An employment contract ("ráðningarsamningur") is a written agreement between an employee and an employer that confirms the job and sets the main terms of employment, including job title and responsibilities, salary, working hours, overtime arrangements, notice period, pension contributions and other benefits.
Contracts must comply with the applicable collective agreement but may offer better terms.
General characteristics of the Icelandic labour market
- High unionisation rate.
- Collective agreements define minimum wages and core rights.
- Strong legal protection for employees.
- Unions operate a unique system of member funds.
Dual Labour Market in Iceland
The Icelandic labour market is divided into two main sectors:
Private sector
The collective agreement between VFÍ and the Confederation of Icelandic Enterprise (SA) is a benchmark agreement on the general labour market. It sets a reference standard for wages and working conditions for engineers in the private sector. The private sector is generally more flexible, with greater variation in salaries and more room for individual negotiation.
Employees of engineering consulting firms fall under the VFÍ agreement with the Association of Consulting Engineers (FRV).
Public sector
Collective agreements are negotiated with the State and municipalities. The public sector has more structured pay systems, fixed wage tables and standardised conditions.
Salary negotiations (“launaviðtöl”)
Salary negotiations typically take place:
- When starting a new job.
- Annually in performance reviews.
- When responsibilities or workload change.
VFÍ assists members with salary information, career counselling and negotiation guidance.