Citizens of the European Economic Area (EEA), European Free Trade Association (EFTA) countries and Switzerland generally have the right to live and work in Iceland without obtaining a work permit, although registration requirements apply for longer stays. Non-EEA nationals typically require both a residence permit and work permit before commencing employment.

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Employers sponsoring foreign workers must submit applications to the Directorate of Immigration, often in conjunction with the Directorate of Labour. Supporting documentation generally includes an employment contract, proof of qualifications and evidence that employment conditions comply with Icelandic labour laws and collective agreements.

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Residence and work permits are usually granted for a specified employer and occupation and may be renewed where eligibility requirements continue to be met.

• Employers must register with the Iceland Revenue and Customs (Skatturinn) before hiring employees.
• Payroll is generally processed monthly, with employers responsible for withholding Pay As You Earn (PAYE) income tax and remitting mandatory pension and social security contributions.
• Payroll obligations include:
  
  • Monthly payroll processing
  • Withholding and remittance of PAYE income tax
  • Employer social security contributions
  • Mandatory occupational pension contributions
  • Monthly payroll reporting to the tax authorities
  • Maintaining payroll and employment records
• Most employees receive their salaries on a monthly basis.

• Employment contracts may be permanent or fixed-term. Although verbal contracts are legally valid in certain circumstances, written employment agreements are standard practice and employees must receive written information regarding their employment terms.
• Probation Period: Commonly up to three months, although longer periods may apply under certain collective agreements.
• Working Hours: Standard working week is generally 40 hours for full-time employees.
• Overtime: Overtime is regulated through collective bargaining agreements and is generally compensated at premium rates.
• Termination: Employment may be terminated by either party in accordance with statutory notice requirements and applicable collective agreements.
• Notice Period: Notice periods typically range from one to three months depending on length of service, employment contract and applicable collective agreement.
• Severance: Statutory severance pay is generally not required, although additional protections or payments may arise under collective agreements or redundancy arrangements.

• Social Security Contributions: Employers make mandatory social security contributions based on employee earnings.
• Occupational Pension: Both employers and employees are required to contribute to approved occupational pension funds.
• Annual Leave: Employees are entitled to a minimum of 24 paid working days of annual leave, with many collective agreements providing 25 to 30 days based on age and length of service.
• Public Holidays: Iceland observes approximately 13 public holidays each year.
• Sick Leave: Employees are generally entitled to paid sick leave, with entitlement increasing according to length of service and collective agreements.
• Maternity and Parental Leave: Parents are entitled to shared parental leave, with each parent receiving an individual entitlement and an additional shared period. Benefits are paid subject to statutory limits.
• Paternity Leave: Fathers receive dedicated parental leave under Iceland's parental leave scheme rather than a separate statutory paternity leave entitlement.

• Tax Residency: Individuals are generally considered tax residents if they maintain a permanent home in Iceland or remain in the country for more than 183 days during any 12-month period.
• Residents: Taxed on worldwide income.
• Non-Residents: Taxed only on Icelandic-source income unless otherwise provided under a tax treaty.
• Tax Year: 1 January – 31 December.
• System: Iceland applies a progressive personal income tax system consisting of national income tax together with municipal income tax.
• Double Taxation Treaties: Iceland has an extensive network of double taxation agreements with numerous countries.