Employee Benefits in Iceland are generally covered by the Labour Code and the Directorate of Labour, and administered by the Ministry of Social Affairs. Specific legislation also applies in many areas of employment. In addition, Collective Bargaining Agreements (CBAs) and trade unions have a strong influence in Iceland, representing close to 90% of the workforce. When expanding your company’s presence in a new country, you need to ensure compliance both in your employment contracts and benefit guarantees. Foreign companies hiring employees in Iceland must operate within this complex framework of legislation and collective agreements that provide safeguards and guarantees for the workforce.
The responsibilities of foreign companies reach further than simply complying with tax, social security, and payroll regulations. Failure to comply with specific regulations applying to benefits and entitlements runs the risk of fines and sanctions. It is vital that employers have a firm grasp of what is guaranteed for their employees, as this will affect the employer-employee relationship. This is where Bradford Jacobs steps in to point you in the right direction, drawing on over 20 years of experience as a Professional Employment Organisation (PEO) and Employer of Record (EOR).
Apart from the Labour Code, specific legislation regarding employees’ compensation, benefits and entitlements include Acts covering: Working Time Terms and Pension Insurance Rights; Working Environment, Health and Safety; Gender Autonomy; Equal Treatment in the Labour Market; Equal Treatment Regarding Race and Ethnic Origin; Equal Rights and Status of Men and Women.
In Iceland, employers need to be up to speed with responsibilities to their staff over benefits, compensation, and minimum requirements. Do not take the risk of paying penalties for ignoring these responsibilities! Compensation, entitlements, and benefits can be improved by collective agreements but not diminished.
Mandatory benefits guarantee minimum entitlements for the workforce in Iceland. They are based on the Labour Code, supplemented by individual pieces of legislation as well as collective and trade union agreements, which can enhance provisions. For example, minimum statutory requirements include the following:
Icelandic Health Insurance (IHI) is available for everyone who has been in Iceland for six months, regardless of their nationality, as they will automatically be enrolled in the social insurance system. Citizens from the European Union and European Economic Area members can apply for the system membership from the day they register their legal residency.
Social security in Iceland is the public pension regime. All Icelanders are members of the system, administered by the State Social Security Institute, under the provisions of the Social Security Act. Employers and employees contribute taxes to the social insurance system.
All employers in Iceland must contribute to social insurance as part of their statutory costs. Employers must register with the State Social Insurance Institute (Tryggingastofnun) in order to remit their statutory contributions to the social security and insurance systems. Employers contribute the equivalent of 8.00% of their employees’ taxable income to the state pension fund. Employers also contribute to social insurance, at a rate of 6.10% of employees’ gross income since January 2022.
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