Introduction to Employment Contracts

An introduction on employment contract

Employment contracts are important in all employment relationships, they are an agreement between the employer and the worker or employees, where the worker offers his services to the employer in exchange for salary. 
An employment relationship between an employer and employee is documented through a contract, the Icelandic law however does not formalized employment contracts, so they are equally valid both orally and in writing. However, it is always better to have the contract in written form, as proof if needed.

The employment relationship ends when the employment contract is void. This can happen when the employer decides, unilaterally, the termination of mentioned contract, either invoking a cause or not, in this case the worker is fired. Another possibility is the termination of the employment contract, which implies prior agreed obligation and rights are not valid anymore.

Employment contracts should be made and signed within two months of the employment and the obligation to do so lies with the employer.

What does it mean to have an employment contract?

“Having an employment contract means having information on all the rights, responsibility, duties, and conditions that make up the relationship between an employer and employee”. 

Having a contract gives you an agreement from the employer about your role in the workplace, and their obligation to them such as wages, vacation time, overtime and more. 

This is especially important if the employer does not hold up his end of the agreement.

What includes employment contracts?

As employment contracts in Iceland are not formalized there are not specific rules on what should be included in the contract. However, most contracts have the following:

• Name and addresses of employer and employee. 
• Start and duration of employment. 
• Type of activity (job description?) and description of tasks.
• Workplace location. 
• Base salary and supplements. 
• Workdays and holidays. 
• Deadline for termination of the employment contract.
• Reference to applicable collective agreements. 
• Pension fund. 
• Union.

If the contract does not have the minimum standards according to the wage agreements, the contract is not deemed valid, even though it has been signed by the employee. 

To see the minimum standards and wage agreements you can look at the website or contact the unions – you can check their information material to see more about the unions and collective bargaining and wage agreements.

What are the types of employment contracts?

There are several types of employment contracts that you should be aware of, they are important because they make it clear what the status of the employer is to the company that he works for.

Permanent employment contracts
For employees (workers) that work regular hours and count on a regular salary or hourly rate. Permanent contract is ongoing until terminated by either the employer or employee. Under these contract’s employees can enjoy a full range of employment rights.

There are two types of Permanent Contract.
Full time contract is the most common contract, these employees usually work full week, or around 35 hours per week or more. Part time contract are contracts for part-time workers. They are like those who have a full-time contract but with more emphasis on the number of hours worked and how overtime is handled but can have the same stability as the full-time contract.

Fixed-term employment contract 
Are contracts that already have a start and end date, for example, six months or one year. Fixed term employees have protection and can count on the same rights as permanent employees.

Apprentice and trainee employment contract
Are used to register the period that the employee was in training or learning in the company.

When can the contract be terminated?

There are certain rights you must be aware of if your employment is terminated or if you yourself want to terminate the contract. 

However, these rights differ between unions, so the employees need to be aware of their union and under which contract their employment falls.

All terminations of the work contract should be done in writing, and it is important that all dates and information on the terminations are clear. Employees have a right to an interview with the employer about the reasons for the termination, this request should be made within 4 days of the notice of termination.    

The employer must pay out December bonuses and vacation salary  according to  the time the employee has worked in the company.

Here you can find the information from the two biggest unions about notice period for terminations, and other important information.

VR: https://www.vr.is/en/employment-terms/notice-period-for-termination/

Efling: https://efling.is/uppsagnarfrestur-skv-samningi-eflingar-og-sa/?lang=en

Employment contracts and individuals with a foreign background.

It is important for all individuals to check if their professional qualification is valid in Iceland, and if they are not how you can get them validated. 

You can get assistance with academic recognition at the ENIC/NARIC office Iceland (http://english.enicnaric.is/) . 

It is also important to know that individuals coming from outside the EEA-area must obtain a working permit before they enter the employment market, and in most cases, individuals must leave the country before the permit is granted. Work and residency permits are issued by The Directorate of Immigration, see www.utl.is

In special cases, individuals from outside the area can work without permits, this is only if it is temporary work, and is less than 90 days in a year.  For doing this, the employer however, must notify the Directorate of Labour in Iceland, before this actually takes place.