Guide · Iceland
Iceland EOR Cost: What a Hire Costs Each Month and Each Year (2026)
Guide · Updated 30 October 2026
An employee hired through an employer of record in Iceland costs you four things: the gross salary, paid 12 times a year; the employer’s pension contribution and payroll levy on top of it; the contributions and bonuses set by the collective agreement; and the EOR service fee. Under the VR–SA agreement for office staff, an ISK 800,000 monthly salary costs about ISK 961,842 a month, or about ISK 11.7 million a year including the holiday allowance and December bonus, before the service fee.
Last reviewed in October 2026 against Skatturinn’s 2026 rates and the VR–SA collective agreement. General information, not legal or tax advice; agreement rates differ by sector.
The four parts of an Iceland EOR bill
Gross salary. The monthly salary you agree with the employee, in krónur, paid 12 times a year. It must be at least the minimum for the job in the collective agreement that covers it. Iceland has no statutory national minimum wage.
Statutory employer costs. An 11.5% employer pension contribution and the 6.35% payroll levy (tryggingagjald), which is charged on salary plus that pension contribution. Both are passed through at cost.
Collective agreement costs. Small employer contributions to the union’s sickness, holiday home and training funds and to the rehabilitation fund (VIRK), plus the holiday allowance paid in June and the December bonus.
The EOR service fee. The provider’s charge for employing and paying the person, shown as its own line, plus any one-time item and any deposit.
The employee’s 4% pension contribution and income tax come out of the gross salary. They reduce take-home pay, not your cost.
Employer contributions in 2026
| Item | Rate | Charged on | Who pays |
|---|---|---|---|
| Pension contribution | 11.5% | Gross salary | Employer |
| Payroll levy (tryggingagjald) | 6.35% | Gross salary plus the employer pension contribution | Employer |
| Union sickness fund (VR–SA) | 1% | Gross salary | Employer |
| Holiday home fund (VR–SA) | 0.25% | Gross salary | Employer |
| Training fund (VR–SA) | 0.30% | Gross salary | Employer |
| Rehabilitation fund (VIRK) | 0.1% | Gross salary | Employer |
| Pension contribution | 4% | Gross salary | Employee, withheld from salary |
| Income tax | 31.49% / 37.99% / 46.29% | Salary after the employee’s pension contribution, less a credit of ISK 72,492 a month | Employee, withheld from salary |
The legal minimum pension contribution is 15.5% of salary in total; under the main collective agreements the employer pays 11.5% and the employee 4%. Fund rates are those of the VR–SA agreement for office and commercial staff; other agreements use similar but not identical rates. Income tax brackets for 2026: 31.49% up to ISK 498,122 a month, 37.99% up to ISK 1,398,450, and 46.29% above that, according to Iceland Revenue and Customs (Skatturinn), key rates 2026.
Bonuses set by the collective agreement
| Payment | 2026 amount (VR–SA, full time) | Paid by |
|---|---|---|
| Holiday allowance (orlofsuppbót) | ISK 62,000 | 1 June |
| December bonus (desemberuppbót) | ISK 114,000 | 15 December |
Both are paid in proportion to the hours and months worked during the year, so a part-time employee or someone who joins mid-year receives less. Other agreements set their own amounts, usually close to these.
Three worked examples
Full year of full-time work under the VR–SA agreement, 12 monthly salaries, no overtime or supplementary pension. The examples exclude the EOR service fee and the employer levy on the two bonuses.
| Monthly gross salary | Pension (11.5%) | Payroll levy (6.35%) | Agreement funds (1.65%) | Employer cost per month | Employer cost per year, with bonuses |
|---|---|---|---|---|---|
| ISK 500,000 | ISK 57,500 | ISK 35,401 | ISK 8,250 | ISK 601,151 | ISK 7,389,815 |
| ISK 800,000 | ISK 92,000 | ISK 56,642 | ISK 13,200 | ISK 961,842 | ISK 11,718,104 |
| ISK 1,200,000 | ISK 138,000 | ISK 84,963 | ISK 19,800 | ISK 1,442,763 | ISK 17,489,156 |
| Monthly gross salary | Employee pension (4%) | Income tax after credit | Take-home pay per month |
|---|---|---|---|
| ISK 500,000 | ISK 20,000 | ISK 78,660 | ISK 401,340 |
| ISK 800,000 | ISK 32,000 | ISK 186,893 | ISK 581,107 |
| ISK 1,200,000 | ISK 48,000 | ISK 332,775 | ISK 819,225 |
Take-home pay assumes one employer, the full personal tax credit and no union membership fee (0.7% of salary for VR members). To test your own figures, use the Iceland labor cost calculator.
Other costs to plan for
- Overtime. Paid at the rate in the agreement. For office staff under VR–SA, each overtime hour is paid at 1.0385% of the monthly salary.
