Iceland, famously known as the ‘Land of Fire and Ice,‘ is more than just a Nordic island — it is home to beautiful glaciers, geysers, and volcanoes that make it one of the top tourist destinations in the world. 

With a GDP of USD 29.4 billion, Iceland has proven to be resilient in the face of global economic shifts, maintaining low unemployment (3.9% as of December 2024) and ranking 26th in Ease of Doing Business globally.

The country’s economy is driven by three dominant industries: tourism, fishing, and aluminum smelting.

Tourism alone accounted for over 8.8% of GDP in 2023, making Iceland one of the most tourism-dependent nations in the world. In 2023, Iceland’s total exports were led by:

Export CategoryPercentage of Total Exports
Marine products37.6%
Fresh fish9.4%
Frozen fish fillets8.9%
Aluminum and aluminum products34.2%
Tourism-related services

Largest service export sector

These industries highlight Iceland’s reliance on natural resources and high-value exports, creating a strong foundation for international business opportunities.

Iceland offers a business-friendly environment with relatively low corporate taxes, a highly skilled workforce, and competitive labor costs. The country is part of the European Free Trade Association (EFTA), granting businesses access to the European market while maintaining a stable and open economy.

In the 2024 Index of Economic Freedom, Iceland’s economy is considered “mostly free,” supported by regulatory efficiency, open-market policies, and a strong social welfare system.

A highly educated population and a well-developed infrastructure make Iceland particularly attractive for businesses in technology, renewable energy, and data centers.

With geothermal and hydroelectric power supplying 85% of the country’s energy needs, Iceland offers low-cost, clean energy, a crucial factor for industries with high electricity demands, such as tech and manufacturing. Beyond economic successes, Iceland consistently ranks among the safest countries in the world and has one of the highest standards of living, supported by universal healthcare, free tertiary education, and high wages that surpass the OECD average.

A huge part of the population speaks English, making communication for international businesses incredibly easy. For companies looking to expand into Iceland, the country’s strong economic foundation, skilled workforce, and access to international markets make it a promising choice. However, certain challenges, such as understanding payroll, tax compliance, and labor laws, present problems for new businesses expanding into the region.

With a 40-hour workweek, regulated overtime rates, and industry-specific employment rules, companies need expert guidance to operate efficiently. A Professional Employer Organization (PEO) simplifies business expansion in Iceland by handling HR management, payroll processing, and compliance with employment laws.

Table of Contents show

Expanding Your Business in Iceland With a PEO

Iceland, with its high-income economy and strong market potential, offers an ideal destination for businesses looking to expand into Northern Europe. Hiring such a skilled workforce in Iceland for your business is quite a task, especially when the unemployment rate is below 4%.

The comprehensive social policies, such as the multiple labor protection acts, including the Act on Equal Treatment in the Labor Market, the Act on Labor Market Measures, and the Act on Working Environment, Health, and Safety in Workplaces, make labor laws complex to understand.

Understanding how employee agreements work is also quite critical when expanding your business to Iceland. Iceland has two types of employment agreements:

  • Individual employment contracts
  • Collective bargaining agreements

Complying with social policies, labor protection acts, and employment laws, as well as understanding tax and payroll regulations, is quite a task for foreign businesses. This is where the Professional Employer Organization (PEO) comes in. 

How a PEO Helps Your Business in Iceland

A Professional Employer Organization (PEO) simplifies market entry by managing HR operations and payroll and ensuring compliance on behalf of your company.

Foreign companies and startups can establish a strong presence in Iceland, hiring the local workforce through a PEO that understands the rules, regulations, and laws of the region. This allows you to focus on expansion without dealing with administrative hurdles.

A PEO in Iceland also does the following: 

  • Finding highly skilled professionals while ensuring compliance with Icelandic employment laws.
  • Handling salary payments, tax filings, and social security contributions for employees.
  • Managing healthcare, pension contributions, and vacation allowances as per Icelandic regulations.
  • Ensuring businesses comply with Iceland’s corporate tax policies and labor laws.
  • Managing onboarding, offboarding, and employee relations, reducing HR burdens for companies.

