Employer of Record in Iceland: A Comprehensive Guide for 2026

Introduction

Iceland offers a small but highly skilled talent pool, a strong economy, and full access to the European Economic Area (EEA). For companies that want to hire there, the challenge is rarely finding good people. It is the compliance work sitting underneath every hire: collective agreements that cover most of the workforce, pension and social security contributions, set notice periods, and monthly payroll filings.

Setting up a local entity to manage all of this takes time and money, from share capital and registration fees to a resident director and paperwork submitted in Icelandic. An Employer of Record (EOR) in Iceland acts as the legal employer of your team in Iceland, so you can hire, onboard, and pay people without registering a company of your own.

This guide covers what you need to know to employ people in Iceland in 2026, including labour laws, payroll and taxes, work permits, probation and termination rules, and the steps involved in setting up an entity if you decide to go that route.

Iceland at a glance

Population: 402,997 people

Currency: Icelandic króna (ISK)

Capital: Reykjavik

Languages spoken: Icelandic and English

Gross Domestic Product (GDP): 33.26 USD Billion

Employment in Iceland

Iceland is a beautiful Nordic country with a vibrant economy. There are countless business opportunities in Iceland. Its GDP per capita is one of the highest in the world. Companies looking to set up an entity in Iceland need to understand the various aspects of its labor laws. Iceland’s labor laws are similar to those of other European countries.

Here are some labor laws in the country.

• Act on Workers' Right to Notice of Termination and to Wages owing to Absence through Illness and Accident, No. 19/1979
• Law on Fixed Term Employment, No. 139/2003
• Act on Maternity/Paternity Leave and Parental Leave, No. 144/2020
• Act on Working Environment, Health and Safety in Workplaces, No. 46/1980
• Foreign Nationals’ Right to Work Act, No. 97/2002

However, no matter how business-friendly an economy is, setting up an entity is a cumbersome and arduous task that requires expertise in the laws and regulations of a country. Companies should look to partner with an HR platform such as Skuad to make it easier for them.

Contractors vs. full-time Employees

Employment contracts in Iceland are governed by various statutes. The legislation is modeled after the European Economic Area (EEA) laws. The major difference between contractors and employees is the relationship they share with their employer. Employers can control various aspects of the work of an employee. However, anyone hiring a contractor does not exercise much control over how the contractor provides their service.

According to employment contract law in Iceland, contractors do not get payments from the wage guarantee fund in case their employer goes bankrupt. On the other hand, employees are entitled to their wages in such cases. Contractors can get unemployment insurance in some cases.

Contractors must calculate and pay the various taxes and social security contributions they have to make to the government. Additionally, contractors between the ages of 16 and 70 have to contribute to one of the pension funds in the country.

Whether you bring people on as contractors or full-time staff, the classification carries consequences in Iceland, where a worker dedicated to one company and directed by it must be treated as an employee.

Skuad supports both hiring models from a single platform:

EOR for full-time employees

• Acts as the legal employer across 160+ countries, so you can hire without setting up a local entity
• Supports employment contract generation aligned with local labor laws across supported markets
• Facilitates statutory contribution workflows covering applicable social insurance and pension obligations
• Supports payroll processing in 70+ currencies with automated tax withholding and year-end reconciliation
• Helps administer statutory benefits, paid leave, and parental entitlements in line with local requirements

Contractor management

• Helps onboard contractors with locally compliant agreements that reduce misclassification exposure
• Supports invoice generation, approval workflows, and payment processing
• Helps flag classification risk early with built-in worker classification checks
• Facilitates multi-currency payouts across 70+ currencies with no manual reconciliation
• Helps manage contractor records, contracts, and payment history from a single dashboard

Full-time or contractor, Skuad supports both. See pricing

Hiring in Iceland

Like other European countries, hiring is done through a variety of avenues. Companies often hire through referrals and word-of-mouth, with candidates' references from previous employers carrying weight. Social media has emerged as another popular area of hiring for recruiters. Companies can post job ads on LinkedIn, Facebook, and other platforms.

Numerous hiring companies in Iceland connect employers and candidates. Hagvangur, Ráðum, and Intellecta are some of the recruitment firms active in Iceland. With modern technology, employers have a vast array of talent to choose from. Many websites connect employers with potential employees. You can find work opportunities on the following platforms.

1. Alfred
2. Job.is
3. Northstack
4. Starfatorg
5. Tvinna

Despite the advantages of modern technology, the hiring process can be time-consuming and cumbersome.

