give a direct hire in the same job | Pay is set against your comparable roles and the collective agreement before the offer |
| Permanent establishment | An employee who negotiates or signs contracts for your company can create a taxable presence in Iceland | Signing authority stays with your company and is written into the role |
| Exit cost | Notice of up to three months under common agreements, plus accrued holiday pay | Notice and settlement are budgeted before any decision |
| Sponsor obligations | Work permits cannot be granted for employment by a temporary work agency | Hires who need a permit are identified before any offer, so the right employment route is chosen from the outset |
| Pay transparency | EU-based groups apply the Pay Transparency Directive across their workforce, including staff in Iceland | Pay structures are documented on objective criteria |
Right to work and permits in Iceland
As a member of the European Economic Area, Iceland lets citizens of EEA and EFTA states and the Faroe Islands work without a permit. Everyone else needs a temporary work permit, issued by the Directorate of Labour together with a residence permit, before starting work; starting early can lead to refusal and to fines for both employer and employee.
- The expert-knowledge permit covers a job that requires university-level, industrial, artistic or technical training recognised in Iceland, where the expertise is essential to the company. It is granted for up to four years at a time, and never beyond the contract period.
- Every temporary permit requires a search for suitable workers in Iceland and the EEA first, a signed contract with pay and terms equal to those of Icelandic nationals, and health insurance arranged by the employer.
- Processing usually takes seven to eight weeks, and a new employer needs a new permit.
- Employment through a temporary work agency cannot be the basis for a work permit.
What Acumen International contributes
- Immediate employment for European specialists. Engineers, analysts and managers from any EEA or EFTA state, or the Faroe Islands, can be employed by Acumen International and start work for your business without a permit, on contracts that meet the collective agreement and equal treatment tests.
- The right route for everyone else. Because a permit cannot rest on agency employment, Acumen International identifies before any offer which candidates need one, and sets up the hire on an employment route that a permit can support, so applications are not refused on a technicality.
- Terms that pass scrutiny. Whichever route applies, the contract is built on Icelandic collective agreement terms and equal pay, which is the standard both the Directorate of Labour and the agency rules apply.
Family members
Family members of EEA nationals follow EEA rules; family members of a work permit holder apply for family reunification through the Directorate of Immigration.
Employer cost and income tax in Iceland
| Contribution | Employer | Employee |
|---|---|---|
| Payroll tax (tryggingagjald), 2026 | 6.35% | — |
| Mandatory pension | At least 11.5% | 4% |
Employers also pay the welfare dues set by collective agreements into union sickness, holiday, education and rehabilitation funds.
Income tax
Income tax is withheld at source each month. For 2026 the rates are:
| Monthly income | Rate |
|---|---|
| Up to ISK 498,122 | 31.49% |
| ISK 498,123 to 1,398,450 | 37.99% |
| Above ISK 1,398,450 | 46.29% |
Each taxpayer receives a personal tax credit of ISK 72,492 a month, which reduces the tax withheld.
Sectors employing through an Employer of Record in Iceland
- Renewable energy and geothermal companies employ engineers, geologists and project managers.
- Data centre and technology businesses employ infrastructure engineers, software developers and product managers.
- Life sciences and biotech firms employ researchers, regulatory specialists and quality managers.
- Seafood and aquaculture companies employ biologists, process engineers and export managers.
- Tourism and aviation businesses employ commercial managers, analysts and operations specialists.
Hiring cases in Iceland and how they are handled
| Case | What local rules add | How it is handled |
|---|---|---|
| A geothermal developer hires a German reservoir engineer | As an EEA citizen, no work permit; pay and terms must match what a direct hire would receive | Acumen International employs the engineer on terms benchmarked against your own engineering roles |
| A data centre operator recruits a Polish infrastructure lead who previously worked for it directly | The person cannot be hired out back to a former employer until six months have passed | The start date is set after the six-month interval |
| A biotech firm wants a US research scientist | A work permit cannot rest on agency employment, and expert permits need a prior search of the Icelandic and EEA market | The permit need is identified before the offer, and the hire is set up on an employment route a permit can support |
| A seafood exporter’s commercial manager resigns after four years | Written notice under the collective agreement, and settlement of accrued holiday pay | Notice, final salary and holiday pay are calculated from the agreement that covers the role |
Benefits, payroll and leave in Iceland
Payroll obligations
| When | What happens |
|---|---|
| Before the start | The assignment is registered and the employee has an Icelandic ID number |
| Every month | Salary is paid with income tax withheld at source, payroll tax paid and pension contributions made |
| 1 May to 30 April | Holiday entitlement accrues for the holiday year |
| 2 May to 15 September | The main summer holiday is taken |
Leave entitlements
| Leave | Entitlement | Paid by |
|---|---|---|
| Annual leave | At least 24 days, with holiday pay of at least 10.17% | Employer |
| Public holidays | 16 a year | Employer |
| Sick leave | Under the main office agreement, two days per month in the first year, rising to two months after one year and six months after ten years | Employer |
| Parental leave | 12 months in total: six months for each parent, of which six weeks can be transferred | Maternity/Paternity Leave Fund, at 80% of average income up to a ceiling |
Sources
- Key rates and amounts 2026
- Temporary work agencies
- Foreign Nationals’ Right to Work Act, as amended 2024
- General information regarding work permits
- Expert knowledge
- Holidays and holiday allowance
- Workers’ rights
- Maternity and paternity leave
- Temporary agency workers
- Mandatory pension funds
FREQUENTLY ASKED QUESTIONS
Got questions?
We’ve got answers
Have questions about hiring globally? You’re not alone. Below you’ll find answers to the most common questions from teams expanding into new markets — from compliance and onboarding timelines to payroll and local benefits.
If you don’t see what you’re looking for, our team of in-country experts is always ready to help you navigate the details.
Can Acumen design both statutory and supplementary benefits for employees in Iceland?
Yes. The employment package must first meet the statutory requirements that apply in Iceland. Acumen can then help shape supplementary benefits around role seniority, market expectations and the client’s wider reward strategy, subject to local availability and tax treatment.
Can we retain an employee who relocates to Iceland if we have no entity there?
Often, yes, where the role and the individual’s right to work can be supported. Acumen can assess a local EOR arrangement in Iceland, allowing the employee to remain part of your business without making incorporation the condition of the move.
How does Acumen handle payroll currency for employees in Iceland?
Acumen separates the employee payroll requirement from the client’s funding preference. Salary is paid in the currency permitted for employment in Iceland; where an alternative payment currency is lawful and practical, it can be reviewed. Client invoices can be handled in an agreed major currency where the service structure supports it.