Payroll
/
Iceland
Global coverage
Available in +150 countries
Employer costs, taxes, minimum wage and leave rules for hiring here, plus the faster route: hire a contractor with Ontop, no local entity needed.
2026
Currency
ISK kr (Icelandic Krona)
Employer contributions
6.5% (employer pension contribution to private fund)
Minimum wage
No statutory minimum (CBA-negotiated; ~500,000 ISK typical)
Payment frequency
Monthly
Calendar year (Jan 1 to Dec 31)
Capital
Reykjavik
Timezone
GMT (UTC+0)
Employee or contractor
If the work is project-based or you need to move fast, a contractor gets you the same talent with a fraction of the paperwork.
Employee
~639,000 ISK total
/month
For a gross salary of
600,000 ISK gross/month
Setup
Local entity or employer of record, plus tax and social security registration
Employer contributions
6.5% (employer pension contribution to private fund)
Mandatory extras
Orlof (Holiday Pay)
Monthly admin
Monthly payroll → staðgreiðsla by 5th → pension fund by end of month
Contractor with Ontop
No local entity
$49
/contractor/month
The agreed rate, plus Ontop from $49 per contractor per month.
Sign a contract, yours or an Ontop template. No local registration on your side.
No employer contributions: the contractor handles their own taxes and social security.
One payment per invoice, in one payroll run.
Paid into their Ontop Global Account in USD.
See the full side-by-side comparison
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A contractor's rate usually covers their own taxes, so compare total cost, not just gross pay. Run your numbers in the contractor vs employee calculator.
Hiring here: the full breakdown
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Payroll guide
Employer costs come on top of gross pay. Use these figures to budget a hire and to compare it with a contractor rate.
Total monthly cost
~639,000 ISK total
Example gross salary
600,000 ISK gross/month
~388,000 ISK net
Net pay to the employee
Tax and employee contributions
Withheld from gross pay
~39,000 ISK employer pension
Employer contributions on that salary
Employer contributions
6.5% (employer pension contribution to private fund)
Employee contributions
4% employee pension + income tax
Total cost above gross
~6.5% employer above gross
Figures are estimates for planning. Rates change with each budget and can vary by sector, so confirm them before you make an offer.
What people earn here, from the legal floor to the main cities, plus the extra pay most employers budget for.
National average
~600,000 ISK
Per month
Reykjavik
600,000 - 1,000,000 ISK
~20%
Akureyri
500,000 - 750,000 ISK
~8%
Monthly gross. National average salary per year:
~7,200,000 ISK
Minimum wage
No statutory minimum (CBA-negotiated; ~500,000 ISK typical)
Paid:
Set by sector agreements
Extra pay
Orlof (Holiday Pay)
10.17% of wages
Ongoing / June
Collective agreements can set sector minimums above the national one. Check whether one applies to the role before you set the salary. Next step: estimate the full cost of an employee.
Who collects what, how often, and what happens when a payment is late.
Income tax brackets
0% → 22.5% → 31.8% (municipal + national)
Tax year:
Calendar year (Jan 1 to Dec 31)
Filing calendar
Monthly by 5th
Social security payments
January 31 (Skattframtal)
Income tax
Annual January
Employee tax certificate
Launaseðill
January 31
Annual return
Skattframtal
Late payment penalties
Late tax: 1% monthly; late pension: fund-specific penalties
Who collects what
Skatturinn
Tax collection
Lífeyrissjóðir (pension funds)
Mandatory pension
Vinnumálastofnun
Employment and labor market
The time off and paid leave every employee is entitled to by law. Budget for it when you compare an employee with a contractor.
Annual leave
Orlof
24 days (accrues at 2 days/month)
Public holidays
12 public holidays
Sick leave
Veikindafjarvera
Full pay for up to 3 months/year (employment-period dependent)
Maternity leave
12 months parental leave (shared)
80% via Fæðingarorlofssjóður
The contracts you can use, and what ending an employment relationship costs.
Permanent
Ótímabundinn ráðningarsamningur
Fixed term
Tímabundinn ráðningarsamningur
Independent contractor
Verktaki / Sjálfstætt starfandi
Collective agreements
Kjarasamningur
Ending employment
Bótaréttur
How it is calculated
Negotiated; minimum notice
Calling someone a contractor does not make them one. If the role works like employment in practice, local authorities can reclassify it, with back contributions and penalties.
The errors that most often trigger back payments and penalties here, and what to do instead.
Pension Fund Non-Enrollment
Risk Level: HIGH
All Icelandic employees must be enrolled in a mandatory pension fund from day one of employment. The employer contributes 6.5% and the employee 4%. Failure to enroll or remit contributions triggers retroactive liability to the pension fund with interest.
Orlof (Holiday Pay) Underpayment
Risk Level: MEDIUM
Icelandic holiday pay is 10.17% of total wages including overtime, shift premiums, and commissions. Calculating it only on base salary, a common error, creates significant underpayment claims.
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FAQ
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Ontop works with contractors, not employees. As Contractor of Record, Ontop handles contracts, compliance documents and payments for contractors in 150+ countries. To employ someone, you need a local entity or an employer of record. Ontop doesn't act as your employer of record.
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Employers pay contributions on top of gross salary. The cost table on this page shows the rates that apply here and a worked monthly example. A contractor with Ontop costs the agreed rate plus Ontop from $49 per contractor per month.
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Many countries require an extra month or an annual bonus for employees. The salaries section on this page shows the one that applies here and when it is usually paid. Contractors are paid what you agree in the contract.
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Employers withhold income tax and the employee's social security share every pay run, then pay them to the local authorities. The taxes section on this page lists the brackets, rates and filing deadlines that apply here.
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Yes. The contractor vs employee calculator compares the full cost of an employee, employer contributions included, with a contractor rate plus Ontop's monthly fee.
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When the work is project-based, you need to start fast or you don't have a local entity. If the person will work fixed hours, under your direction and only for you, local law may treat them as an employee, so hire them as one.
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Misclassifying employees as contractors, missing tax and social security deadlines, and ignoring collective agreements that set higher wage floors. The mistakes section on this page covers the ones that come up most often here.
Compare employer costs, taxes and contractor rules in nearby countries:
Ready to hire? See Ontop pricing or learn how to build a global team without an employer of record.
Ready to hire? See Ontop pricing or learn how to build a global team without an employer of record.