Employee Benefits in Iceland

Bonuses and additional payments

In Iceland, collective agreements stipulate a December bonus of 110,000 ISK for full-time employees in 2025. Additionally, a holiday bonus of 60,000 ISK is s calculated for the period beginning May 1 through April 30 each year.

Annual leave

Employees in Iceland are entitled to paid vacation leave after completing one year of service. The statutory entitlement is 24 working days per year, increasing to 25 days after five years in the same line of work, 27 days after five years with the same employer, and 30 days after 10 years with the same employer. This leave is fully paid and can be taken throughout the leave year, as agreed between employer and employee. 

Additional leave may be offered as part of an employment contract, though it is not required by law. Many employers offer enhanced leave policies to stay competitive and improve retention. 

Unused statutory leave must be taken within the vacation year, which runs from May 1 to April 30. Payment in lieu of unused leave is only permitted upon termination of employment.

Sick leave

In Iceland, personal and sick leave are governed by labour laws and collective agreements. Employees accrue two days of paid sick leave per month during their first year, totaling 24 days per year, with entitlements increasing with tenure. Employers may offer more generous sick leave policies through employment contracts or collective agreements.

Parental leave

Employers must provide six months of paid maternity leave, with an additional six months available for the other parent, for each pregnancy, including adoptive and surrogacy-commissioning mothers. Pregnant employees who have worked in Iceland continuously for the last six months before the child’s date of birth are eligible for benefits, with written notice and medical documentation required to be submitted to the employer confirming the pregnancy and expected delivery date.

Additional benefits

In addition to the above, employers are legally required to provide these benefits under Icelandic labor laws: 

• Pension fund contributions: Employers contribute 11% of an employee’s gross salary to pension funds, supporting retirement savings. 
• Social security contributions: Employers contribute 6.1% of an employee’s gross salary to social security, covering healthcare, maternity, disability, and sickness benefits. 
• Severance pay: Paid to employees based on collective agreements, typically calculated as one month’s salary per year of service.