- Holiday pay. At least 24 working days a year with holiday pay of at least 10.17%. For a monthly-paid employee, normal salary continues during holiday; holiday pay is added to overtime and other variable pay.
- Sick pay. The employer pays salary during illness: by law 2 days for each month worked in the first year and 1 month after a year, and more under most agreements.
- Supplementary pension. If the employee saves an extra 2% to 4%, agreements require the employer to add 2%.
- Ending employment. Pay for the notice period, untaken holiday pay and pro rata bonuses. There is no statutory severance pay.
- Pay rises. The 2024–2028 agreements set general increases each year; for 2026, 3.5% with a minimum of ISK 23,750 a month.
How to read an EOR quote for Iceland
Ask to see the cost for a full year, not only a month: 12 salaries, the pension contribution, the payroll levy on the right base, the agreement funds and both bonuses. A good quote also names the collective agreement it is based on, shows the service fee as its own line, states whether there is a deposit and when it is returned, gives the exchange rate used if you pay in euros or dollars, and lists the dates on which you will be invoiced.
NNRoad does not publish a standard price for Iceland. We review the role, the salary, the agreement and the person’s right to work first, then send a written proposal that shows:
- the full employment cost, line by line, for a full year
- the collective agreement that applies to the role
- NNRoad’s service fee and any one-time item, listed separately
- any deposit and when it is returned
The yearly view: when the money is paid
| When | What is paid or filed |
|---|---|
| Each month | Salary on the payday in the contract, usually the first working day of the following month, with a payslip |
| By the 15th of each month | Income tax withheld and the payroll levy for the previous month, filed and paid to Skatturinn |
| Each month | Pension and union fund contributions paid to the employee’s pension fund and union |
| January | Annual wage statements filed with Skatturinn; new tax brackets apply |
| By 1 June | Holiday allowance |
| By 15 December | December bonus |
What it costs to end an employment
Notice must be given in writing. The legal minimum after the first year is:
| Service with the same employer | Minimum notice |
|---|---|
| 1 year | 1 month |
| 3 years | 2 months |
| 5 years | 3 months |
Most collective agreements also give notice during the first year and longer notice for older employees with long service. There is no statutory severance pay, but the employee receives salary for the notice period, untaken holiday pay and pro rata bonuses. We review the agreement and the cost with you before any conversation with the employee.
EOR or your own Icelandic company?
An Icelandic private limited company (ehf.) needs at least ISK 500,000 of share capital, registration with the Register of Enterprises at Skatturinn, a bank account, an accountant, and its own payroll filings every month. That fixed cost makes sense for a long-term team, when you invoice Icelandic customers, or when you need to sponsor work permits. For one or a few employees who can already work in Iceland, an employer of record is faster and avoids the cost of setting up and running a company. Compare an ehf., a branch and an employer of record.
Questions about Iceland EOR cost
How much does an employer of record cost in Iceland?
You pay the employment cost at cost plus the EOR service fee. Under the VR–SA agreement the employment cost is about 120% of gross salary each month, plus the holiday allowance and December bonus. NNRoad quotes each hire after reviewing the role, with every line shown.
What are employer contributions in Iceland in 2026?
An 11.5% pension contribution, the 6.35% payroll levy on salary plus that contribution, and agreement fund contributions of about 1.65% under VR–SA. The employee pays 4% pension and income tax, both withheld from salary.
How is the payroll levy calculated in Iceland?
The payroll levy (tryggingagjald) is 6.35% in 2026. It is charged on salary plus the employer’s pension contribution, so on an ISK 800,000 salary it is 6.35% of ISK 892,000, or ISK 56,642.
Is there a 13th-month salary in Iceland?
Not as such, but most collective agreements require a December bonus and a holiday allowance. In 2026 under VR–SA they are ISK 114,000 and ISK 62,000 for a full year of full-time work.
Can I pay an Icelandic employee in euros?
Salary is set and paid in krónur. You can fund payroll in euros or dollars; the proposal shows the exchange rate used.
Want the numbers for your own hire?
Send us the role, the salary and the work location and we will reply with a line-by-line annual estimate based on the right collective agreement.
Related
How NNRoad employs and pays your Icelandic hire.
ehf., branch or EOR, step by step.
Official sources: Iceland Revenue and Customs (Skatturinn), key rates 2026; Temporary work agencies (island.is); Work permits (island.is); VR, terms for employers. Also: Act No. 129/1997 on pension contributions, Act No. 30/1987 on holidays, Act No. 19/1979 on notice and sick pay, Act No. 139/2005 on temporary-work agencies and Act No. 97/2002 on foreign nationals’ right to work. Reviewed October 2026; general information, not legal or tax advice.