The probation period in Iceland is a common practice where the employer and employee enter a trial phase so they can each find out whether the role is a good fit.

An individual is under probation for an agreed set time at the start of their employment. The employer may terminate the employee’s contract with or without stating any specific reason. 

The regulation of probation trial periods in Iceland is regulated by the Icelandic Labour Market Measures Act and a collective agreement that covers multiple industries.

Definition of a Probation Period in Iceland

A probation period, or prófunartími in Icelandic, is a period of time agreed upon at the beginning of an employment contract. This is a legally regulated trial period during which the employer and employee can evaluate if the position, tasks, work environment, and expectations on both sides are satisfactory. 

Probation periods are not mandatory by law, but they are often included in job contracts, especially in larger companies, organizations with collective labor agreements, or where both parties want to agree to a trial period.

The employment relationship during this time is more flexible than regular employment when it comes to terminating the contract. This still must be done in accordance with the regulations of Icelandic labor laws to ensure all sides are treated fairly.

Lengths of Probationary Periods in Iceland

A normal probation period in Iceland is typically three months, but it can be extended to up to six months according to a collective agreement or a specific agreement between the employer and the employee.

This agreement should always be written in the employment contract to be valid. If the workplace is unionized, there are often specific rules about probationary periods negotiated in the collective agreement.

For instance, the general private sector agreement signed by SA-Business Iceland and the Icelandic Confederation of Labour states that a probationary period is usually three months unless a written agreement for a longer or shorter period has been made between employer and employee.

If there is no mention of probation in the employment contract, the contract is considered a regular permanent one, and the employee gets their rights as an employee with full notice periods from day one.

Permanent or Indefinite Contracts

For indefinite contracts, which are the most common type of contract in Iceland, the probation period is normally agreed upon at the beginning of employment.

If no problems arise during the trial period, the contract is automatically renewed after the probation period ends, without any need for renewal or renegotiation.

Either the employer or the employee may terminate the contract with less notice during the probation period, but with the full notice period.

Fixed-Term or Definite Contracts

Probation can also be applied to fixed-term contracts, but it should be both justifiable and proportionate to the contract’s duration. The Icelandic Directorate of Labour has recommended that probation on short-term contracts should be shorter and should only be used when necessary.

Fixed-term employment is heavily regulated in Iceland to prevent abuse, and consecutive fixed-term contracts may convert into permanent employment under certain conditions, even if probationary clauses were added in each term.

Legal Considerations for Probation Periods in Iceland

Icelandic labour laws do not exclude employees on probation from employee rights. During a probationary period, basic labour laws remain applicable. 

Probation is only legal if it is written in the employment contract, and most jobs cannot have a probationary period exceeding 3 months unless otherwise agreed by both the employee and the employer.

The rules regarding termination, pay, and work conditions also apply to employees on probation. Employees on probation must be treated in the same manner as other permanent employees, receiving equal pay and work conditions. 

It’s easier for both parties to terminate probation contracts as the notice period is seven calendar days. Employers must be wary of terminating contracts on a discriminatory basis, as it could lead to legal issues.

Pay and Working Conditions

The law in Iceland is fair about pay and working conditions. Probationary employees in Iceland must be paid the same wage as permanent employees doing the same work. 

Iceland does not have a statutory national minimum wage. Wages are set by a collective agreement. For example, the minimum monthly salary according to the agreement in 2024 was about ISK 368,000 for full-time work.

Probation employees have the same number of weekly working hours as permanent employees, which is 37.5 to 40 hours. They also have the same overtime pay, break rules, and safety considerations as permanent employees.

The employer cannot pay probationary employees lower wages or deny them benefits, as it’s against the law.

Termination and Notice

Probation in Iceland gives the employee and the employer the right to end a work contract after shorter notice, with just seven calendar days. This is less notice compared to a permanent contract, where notice for termination is 30 days. 

The notice period should be stipulated in the contract and comply with the corresponding collective agreement. The termination cannot be discriminatory under the law. This means employees on probation cannot be terminated based on their sex, union membership, nationality, or if they are pregnant.

An employer who fails to provide appropriate notice or fires an employee based on an unlawful reason may be liable for legal issues.

Vacation / Holidays

Vacation days are earned from day one of employment, including those on probationary periods; however, they cannot be used until after the trial is completed.

If the contract is terminated during the probationary period, the employer is expected to compensate the employee for the unused vacation days. The labour law also states that all employees are entitled to at least 24 paid vacation days per year.

Benefits of Probation Periods in Iceland

Probation periods are encouraged in the Icelandic labor market because they are good for both sides of the employment contract. It allows for a better decision about the employer and the employee’s future relationship.

  • For Employees

Probation periods give the employee a low-risk trial period at their new workplace. They can decide if they like the team, the environment, and the job and if it matches their goals. If it isn’t what they are looking for, they can leave at any time with short notice.

It is also good to know that full legal protection is guaranteed from the first day. Employees are not losing wages, rights, or social security contributions by being on probation.

  • For Employers

Probation periods offer employers a chance to evaluate a new candidate in a real work situation. This may include suitability for the job, performance, and professionalism.

Interviews and CVs give the employer an idea of a person’s background, but the probation period is when they see how the person actually performs.

Probation periods can help to reduce long-term staff turnover as it will be identified early if the job is not suitable for the employee, and vice versa.

The short notice period required during probation means that the employer can simply terminate the contract without the risk of having to pay long-term severance or face potential legal problems.

Conclusion

The probation period in Iceland is fair and flexible for both employees and employers. It’s regulated by clear labor laws and collective agreements, which ensure that both sides have rights and responsibilities from day one. 

For an employee, knowledge of the termination rules, wages, and working conditions can be of great help. Employers should be aware of the legal regulations, such as the anti-discrimination laws, to prevent legal issues.

If you are a business owner who wants to expand into Iceland, but you have worries about dealing with the legal regulations and laws, Remote People can help. We offer services that help keep your business compliant with all local probationary period regulations so that you can pour more time and effort into other areas of the company.

Frequently Asked Questions

Yes, probationary employees start earning vacation days starting from the first day of employment. However, they cannot use their vacation until the end of the probation period.

If the contract does not mention a probation period, then the employment is treated as a regular contract from day one.

Yes. In Iceland, employees on probation have the right to the same pay and benefits as permanent employees who are also doing that role.