Probation & termination

Probation period in Iceland

The standard probation period in Iceland is three months. After this duration, companies decide whether they want to hire the employee permanently. Probation is set mainly through collective agreements rather than a single statute. If an employment contract includes no probation clause, full notice periods apply from the first day. During probation, the notice period is short, often one to two weeks.

Termination of employment in Iceland

Employers must abide by the rules laid down for termination. Employers and employees can terminate their contract without stating a reason unless something contrary is written in their employment agreement or collective agreement. The employee has the right to demand the reason for which they were fired and is entitled to an interview regarding the end of their employment.

EOR Solution in Iceland

Setting up a private limited company in Iceland means at least ISK 500,000 in share capital, an ISK 130,500 registration fee, a resident director, and filings with the Register of Limited Companies, all submitted in Icelandic, before your first hire starts.

Skuad’s EOR service helps remove that dependency. Skuad acts as the legal employer in Iceland, so your company can hire, onboard, and pay employees without entity setup, local legal counsel, or in-house Icelandic payroll infrastructure.

Here is what Skuad helps with:

• Employment contract generation across 160+ countries, aligned with local labor laws and statutory requirements
• Statutory contribution workflows across supported markets, covering applicable social insurance and pension obligations
• Payroll processing in 70+ currencies with accurate tax withholding and statutory deductions
• Termination and offboarding support aligned with local labor requirements across supported markets
• Work permit and visa support for foreign nationals joining your team
• Background verification covering identity, employment history, and criminal records before onboarding

For a team you want running in weeks, the EOR route avoids the cost and upkeep of an Icelandic entity you may not need yet.

Book a demo to see how Skuad onboards your first Iceland hire in weeks

Types of visas in Iceland

People who live in the EEA can come and work in Iceland without a work permit. However, they must register themselves as residents with the registration office if they plan on staying for more than three months. Many people from the EEA come for a summer job and go back to their country when their contract expires.

Work permit

Iceland work permit for foreigners

The Directorate of Labour (Vinnumálastofnun) decides on the work permit, while the Directorate of Immigration (Útlendingastofnun) approves the related residence permit. A permit is granted under certain circumstances, such as:

• For work that requires expert knowledge
• When there’s a shortage of labor
• For athletes
• Based on a service contract

Iceland work permit requirements

You need to meet the following criteria to get a work permit in Iceland.

1. The applicant must be an adult.
2. The applicant must have secured an employment agreement in Iceland. In Iceland, you cannot get a work permit without a job offer.
3. The applicant must be able to prove that they can provide for themself in Iceland.
4. The applicant must have insurance with an operator that is licensed in Iceland.
5. According to Iceland’s laws, the applicant should not have a criminal sentence abroad in the last five years or be sentenced for an offense whose punishment is more than three months of imprisonment.
6. The applicant must have a valid passport.

Spouses of employees who are moving to Iceland with work permits cannot work on their residence permits. They need to secure a work permit to work in Iceland. They can apply for the same before or after arriving in the country. However, sometimes, the employee may not be able to fulfill the financial sustenance conditions needed. This means that their spouse will need to secure employment and apply for a work permit before entering Iceland.

A work permit in Iceland runs through the Directorate of Labor and the Directorate of Immigration, takes around 90 days to process, requires a signed employment agreement before you can apply, and ties the permit to a single sponsor.

Skuad supports the work permit process on your behalf, including:

• Supporting work permit applications for foreign employees joining your team
• Helping coordinate visa documentation with relevant local immigration authorities
• Assisting with residence or work permit conversions as required by local immigration law
• Helping track documentation requirements and deadlines across the full permit lifecycle
• Helping keep your team aligned with compliance requirements as permit renewals and rules change

Book a demo to see how Skuad supports work permits in Iceland end-to-end

Payroll & taxes in Iceland

Things you must know to set up payroll in Iceland

To set up payroll and manage taxation in Iceland, you need to be aware of the rules that vary across categories. First, you must decide whether you want to employ foreign nationals or locals. Then, you need to familiarize yourself with the local tax laws, such as income tax, sales tax, and withholding tax. You should ensure that your expansion efforts comply with them.

Payroll and taxes: particulars

Iceland payroll carries layered obligations: income tax across three bands, municipal tax, a social security contribution, holiday allowance, and mandatory occupational pension enrollment, all filed with Skatturinn (Iceland Revenue and Customs). Getting the employer cost wrong at the offer stage can blow your budget once the statutory add-ons land.

Skuad helps you model the full cost of an Iceland hire before you commit, then supports payroll processing in 70+ currencies with tax withholding and statutory deductions handled on one platform.

