On this page you will find most frequently asked questions from VR members about holiday and holiday allovance.
We hope you will find the answer to your question here. If you do not, please don’t hesitate to contact us via telephone 510 1700 or email firstname.lastname@example.org
Holiday and holiday allowance
Minimum annual leave governed by law is 24 weekdays in one holiday period, a total holiday pay of 10.17% of total wages.
- After 5 years in the same field, holiday entitlement shall be 25 weekdays, and holiday allowance shall be 10.64%.
- Following 5 years’ employment in the same company, holiday entitlement shall be 27 days and holiday allowance shall be 11.59%.
- Following 10 years’ employment in the same company, holiday entitlement shall be 30 days, and holiday allowance shall be 13.04%.
If your holiday rights exceeded 24 days at one company and you change jobs, you will regain those rights after three years at the new company. According to the collective wage agreement, you must prove your holiday rights with the former employer to receive the same with your new employer.
Holiday is always taken in consultation with your supervisor. The holiday shall be organized at least a month in advance. The employer shall try to comply with the employee’s requests as regards vacation time, to the extent possible given the nature of the operation, and the holiday shall be granted as one continuous period in between 2 May and 15 September, according to the Holiday Allowance Act.
If employees do not receive annual holiday when it is assumed by law, i.e. during the period from 2 May to 15 September each year, they shall receive a 25% extension of the part of holiday leave granted outside the aforementioned period or an increase in the equivalent payment.
The employee and the employer may reach an agreement to waive or reduce holiday and/or December bonuses, with corresponding periods of leave being granted instead, based on the wages of the individual worker. Such leave shall be granted in the form of whole or half working days.
Example: Monthly wage is ISK 550,000 for a full-time daytime work. Daily wage is therefore ISK 25,381 (ISK 550,000/21,67). December bonus for the year 2023 is ISK 103,000, more information here. The employee and employer may therefore agree that the employee receive 4 days of leave on full pay (ISK 25,381 x 4) along with a payment as the balance of the holiday bonus, i.e., ISK 1,476.
By agreement with your employer, you can use earned and accumulated leave during the notice period. This can only happen with a mutual agreement between employer and employee, with the main rule that holiday and notice period cannot fully coincide.
Holiday and notice period do not fully coincide because holiday time is added to the notice period when holiday is used during the notice period.
Accumulation of annual holiday entitlement is based on the holiday allowance year. The vacation year is from 1 May to 30 April each year. An employee that attains 5 years of service after 1 May has reached the new holiday allowance year and is entitled to the 25th day for next summer, i.e., in the next annual leave period. If the employee attains 5 years of service before 1 May, they can use the additional day during the summer that same year.
If holiday allowance is calculated monthly, it increases the month after the length of employment is reached. Example: An employee has had the holiday allowance of 10.17% and reaches 5 years of service on 18 November. In this case, a holiday allowance of 11.59% is calculated in December.
The Confederation of Icelandic Employers and VR entered into an agreement in 1996 that is still in full effect. This agreement guarantees that an employee who has reached 10 years of service at the beginning of a holiday allowance year is entitled to 30 days’ annual leave from that time. When the agreement was signed, a 10-year length of service equalled 27 days, whereas today, 10 years of service equals 30 days of annual leave.
Holiday allowance does not expire between years. An employee cannot move days of annual leave between years without consulting with their supervisor, who then pays out unused days from the previous holiday allowance year if transference of days to the new holiday allowance year is not authorized.
If parties agree on transferring days to the new holiday allowance year, we recommend having that agreement in writing.
The timing of holidays shall be a matter of agreement between the employer and employee. The employer shall try to respect the wishes of the employee regarding the use of holiday time. The employer has the final say when it comes to the use of holiday time. The employer shall notify the employee on the arrangement of holidays, at least a month before the holiday starts.
Daytime wages are calculated by dividing the monthly wage by 21.67, the average working weekdays in a month. Total weekdays in the year are 260 and divided by the number of months, 260 / 12 = 21.67.
Employees working part-time have the same rights as full-time ones; however, accumulation of holiday pay depends on employment proportion/wages during the accumulation period.
Agreed parental leave is counted as worked time for the purpose of calculating holiday leave entitlements, i.e. the right to take a holiday, but not for the calculation of holiday pay.
Statutory maternity/paternity leave is included in the calculation of working hours when accrued rights are calculated. For further information, please see questions and answers on the website of the Maternity/Paternity Leave Fund, see here.
Maternity/paternity and parental leave are subject to Act No. 95/2000 on the same subject.
When employees have worked with the same employer for more than a year before going on maternity/paternity leave, they are entitled to holiday bonus and December bonus during the statutory parental leave.
Employees who, at the request of their employers, do not receive annual holiday when it is assumed by law that holidays will normally be taken, i.e., during the period from 2 May to 15 September each year, shall receive a 25% extension of the part of holiday leave granted outside the aforementioned period or an increase in the equivalent payment.
No extension will be applied for holiday leave granted outside of aforementioned period at the request of the employee.
