Payroll and Benefits Guide Iceland

Annual Leave (vacation)

The minimum annual leave entitlement in Iceland, according to the Holiday Allowance Act, is 24 days. However, many collective bargaining agreements provide for 25 to 30 days of vacation per year.

Vacation is accrued over one year to be taken in the following year, with the vacation year running from May 1 to April 30. Employees who have not worked a full year are entitled to proportional vacation, earning two vacation days for each month worked during the earning year.

Vacation and vacation pay increase with length of service. Employees accumulate paid holiday, with a minimum entitlement of 24 weekdays of paid leave. Holiday pay is 10.17% of total wages. After five years in the same line of work, this increases to 25 weekdays and 10.64% of total wages. After five years with the same employer, it increases to 27 weekdays and 11.59% of total wages. After ten years with the same employer, it reaches 30 weekdays and 13.04% of total wages.

Fixed Christmas bonuses are payable on December 1, and holiday bonuses are payable in summer, between May 1 and August 15. If an employee has worked only part of the year, their bonus will be proportional to their time in service. The bonus is paid together with the salary in the corresponding month.

PTO carryover

In Iceland, statutory annual leave cannot be forfeited. Leave is normally taken in the year it’s earned, but unused leave may be carried over by agreement into the next year. A blanket “use-it-or-lose-it” policy is not lawful, and unused statutory leave must be taken later or paid out on termination.

Public Holidays

Public holidays falling on the weekend are usually lost.

Sick Days

During their first year with a new employer, employees are entitled to two days of paid sick leave per month. After one year, they are entitled to two months of paid sick leave. Employers have the right to request a doctor’s note to verify the illness. After 21 consecutive days of illness, sick pay is provided through social security.

After five years with the same employer, employees are entitled to four months of paid sick leave, and this increases to six months after ten years. If an employee changes employers after five years, they are still entitled to at least two months of paid sick leave with the new employer.

Parental Leave

In Iceland, there is no separate maternity or paternity leave; instead, there is parental leave, which lasts for 12 months. This allows both parents to take six months off work each, with one month transferable between them. Mothers may take up to one month off work before the baby arrives and must take at least two weeks of parental leave following the birth.

The standard monthly parental leave payment is 80% of the salary, capped at ISK 600,000 before taxes. The payments is covered by the Parental Leave Fund (Fæðingarorlofssjóður)

During parental leave, the employment contract and all benefits remain intact.

Additionally, parents are entitled to take up to four months of unpaid leave to care for a child until the child is eight years old.

Other Leave

Carers’ Leave-In Iceland, employees can take up to 24 days of paid leave per year to care for sick children, as specified by collective bargaining agreements. For broader family care, while there are no legal entitlements, the Equal Status Act requires employers to accommodate employees’ family responsibilities. Most agreements outline specific leave days for family care.