For companies expanding into Iceland, partnering with a PEO ensures a cost-effective and risk-free hiring process, allowing businesses to grow in one of Europe’s most stable economies without facing legal issues or getting involved in lengthy paperwork.

Start hiring with an Iceland PEO

Let us handle the complexities of hiring, compliance, and payroll in Iceland while you focus on growing your team.

  • Hire employees in Iceland with an Iceland PEO
  • No local entity is needed
  • Pricing starts at USD 199 per employee
  • Remote People can also help you find the best talent in Iceland

👉 Get Your Customized Iceland PEO Proposal Today!

What Services Do PEOs in Iceland Provide?

PEOs manage all your HR-related tasks. This involves hiring a talented team, managing the workforce, making timely payments, managing employee benefits, ensuring compliance with labor laws, filing taxes, and handling other workforce-related queries. 

Here are some PEO services you can benefit from. 

Fast Market Entry

Iceland maintains a close relationship with the EU through the European Economic Area (EEA) agreement. The country is home to a skilled workforce with a high literacy rate. Hiring such skilled professionals in the region becomes easy with a PEO. 

PEOs understand employment laws, collective agreements, and industry-specific wage standards. They accelerate market entry by saving your time on negotiating terms, bargaining, and understanding labor unions, reducing setup time and administrative burdens.

Leveraging its local expertise, a PEO ensures compliance with employment laws, collective agreements, and industry-specific wage standards, allowing businesses to hire swiftly without navigating complex regulations.

Employee Leasing Compliance

While Iceland does not have a dedicated “Labor Leasing Act,” employee leasing is regulated under Icelandic labor laws, particularly concerning temporary work agencies and posted workers. Companies can lease staff, but only under specific conditions, primarily through:

  • Temporary-Work Agencies (Act No. 139/2005): These agencies must comply with Icelandic labor laws so the leased employees receive the same rights and working conditions as permanent employees.
  • Posted Worker Regulations: Employees temporarily assigned to Iceland by foreign companies must adhere to Iceland’s minimum wage, overtime pay, maximum working hours, and rest period laws.

Strict compliance requirements exist to protect workers’ rights, and any violations of Icelandic employee leasing regulations can result in legal consequences. PEOs save foreign businesses from the risks of employee leasing violations, providing a legally compliant, cost-effective, and efficient workforce solution.

Payroll and Employee Benefits Management

Iceland has a comprehensive social welfare system that provides employees with numerous benefits covering parental leave, sick leave, and pension contributions. The country also has strong worker protections, with strict regulations on working hours, paid leave, and equal pay.

Employers must adhere to these labor laws. The employees must receive fair treatment and appropriate compensation.

Key employment regulations in Iceland include:

  • Working Hours: The standard workweek is 40 hours, with a maximum of five 8-hour days.
  • Paid Leave: Employees receive at least 24 days of paid vacation per year.
  • Parental Leave: Both mothers and fathers are entitled to extensive paid parental leave.
  • Equal Pay: The Gender Equality Act mandates an Equal Pay Certification.
  • Discrimination Protections: The Act on Equal Treatment in the Labor Market prohibits discrimination based on race, religion, disability, and sexual orientation.
  • Occupational Health & Safety: Iceland enforces strict workplace safety laws to protect employees.

Employers in Iceland must also comply with collective bargaining agreements, which often set minimum wages and additional worker protections. Failure to meet these employment standards can result in fines and legal disputes.

PEOs manage employee benefits administration, so your business doesn’t fall short when it comes to complying with the Icelandic laws. When you partner with a PEO, your co-employment arrangement ensures employee retention and satisfaction.

Long-Term Growth

Managing HR functions, payroll, and compliance in a new country becomes a hassle when you have to keep up with the ever-changing rules and regulations. If a foreign entity like yours finds such tasks overwhelming, hiring a PEO is the best solution.

A PEO helps you stay informed about the changing local labor laws and tax regulations for long-term business settlements. You can focus on expanding your business, generating revenue, and marketing while the PEO handles all things related to HR. 

Cost Efficiency

Iceland is one of the most expensive countries in the world. The cost of operations can be high due to expensive infrastructure, energy-intensive industries, and competitive wages.

While the country provides affordable renewable energy, other expenses can quickly add up for businesses entering the market. Rather than spending on hiring administrative teams and managing operational expenses, businesses can make use of a PEO to minimize costs.