Estimate your total employment cost in Iceland with Skuad's calculator

Incorporation: How to set up a subsidiary in Iceland

Iceland’s rules and regulations that govern companies are similar to those of other European countries.

Act No. 138/1994 on Private Limited Companies applies here. An LLC should have at least one shareholder, one director, and a share capital of ISK 500,000 (approximately USD 4,000).

The managing director and a majority of the board must be domiciled in Iceland, the EEA, or an Organization for Economic Co-operation and Development (OECD) country, with ministerial exemptions available. There is no residency requirement for shareholders, and the company can be 100% foreign-owned.

You need to register the LLC with Iceland’s Register of Limited Companies. The formation notice must be published in the “Legal Gazette.” An LLC needs to inform the Local Government about its registered address.

Act No. 2 of 1995 regarding Public Limited Companies applies here. A public company needs to have at least ISK 4,000,000 (around USD 32,550) as share capital. The registration fee for public companies is also higher than that for LLCs. They have to spend ISK 276,500 (approximately USD 2,000) to register themselves. A public company must have at least one shareholder and a board of at least three members. One of the founders, as well as the majority of board members, needs to be domiciled in Iceland, the EEA, the EU, or an OECD country. The Ministry of Industries and Innovation can grant an exemption to this requirement.

When registering a company, you need to submit a Memorandum of Association along with Articles of Association (AoA). The AoA is a document that contains the name of the company, address, the purpose for which the company is being formed, names and addresses of directors, share capital details, and other important details.

Next, you will need to get a value-added tax (VAT) ID to run a business. For that, you need to register for VAT with Skatturinn (the Directorate of Internal Revenue), which enters your business into the VAT register.

All the documentation that is submitted to the local authorities needs to be presented in Icelandic. Many of the forms are in Icelandic and need to be filled out in the local language only.

Forming a company is a difficult task that requires one to be well-versed in the local laws and regulations. Incorporating a holding company in Iceland is even more difficult. No matter which company you set up, there are endless formalities that need to be completed.

Customer story: How PureRED onboarded 65 employees across six countries with Skuad

PureRED, an integrated marketing and advertising agency, was building a distributed team across Europe, Latin America, and Asia. The company needed to onboard 65 employees across six countries, including the UK, Spain, Croatia, Greece, Colombia, and India, each with its own labor laws and payroll rules. Skuad supported compliant onboarding, localized employment contracts, and multi-currency payroll across all six markets, so PureRED stayed compliant without setting up a single local entity.

"Skuad made our team expansion possible, handling the complex onboarding and payroll processes across six different countries with ease. Their local expertise ensured our compliance, letting us focus on what we do best, serving our clients."

- Brian Butcher, EVP Corporate Development, PureRED

Read the full case study

Employer of Record in Iceland: start hiring without an entity

Hiring in Iceland involves a number of requirements: collective agreements that cover most of the workforce, pension and social security contributions, holiday allowance, set notice periods, and work permits for foreign hires. Skuad supports that complexity, including employment contracts, payroll in 70+ currencies, statutory benefits, work permits, and compliance monitoring, so your team can spend its time on the work itself rather than the paperwork.

Companies across SaaS, fintech, and technology use Skuad to support their entry into Iceland, stay aligned with regulations as they change, and grow an Icelandic team without building local HR infrastructure from scratch.

Book a demo to see how Skuad supports your first Iceland hire

FAQs

1. What is an Employer of Record in Iceland?

An Employer of Record (EOR) in Iceland is a third party that legally employs your staff in the country, so you can hire without registering an Icelandic entity. The EOR handles payroll, pension fund enrollment, collective agreement compliance, and statutory benefits, while your company manages the employees' day-to-day work.

2. How much does an employer of record in Iceland cost?

EOR pricing in Iceland usually runs from around $300 to $1,500 or more per employee each month, depending on the provider and service level. On top of the platform fee, budget for Iceland's statutory employer costs.

3. Can a foreign company hire in Iceland without a local entity?

A foreign company can hire and pay employees in Iceland through an Employer of Record without registering a local entity. The EOR becomes the legal employer, runs payroll, and files income and pension contributions.

4. What are the compliance risks of misclassifying workers in Iceland?

A worker who is dedicated to one company and directed by it must be classified as an employee in Iceland. Misclassifying that person as a contractor can trigger fines, back payment of holiday allowance and pension contributions, and liability for unpaid taxes.

5. Is an EOR or a PEO better for hiring in Iceland?

An EOR becomes the legal employer in Iceland and lets you hire without a local entity, taking on payroll, tax, and compliance responsibility. A PEO co-employs your staff and still requires you to run your own Icelandic entity and carry legal liability.