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Consolidate all things payroll on our unified platform. Reduce manual calculations on excel sheets and gain control of your payroll data. Ensure data integrity and consistency.


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Our global payroll infrastructure ensures compliance with local employment and tax regulations. We take the guesswork out of payroll compliance.



Introduction to payroll in Iceland

In addition to its beautiful landscapes and breathtaking Northern Lights, Iceland has a lot to offer when it comes to expanding your business. The primary industries in Iceland are manufacturing and fishing, and there are significant exports of marine products. With a strong economy and an increasing focus on tourism, software development, and biotechnology, Iceland is full of potential for businesses around the world.

While Iceland is a great opportunity for finding new talent and strengthening your workforce, there is also a lot to learn about the country's labor and tax laws, which are rather complex and involve significant national and municipal taxes.    

Fortunately, Skuad is available to stay up-to-date on all this information for you, eliminating any doubt and worry about whether your payroll practices are compliant with Iceland's requirements. Contacting Skuad puts you on the path to navigating requirements and payroll taxes in Iceland with ease.

Payroll process in Iceland

Managing payroll can become overwhelming as there are so many people and factors involved. However, examining the payroll process as a series of phases can help clarify what will be required along the way.

Pre-payroll phase

Before employees can be paid, you will need to establish your business's specific policies, culture, and expectations. For example, you will need to consider where employees will be expected to work and whether they will be working in a remote, hybrid, or in-person environment.

In addition, it's crucial to have a full understanding of the country's labor laws and regulations, such as the requirements for vacation, sick leave, and parental leave. You may also want to offer additional leave on top of what the country requires, so being fully informed about the baseline is critical.

Of course, in order for your leave policy to be effective, you will also need to have a sound practice for tracking attendance. This involves determining how hours will be tracked, what standard work hours will be, and how attendance violations will be handled.

When expanding into Iceland, you will also need to consider your full compensation package. Beyond salary ranges, you will also need to integrate mandatory and optional benefits. You can then develop a clear schedule so that payroll can be processed efficiently. This keeps your business on track and your employees financially secure as they can properly plan for the future.  

Finally, in order for payroll to be accurately processed, you will need to collect necessary information from employees, like identification numbers and titles.

Payroll calculation phase

After establishing policies and gathering all the required information, you will need to process payroll. The exact steps that take place vary based on what system you use, but in essence, the previously collected data is fed into the payroll system to calculate every employee's paycheck, accounting for their compensation, withholdings, deductions, and taxes.

Post-payroll phase

At this point, salary payments will be made to all employees. It's important to provide every employee with a payslip during each period that details their gross and net pay along with taxes and withholdings.

Paying employees is one of the most significant expenses your business will incur, so it's important to have accurate payroll accounting with detailed records. This is particularly significant because you are responsible for payroll reporting and compliance, meaning that you will need to report and submit all necessary funds to the appropriate government agencies.

If all of the details of this process seem cumbersome, don't worry. There are alternatives to self-managing payroll. Skuad is a payroll provider in Iceland and is ready to manage every phase, ensuring your business always stays in full compliance and keeping both you and your employees happy.

Everything you need to know about payroll in Iceland

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Payroll processing company in Iceland

Processing payroll in Iceland requires close attention to detail, precise reporting, and current knowledge of all applicable laws and requirements — all of which become incredibly time-consuming. One of the easiest ways to ease the burden of payroll is to delegate the responsibility to Skuad, which will not only keep you fully compliant with laws and regulations but also ensure your employees receive timely payments and that all records are correct and complete. Contact Skuad to learn more about how they can save time and energy that you would prefer to spend elsewhere in your business.

Payroll management in Iceland

The term payroll management refers to the overall task of properly compensating employees for their services as well as maintaining and providing financial records of employee earnings, deductions, net pay, and taxes. In order to do this successfully, you first need to have a comprehensive understanding of everything that is necessary to maintain compliance.


If your head is already spinning, leave your payroll activities in Iceland to Skuad.

