Contractors

Working as a contractor comes with significant responsibilities and risks for tourist guides. Below are key points contractors should know and account for:

• Not covered by the Wage Guarantee Fund.
• Wage claims do not have priority in bankruptcy proceedings.
• No entitlement to sick leave.
• No right to a notice period for termination.
• No entitlement to holiday pay.
• May need to hire a debt collection agency for assistance.
• Can be held liable for damages caused during work.
• Must secure their own insurance coverage.

Contractors must insure themselves against personal loss, damage incurred during work, and accidents involving passengers, as they may be held liable for incidents during tours.
Insurance companies offer packages for such coverage, with costs depending on the level of risk and scope of work.

Some clients claim contractors are covered under the client’s liability insurance. In all such cases, contractors should request confirmation from the client’s insurance provider, as insurance cannot be retroactively arranged.

In the event of vehicle damage due to an accident, the vehicle’s liability insurance will apply, so the guide does not need separate coverage for that.

It’s important to review all safety measures with passengers, such as informing them that wearing seat belts is legally required in Iceland, even though it may not be mandatory in all countries.

During 2024 negotiations between Leiðsögn (Tourist Guide Union) and the Confederation of Icelandic Enterprise, an agreement was made regarding an addendum on misclassified contracting. It states that contractor agreements should not replace employee contracts unless the work meets the Icelandic Tax Authority’s definition of contracting work.

The contracting parties commit to ensuring that their members honor this provision and that workplace inspections also monitor misclassified contracting. The addendum can be found in the Leiðsögn collective agreement (page 32).

The Icelandic Tax Authority determines, for tax purposes, whether an individual is classified as an employee or contractor. The distinction is not always clear, making it essential to familiarize oneself with these definitions. For more information, visit the Icelandic Tax Authority website.

Permanent, Temporary, Travel- and Project-Based Contracts

Tourist guides work in various employment relationships, either in traditional employment with employers (permanent or temporary contracts) or under travel- and project-based contracts. Article 3.2 of the Leiðsögn collective agreement outlines the rights of travel- and project-based tourist guides and is worth reviewing.

For tax purposes, contractors are considered both employers and employees.

Contractors must cover all employment-related fees and costs required for their business. They also need to account for these expenses when negotiating contractor fees to ensure their terms are not worse than those of employees working under a collective agreement. While some fees are mandatory by law, others are optional. Additionally, contractors must be aware of all operational costs associated with their work, which vary depending on the scale of their operations.

Contractors should always create a written agreement with the client. Examples of contractor agreements can be found on Vakinn’s website under the section "Forms and Guidelines for Employee Hiring."

Contractors must consider whether to handle administrative tasks, such as submitting documents and invoices, in their own time and at their own expense, or include this cost in their fees to clients. If contractors purchase accounting services, this is a cost that must be accounted for, along with auditing fees, etc.

Other operational expenses to consider include purchasing a phone, computer, or other equipment required for the business.

Contractors can operate under their own ID number or as limited liability companies (ehf).

Direct Costs

The following are deducted from employee wages and paid by the employer to the appropriate entities. Contractors must handle these themselves:

• 1% Union fee.
• 4% Contribution to a pension fund.
• 2–4% Additional pension savings (optional).

Income tax:

In addition, contractors must pay employer contributions and other legally mandated fees, including:

• 1.25% VR Sick Pay Fund.
• 0.25% Continuing Education Fund.
• 0.10% Vocational Rehabilitation Fund.
• 11.5% Pension Fund Contribution.
• 2% Private Pension Fund Contribution.
• 6.35% Insurance Fee.

Contractors must calculate vacation pay in their pricing as required for employees by law:

• Minimum vacation entitlement is 10.17%.
• Vacation entitlement is 11.59% after 10 years of experience or 5 years with the same employer.
• Vacation entitlement is 13.04% after 15 years of experience or 10 years with the same employer, per the collective agreement.

Contractors must include the following in their calculations, as agreed upon for employees. This percentage may vary if the base salary is higher:

• 103 ISK/hour for December and vacation bonuses (2025).
• 4% for legally mandated public holidays.

Indirect Costs

Indirect costs can vary significantly depending on the scale of operations but typically include:

• 2.8% to account for sick leave, ensuring similar rights to employees under collective agreements.
• General liability insurance for damages to others, calculated based on coverage amounts.
• Risk of personal accidents.
• Office space.
• Accounting.
• Equipment and tools.
• Vehicle expenses.
• 1,000 ISK/month for employee accident insurance.
• Per diem for incurred expenses.
• Other costs.

Contractors must calculate wages for themselves and register with the wage payment registry. Specific rules apply to minimum wages contractors must pay themselves, as issued annually by the Icelandic Tax Authority.

For 2025, the minimum amount is 632,000 ISK under category B9 for first-time contractors. After the first year, the minimum amount is 866,000 ISK under category B5.

The information here was obtained from the Directorate of Internal Revenue, but if anything is unclear, it is recommended to contact the Directorate directly.

Category B is for general commercial and service activities, and when the type of work is not specified in other categories. All tourism-related activities fall under reference category B.

An individual who has not previously received contractor payments of any kind is placed in category B9. They move to category B5 after 12 months of service. If they are temporarily employed, leave, and then return, they are placed in category B5 upon the next registration.

For companies, category B5 applies immediately upon registration. Other categories (B4, B3, B2, B1) may apply depending on the scale and number of employees or subcontractors.

Value-Added Tax (VAT)

• If annual income exceeds 2,000,000 ISK (2025), guides working as contractors are subject to VAT. Contractors must calculate VAT on income exceeding this threshold:
• 11% VAT applies to tourist guiding services.

The Directorate of Internal Revenue was consulted regarding the VAT rate for guiding and transport services, specifically for driver-guides, and the following response was received:

If a party sells passenger transport and guiding services at the same time, each service falls under the 11% VAT rate, and no itemization is required on the invoice.

However, if a party sells driving services simultaneously — i.e., the services of a driver without their own vehicle, which falls under the 24% VAT rate — and guiding services, which fall under the 11% VAT rate, then the services must be itemized separately on the invoice in order to retain the 11% VAT rate for the guiding service.
If no itemization is provided on the invoice, the party is required to apply 24% VAT to the entire service.

See more in Article 2.4 of the information brochure from the Directorate of Internal Revenue on VAT in tourism. More general guidance on VAT can be found in the Directorate's VAT brochure.

A calculator will be made available later, allowing contractors to easily calculate service fees to ensure their work is not undervalued compared to the minimum terms agreed upon in the tourist guide collective agreement.