When an employee quits at one company and starts with another, they are entitled to holiday with the new employer as applicable, i.e. 24 or 25 days in a regular holiday period. The new employer must grant and make an agreement with the employee on holiday, and the holiday pay is possibly partly paid after accumulation at the new employer and in other respect at the settlement of accrued and accumulated holiday at the former employer.
If an employee has accumulated longer annual leave rights at the former employer, they will receive the rights again after three years at the new employer, provided that their rights were confirmed at the time of hire.
Holiday pay shall be added to all wages no matter what they are called. When an employee receives extra payments, e.g., bonuses, holiday pay shall be added to those payments.
However, holiday payments are not added to holiday or December bonuses nor payments that are specifically meant to cover paid-out costs of the employee, such as driving fees and per diem payments.
The employee is entitled to a compensation of the holiday for as long as the employee cannot enjoy the holiday due to illness or accident or if injuries because of the accident last longer than 3 days, provided that the notification obligation is fulfilled.
The employee needs to notify the employer immediately on the first day that they cannot enjoy the holiday and specify the doctor from which they will obtain a medical certificate.
When an employee who is not employed as the deputy of a superior temporarily takes over the functions of the superior, e.g., during holiday periods or illness, and such replacement periods last for one week or more, the subordinate shall be entitled to remuneration for deputizing in this way, taking into account the responsibility and workload undertaken. The parties shall agree on the remuneration before the deputising takes place.
The holiday period is, according to the Holiday Allowance Act, from 2 May to 15 September. Therefore, employers cannot force employees on holiday outside of the regular holiday period. It is a different situation with respect to employees that do shift work and have collected winter holidays. Winter holidays are only granted outside of the regular holiday period, i.e. during the period from 1 October to 1 May.
Holiday according to Article 1 of the Act on Holiday Allowance No. 30/1987 shall be added to all wages, a minimum of two accumulated working days for each worked month, or 10.17% holiday. Holidays and holiday allowance depends on length of service or employment period in the relevant field of work. However, increased holiday can be specially negotiated.
Holiday payments can be calculated and paid in two different ways:
Holiday pay or payments are paid when the employee goes on holiday. Accrued holiday time should be stated on your payslip.
It is possible that an agreement on the custody of the holiday pay has been made with a specific bank. In this case, the holiday pay is calculated at the end of each month and deposited into a holiday account at the bank. The calculation of holiday pay, how much the holiday pay is and how much has been deducted from wages and put into the account is always stated on the payslip. Accumulation of holiday pay in the holiday account will also be stated on the payslip. Holiday pay is then paid from the bank into the employee’s account before 15 May each year, and that amount covers the employee’s holiday.
When holiday pay is deposited to the bank, the same rules apply for using the holiday time: parties must reach an agreement on when the holiday is taken. When an employee is on an unpaid leave and uses holiday pay from the bank for that period, that period is added to the employment period.
When holiday pay is paid along with wages, we point out to our members to request that the holiday pay be deposited to a bank account.
Employees working part-time have the same rights, and accrued holiday pay depends on employment ratio/wages during the accumulation period.
When an employee resigns from an employer, accrued holiday pay shall be paid according to Article 8 of the Act on Holiday Allowance No. 30/1987.
As stated above, the accrued holiday pay is two days for each month of service. This applies when holiday pay is deposited to a bank account or if the employee uses 24 days of holiday in one holiday period, which is always from 1 May to 30 April of each year. If the employee has only worked for 6 months with the employer, the accrued holiday pay shall be calculated in holiday hours (see information on how holiday hours are calculated below) and multiplied by hourly wages for daytime work at the end of employment if wages have changed during that time. If wages have remained unchanged during these 6 months, the sum of paid wages shall be multiplied by 10.17% (based on minimum annual holiday entitlement).
Employee has a monthly wage of ISK 500,000. Accounting for 2 days for each month of service, the employee has 12 days of holiday after 6 months, multiplied by wages per day of ISK 23,073 (500,000 divided by 21.67, the divisor for daily pay). The daily pay is then multiplied by 12 = ISK 276,876. Sum of ISK 500,000 for 6 months is ISK 3,000,000. That amount multiplied by 10.17% holiday comes to ISK 305,100. This shows that if employee does not use any holiday time, the holiday pay is too little if it is only based on accumulated holiday time.
A person’s wages for shop work in May are ISK 450,000 for daytime work and ISK 50,000 for overtime for each month worked. Their total wages are ISK 500,000. Their holiday pay for that month will be 10.17% of ISK 500,000, i.e., ISK 50,850.
The holiday pay is changed to holiday hours by dividing it by the current daytime pay, which is ISK 2,679,53 (450,000/167.94). Holiday hours for May come to a total of 18.97 hours (ISK 500,000 x 10.17% / 2,679,53).
During the holiday period, this person could have accumulated 206.58 holiday hours in total (19.89 months x 18.97 hrs.). When taking a holiday the following summer, their wages have increased and the hourly pay is ISK 2,900 (monthly wages have increased by ISK 18,000, i.e. from 1 April according to agreement and are therefore calculated as ISK 368,000/167.94). Thus, this employee’s holiday allowance will be ISK 593,340 (204.6 hours of leave x ISK 2,900 per hour).