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Payroll compliance in Iceland

In order to comply with Iceland's tax laws, companies must participate in the Pay-As-You-Earn (PAYE) system. Under PAYE, the employer is required to make the proper withholdings from each employee's monthly salary and report them to the Internal Revenue Directorate.

Employers are responsible for making several different withholdings from employees' pay, including national and municipal taxes, pension funds, and social security.


It’s crucial to get your payroll taxes and deductions correct in Iceland and elsewhere in the world. Book a demo with Skuad to see how we can help.

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Payroll components in Iceland

There are many components to consider when it comes to payroll, and knowing about all of them is an essential step toward having compliant payroll processing in Iceland.


There is no national minimum wage in Iceland, but salaries are still among the most competitive in Europe. This is because of collective bargaining, which is when companies reach agreements with unions that apply to all qualified employees regardless of their union membership. The average monthly salary in Iceland is 310,000 Icelandic kronor (ISK).

In addition to the base salary, employees who work for at least 12 weeks within 12 months for the same employer are entitled to a December bonus. Similarly, employees who work 12 weeks of a vacation year can typically claim a vacation bonus.


Full-time employees must receive a written contract within their first two months of employment. This document should detail the expected hours, location, and terms of the position. While collective bargaining often determines a minimum wage for particular positions, the employee and employer are still free to negotiate to their own terms beyond that wage and record the outcome in the contract.

Work hours and overtime

Iceland has a standard 40-hour workweek for full-time employees. The overtime pay rate is 0.875% of the monthly salary per hour for up to 162.5 hours. Beyond that, any additional overtime is paid at the rate of 1.0385%.  

Social security

Both employees and employers are responsible for making contributions to social security. The social security withholding rate is typically 6.1%.

Sick leave

Employees are entitled to two full sick days every month during the first year of their employment. However, due to collective bargaining, some employees may receive additional time off, and the number of sick days generally increases after the first year.

Parental leave

All new parents in Iceland have the option to take three months of leave after the birth of a child and continue to receive 80% of their salaries. After that period, one of the parents can opt to take an additional three months off at this same rate of salary to spend more time with the child.

Public holidays

There are fifteen official public holidays in Iceland, and while employers can make a request, employees cannot be forced to work on these days.  

  • New Year's Day
  • Maundy Thursday
  • Good Friday
  • Easter Sunday
  • Easter Monday
  • First Day of Summer
  • Workers' Day
  • Ascension Day
  • Whit Monday
  • Independence Day
  • Commerce Day
  • Christmas Eve
  • Christmas Day
  • St. Stephen's Day
  • New Year's Eve

In addition to these mandatory holidays, employees can also take two days off every month, making the total holiday allowance 24 days a year.

Payroll taxes

Payroll tax in Iceland is determined by residence status and source of income for each individual. Iceland has progressive income tax rates:

  • 31.45% for income below 349,018 ISK
  • 37.95% for income between 349,019–979,847 ISK
  • 46.25% for any higher income

Other laws

In Iceland, there are mandatory occupation pension funds as well as optional private funds. Both employers and employees are required to pay premiums into mandatory pensions, and the minimum contribution is typically 15.5% of gross salary. Employees typically pay 4% and employers pay the remainder.

Notice for dismissal of staff differs based on the age of the employee and the length of their tenure with the company. Typically, the notice period is one to three months, and employees are required to work out the entirety of that time.

Getting help

The list of information needed to be fully compliant with payroll, fair to all employees, and profitable as a business is extensive, and there are regular changes in policies and regulations. Skuad stays current on all Icelandic labor and tax laws at any given time, and they can eliminate any guesswork when processing payroll.


Want to get started with payroll management in Iceland? Book a Skuad team demo to understand exactly what’s expected of your business.

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Whether trying to stay on top of updated tax laws or the currency exchange rate, which is currently 1 ISK to .0075 USD, payroll management is a complicated job that takes time away from other aspects of your business. Skuad is a great solution to make payroll painless and worry-free. Request a demo to learn what Skuad can do for you.

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