PEO Services in Iceland

A co-employment model for companies that want to share the employer relationship in Iceland rather than hand it over entirely. Worth knowing up front: Iceland has no dedicated PEO-enabling statute, and co-employment sits awkwardly against a system where sector collective agreements decide who the real employer is for bargaining purposes. We will advise you honestly on whether PEO or an EOR genuinely fits, and place you with the right vetted partner.

  • Independent advice
  • Vetted partners
  • Honest positioning

What a PEO does in Iceland

A Professional Employer Organisation works on a co-employment model. You and the PEO partner share the legal employer responsibilities for your Icelandic staff: you keep direction and day-to-day control, while the partner administers payroll, income tax, tryggingagjald, pension contributions, and HR compliance under a shared arrangement.

01

Shared employer role

You and the PEO partner share the legal employer responsibilities. You keep direction and control; they handle payroll, income tax, tryggingagjald, pension contributions, and the correct sector collective agreement.

02

More direct control

PEO suits companies that want to retain more direct control of the employment relationship than a full EOR arrangement allows. Iceland has no dedicated legal framework for PEO co-employment, so EOR is usually the better fit.

03

Honest recommendation

For most businesses hiring in Iceland, EOR is simpler. We will work with you and advise if the PEO model fits your structure or if EOR would suit you better.

How PEO works in Iceland, step by step

From assessing the fit to a compliant co-employment arrangement.

01 — Assess the fit

We map your structure, headcount, and how much control you want to keep, and advise you honestly whether PEO or EOR serves you better. No product push.

02 — Set up co-employment

If PEO fits, we place you with a vetted Icelandic partner and structure the shared employer arrangement correctly.

03 — Onboard your people

Compliant Icelandic employment terms under the applicable sector collective agreement (kjarasamningar), with the administrative employer functions handled by the partner.

04 — Payroll & compliance

Income tax, tryggingagjald, and pension filings handled monthly with Skatturinn, while you keep day-to-day direction.

What PEO in Iceland costs

As with EOR, two parts: the statutory cost of employment (predictable, built from tryggingagjald and pension contributions) and the partner service fee.

Employer payroll tax & pension

A flat 6.35% employer-only tryggingagjald on gross salary, with no employee-side equivalent, plus 11.5% into the employee’s pension fund, both administered under the shared employer arrangement.

Pay floor (2026)

No single national rate: the entry-level tier under the 2024-2027 VR-SA agreement sits at ISK 513,000-515,000 a month, one of many sector floors set by collective bargaining rather than government.

Income tax (employee)

A three-tier scale from 31.49% up to ISK 498,122 a month, through 37.99%, to 46.29% on the excess above ISK 1,398,450, withheld at source as part of the shared payroll administration.

PEO partner fee

A service fee for the co-employment administration. Under a shared employer arrangement, tryggingagjald, pension contributions, and the applicable collective agreement still have to be administered correctly by someone. We benchmark across our vetted network, typically 15 to 25% below going direct.

Why arrange it through Bradford Jacobs

Why companies arrange PEO in Iceland through us rather than going direct to a single provider.

We tell you if PEO fits your needs

We are independent: we assess what you actually need, place you with the right vetted partner, secure pricing you will not get going direct, and stay on your side to escalate or renegotiate. You get advice, not a product pitch.

  • Independent advice
  • Vetted partners only
  • On your side at renewal

Pricing you can’t get direct

Structuring co-employment correctly matters in a market where collective-agreement coverage decides who the real employer is for bargaining purposes. We benchmark PEO partner fees across our vetted network for rates typically 15 to 25% below going direct, and hold the structuring risk with you, not just the invoice.

  • 15-25% below direct
  • Co-employment structured right
  • Renegotiated for you

Straight to the top when it matters

When something needs resolving, and in global employment it sometimes does, you come to us. We escalate directly, past the helpdesk, to people who can actually move it.

  • Direct escalation
  • No support queues
  • Named account contact

Two decades of placements

Two decades placing and managing employment arrangements across global markets, with the local knowledge that keeps you on the right side of Iceland’s collective agreements.

  • Co-employment expertise
  • Honest fit advice
  • Right structure

We flex as your structure changes

PEO, EOR, and your own entity sit on a spectrum, and the right point shifts as you grow. We advise on the path and manage the moves, EOR to PEO, or either to your own Icelandic ehf. (einkahlutafelag), as your Icelandic presence develops.

  • EOR, PEO or entity
  • Transitions managed
  • Right fit as you grow

The employer duties a PEO shoulders under Iceland’s collective agreements

Whichever model you use, the underlying Icelandic rules are the same. Under a PEO arrangement, the administrative employer functions are handled for you.

Working time, leave & contracts

Compliant Icelandic employment contracts under the applicable sector collective agreement, with working-time rules (36-37.5 hour standard week depending on the CBA, statutory overtime caps, minimum 24 days’ annual leave). Income tax, tryggingagjald, and pension contributions withheld and filed correctly. Statutory benefits, notice, and severance applied properly.

Statutory protections & exits

Notice, probation, and the protections Icelandic employees carry under the applicable sector collective agreement rather than a single labour code, all handled under the shared arrangement. The value is the same as with EOR: the compliance is handled by people who do it daily. The difference is simply how much of the employer role you keep.

What a PEO arrangement covers

The co-employment administration covers all of this, under one transparent fee.

Compliant contract

A compliant Icelandic employment contract under the applicable sector collective agreement, issued and maintained for you.

Payroll & filings

Monthly payroll run, with income tax, tryggingagjald, and pension contributions calculated, withheld, and filed each month.

Statutory benefits

All statutory benefits administered: annual leave, sick pay, parental leave, notice and severance.

Compliance & support

Ongoing HR compliance and a single point of contact, for the life of the engagement.

Your questions answered

Straight answers on how PEO co-employment works in Iceland.

What is the difference between PEO and EOR in Iceland?

With an EOR, the partner is the sole legal employer of your Icelandic staff. With a PEO, you and the partner share the employer relationship, you keep more direct control, they handle the administration. Iceland has no dedicated PEO-enabling statute, so EOR is the usual route; PEO suits specific structures.

For most companies, EOR is simpler and faster, especially with no Icelandic entity. PEO fits when you want to share rather than outsource the employer role, or have a structure that calls for it. We assess your situation and recommend honestly.

It depends on the structure. Some co-employment arrangements assume or work alongside your own Icelandic ehf. If you have no entity and want none, EOR is usually the cleaner route. We will confirm which applies to you.

The administrative employer functions, payroll, income tax, tryggingagjald, pension contributions, statutory benefits, and statutory filings, are handled by the partner. We make sure the arrangement is structured so responsibilities are clear and the applicable collective agreement is honoured.

The statutory employer cost (6.35% tryggingagjald plus 11.5% pension contributions) plus a partner service fee for the co-employment administration. We benchmark across our network for pricing typically 15 to 25% below going direct.

Yes. These models sit on a spectrum and the right one changes as you grow. We advise on the path and manage transitions, EOR to PEO, or either to your own Icelandic ehf., as your Icelandic presence develops.

Not sure whether PEO or EOR is right for Iceland?

Tell us your structure and headcount and we will give you an honest recommendation, usually within a day, plus pricing you will not get direct. No product push, just the right fit.

Tax and labour data verified July 2026 (Skatturinn, Vinnumalastofnun, island.is). Figures change; we confirm the current position when we scope your hire.