PEOs provide comprehensive HR support, saving costs and allowing you to allocate the budget to strategic expansion and other core business activities like product development and marketing.

How To Choose the Right PEO for Your Business?

You must find a reliable PEO service to partner with. Before entering a co-employing partnership, consider a few factors that can help you choose the best PEO in the region. 

Experience and Knowledge

Expanding your business in a foreign market requires an in-depth understanding of both its strengths and areas needing attention. Engaging with a PEO with local expertise and in-depth knowledge can provide valuable insights and assistance, facilitating a smoother market entry. 

Your PEO of choice must be familiar with the local labor laws, rules, and regulations to help hire a talented workforce. Some PEOs lack the experience to handle complicated HR tasks. Therefore, you should always review their portfolio, customer testimonials, and expertise in a specific niche to avoid challenges and operational inefficiencies in the future.

Services Offered

Most PEOs provide essential services such as payroll management, benefits administration, onboarding, offboarding, and employee termination. However, some PEOs go beyond these basics and offer additional services like HR consulting, compliance management, risk mitigation, and employee training programs.

Before entering a co-employment arrangement, it is crucial to review the services provided and assess whether they align with your business needs. If you require extra support, discussing these requirements upfront ensures that the PEO can meet your expectations.

A well-rounded PEO can better manage HR operations, reduce administrative burden, and enhance workforce management, making it easier for businesses to focus on their core objectives while ensuring compliance and efficiency in a new market. 

Strong Local Presence

It’s best to work with a PEO that has a strong local presence. They are well aware of labor laws and can keep up with the norms and legal requirements.

A PEO with an established presence has strong relationships with local labor authorities, industry bodies, and unions, allowing them to negotiate better employment terms on behalf of your business. They understand the nuances of collective bargaining agreements, ensuring that salary structures, benefits, and working conditions are aligned with industry norms while also being cost-effective for employers.

A well-connected local PEO can anticipate regulatory changes and swiftly adapt strategies, giving businesses a competitive edge and ensuring smooth workforce operations in the region.

Pricing Model

Most PEOs use two main pricing models. 

  • Flat Fee per Employee: You pay a fixed amount for each employee.
  • Percentage of Payroll: You pay a percentage of your total employee payroll costs.

The costs vary depending on the range of services provided and the specific PEO provider. While both methods are globally accepted, you must choose a PEO that best suits your budget. 

Global Reputation

Another important consideration is the global reputation when partnering with a PEO. Hundreds of companies now offer PEO services. You must choose a PEO with excellent customer service and a global reputation.

Look into client testimonials, reviews, availability, and 24 /7 support to have a reliable PEO in a foreign market. 

Partner With a PEO in Iceland for Successful Business Expansion

Iceland seems promising for business growth. However, business expansion in Iceland can get tricky when it comes to having an in-depth knowledge of labor laws, collective bargaining agreements, payroll regulations, tax filings, and social security contributions. On top of this, managing a workforce in a foreign country also presents its own set of challenges.

Partnering with a PEO simplifies business expansion as the PEO organization becomes responsible for handling the workforce, looking into compliance issues, and bringing in international employees. If hiring involves work permits, lengthy paperwork, or other legal requirements, the PEO handles it all so you can focus on growth and expansion. 

Looking for the right PEO in Iceland? Our team at Remote People connects businesses with trusted PEO providers, offering comprehensive HR support so you can hire with confidence, manage operations smoothly, and scale your business without unnecessary delays. Contact us today to start your expansion journey in Iceland!

Frequently Asked Questions

Yes, PEOs are legal in Iceland. Many businesses partner with PEOs to outsource HR tasks. The only requirement is that a company needs to have an established legal entity within Iceland to work with a PEO. 

Iceland does not have a dedicated Labor Leasing Act, but employee leasing is regulated under Icelandic labor laws. Staff leasing is permitted under strict conditions, primarily through Temporary-Work Agencies and Posted Worker Regulations.

Hiring a PEO in Iceland grants your business fast market entry, helps you hire top talent, and keeps you compliant with local regulations. It also reduces the administrative burdens for your business, so you can focus on operational needs and expansion.