Frequently Asked Questions

Vacation pay can be paid in different ways:

• The employee keeps their wages while on vacation. The employee then receives their salary while on holiday, as if they were working.
• Holiday pay is paid into a holiday account at a bank. The holiday pay is then available for withdrawal in May. Please note that tax must be paid on holiday pay.
• It is also common for holiday pay to be paid out with monthly wages, subject to the employee’s consent.
• Any unused holiday entitlement must be paid out when employment ends. 

The purpose of holiday pay is for the employee to take time off, and it is therefore recommended that it not be paid out monthly. However, holiday pay may be paid out monthly with wages if both the employer and the employee agree, cf. Paragraph 4 of Article 7 of the Holiday Allowance Act No. 30/1987.

Holiday pay is a form of wage income and is therefore taxable. Questions concerning tax should be directed to Iceland Revenue and Customs.

An employer cannot unilaterally decide that an employee should take holiday during the notice period. 

An employee continues to accrue holiday entitlement while using their sick leave entitlement. However, once that sick leave entitlement has been exhausted, the employee no longer accrues holiday entitlement.

If an employee falls ill while on holiday and is therefore unable to enjoy the holiday, they must notify the employer immediately in a verifiable manner. If the illness lasts for more than three days and the employee submits a medical certificate, they are entitled to additional holiday.

Sick leave entitlement varies according to collective agreements and length of service. Information about sick leave entitlement can be seen under rights in each collective agreement below:

• Sickness should be reported as soon as possible and in a verifiable manner. 
  
• The main rule is that the employee notifies the employer as soon as possible, so that necessary measures can be taken at the workplace
  
• An employer’s obligation to pay wages during sick leave due to illness or accident is conditional on the employee having notified the employer of the illness in a verifiable manner.

Yes, if the employer requests a medical certificate, it must be submitted and the employer must then pay for the medical certificate.

Substitute wages

It is based on the wages the employee would demonstrably have received had they not been prevented from working due to illness or accident, excluding attendance bonuses and additional payments for special risk or unhygienic conditions that are incidental to the performance of specifically designated tasks.

Full daytime wage

Full daytime wage consist of fixed wages for regular daytime work, plus shift premium, bonuses and other productivity-related or comparable premium payments, based on 8 hours per day or 40 hours per week in full-time employment.

Daytime wages

Daytime wages are fixed wages based on daytime work (without bonuses and any type of premium payments) for 8 hours per day or 40 hours per week based on full-time work.

Employees are entitled to special sick days when their children are ill. If those days are exhausted, they can apply to Efling for sickness benefits in respect of a child’s illness. 

Employer has the right to sick pay due to children's illness. This sick leave right does not deprive the employee's right due to own illness. Because of this, the employer may not avoid paying the employee when he/she is at home with a sick child unless he/she has fulfilled the sick leave entitlement. The sick leave entitlement for children applies to children younger than 13 years. 

However, an employee can apply for sickness benefits due to children's illness from Efling once they have fully exercised their rights with their employer. 

An employee retains the same sick leave entitlement they had before going on parental leave, provided they continue working for the same employer. If the employee falls ill during the first month in the same job after returning from parental leave, the employer must take into account the 12 months preceding the start of the parental leave when calculating the employee’s sick leave entitlement. 

Partial sick leave has been defined as a situation in which an employee is partially unfit for work and partially fit for work. 

No provision has been agreed on the private sector for what is referred to as partial sick leave.

In the public sector, it is possible to agree on partial sick leave with the supervisor’s consent.

Example: An employee may work 60% of full-time hours and be on sick leave for the remaining 40%.

Shift workers accrue 12 winter holiday days for a full year of employment in respect of public holidays and special holidays falling on Mondays to Fridays. 

This is intended to offset the paid leave that daytime workers receive when public holidays fall on working days. 

It is permissible, by agreement between the employer and the employee, for payment to be made instead of the winter holiday days in question, equivalent to 8 hours of daytime work for each holiday day based on full-time employment. Accrued winter holiday entitlement is paid out when employment ends.

Termination of employment may be defined as notice by one party to the employment contract, whether the employer or the employee, to the other party that the employment relationship is to end.

Notice period is the period from when termination is announced until the employment relationship ends.

• The notice period is mutual
• All terminations must be in writing and made in the same language as the employee's employment contract
• Generally, it is not necessary to specify reasons for termination, but the employee has the right to a hearing about their termination and the reasons for dismissal

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A request for an interview must be made within four calendar days from the receipt of termination, and the interview must take place within four calendar days thereafter.

In the private sector, the notice period is as follows:

• There is no notice period during the first two weeks of employment
• After two weeks of continuous work with the same employer: 12 calendar days
• After 3 consecutive months of employment with the same employer: 1 month’s notice, counted from the beginning of the next month.
• After 2 years of continuous employment with the same employer: 2 months’ notice, counted from the beginning of the next month.
• After 3 years of continuous employment with the same employer: 3 months’ notice, counted from the beginning of the next month.

Other rules apply to notice periods on the public labor market.

Termination of an employment contract is when an employment contract is terminated without notice. An employer or employee may be permitted to terminate an employment contract due to significant non-compliance or breach of conditions.

• If the employer or employee wishes to change the terms of employment, it must be done by mutual agreement
• If an employer intends to make unilateral changes to an employee’s terms of employment, for example by discontinuing fixed overtime or additional pay above the collectively agreed rate, they must notify the employee in the same manner as if notice of termination were being given. The change does not take effect until the notice period has expired.
  
• If the employee does not object to the changes, the employer will consider them to have accepted them.