Payslips in Iceland 2026: what a payslip must show and how pay is calculated

Kassify · 6 November 2026

A payslip (launaseðill) shows each pay item on its own line and every deduction itemised: withholding tax, the 4% pension contribution, private pension savings if the employee has chosen them, and the union fee, together with overtime hours worked and accrued time off in lieu. The company issues one with every pay run.

This article covers what the collective agreements require, a payslip worked out in krónur for a 650.000 kr. monthly salary on Skatturinn's 2026 rates, what the employee really costs the company, and the returns that follow every month.

What a payslip must show

The requirement comes from the collective agreements. Article 1.9.1 of the agreement between VR/LÍV and SA (Business Iceland), valid from 1 February 2024 to 1 February 2028, says staff shall receive a payslip with every payment, itemised into day work, evening work and overtime, with hours of evening, night and overtime work stated along with earned and accrued time off in lieu, and every deduction itemised. Ísland.is says the same: a payslip is issued with every pay run, and it is the receipt for wages and wage-related charges.

The company's own 11,5% pension contribution does not appear on the payslip, according to VR. It is a cost to the company on top of the pay, like the social security tax.

The 2026 figures

Skatturinn publishes the withholding rates at the start of each year. These apply for all of 2026:

The brackets apply to pay after the pension contribution is deducted, and the personal tax credit is subtracted from the calculated tax. Unused credit accumulates from month to month within the year. The minimum pension contribution is 15,5% of pay under Act no. 129/1997, 4% from the employee and 11,5% from the company.

Worked example: a payslip for 650.000 kr. a month

Assume an office employee with a fixed monthly salary of 650.000 kr. and no overtime. The employee is a VR member, pays into Lífeyrissjóður verzlunarmanna, uses the full personal tax credit with this one employer and pays no private pension. First the withholding tax:

The payslip then looks like this:

If the employee chooses a 4% private pension, another 26.000 kr. comes off the pay. The private pension is also deducted from the withholding base, which falls to 598.000 kr., so the withholding tax falls by 9.878 kr. to 122.310 kr. Net pay falls by only 16.122 kr., to 471.140 kr., and the company pays a 2% match, 13.000 kr., into the private pension.

What the employee costs the company

The employee receives 487.262 kr. in the bank. The company pays 781.497 kr. for the month, because the pension contribution, the social security tax and the union funds come on top of the salary:

The social security tax is calculated on the salary and the employer pension contribution together. Skatturinn calculates it that way in the example on its notice RSK 6.01, and SA says the whole employer pension contribution counts towards the base. The fund rates follow the collective agreement. These are the rates in the VR/LÍV and SA agreement, and the VIRK levy is 0,10% in 2026. If the employee chooses a private pension, the 2% match, 13.000 kr., is added to the cost.

The returns every month

What is withheld from pay does not belong to the company. It goes to two places: withholding tax and social security tax to Skatturinn on one return, and pension contributions and the union fee to the pension fund and union on another. For VR, Lífeyrissjóður verzlunarmanna collects the union fee.

1. 1
   Pay goes out

   Under the VR/LÍV and SA agreement, pay is paid on the first day after the month ends. If that day is a day off, pay goes out on the last working day of the month. A payslip comes with every payment.

2. 2
   Return to Skatturinn

   Withholding tax and social security tax fall due on the 1st of the next month, with the final date on the 15th. The return is filed on Skatturinn's service site or straight from a payroll system, and an electronic filing must arrive by 21:00 on the final date. If the final date falls on a weekend or holiday, it moves to the next day.

3. 3
   Return to the pension fund and union

   Contributions fall due on the 10th of the next month. At Birta lífeyrissjóður the final date is the last working day of that month, and late-payment interest runs from the due date if payment comes after the final date. A return is not a payment: the contributions must be paid too.

4. 4
   A return even with no pay

   A company on the employer register files a withholding return every month, even when no pay is paid. Otherwise Skatturinn estimates the withholding. A new company that will pay wages registers as an employer, see the article on starting an ehf.

The December bonus goes on the payslip as a separate pay item. An owner working in their own company is paid under the rules on calculated remuneration.

Wage statements at year end

After New Year the company files wage statements (launamiðar) with Skatturinn for each employee, with the year's pay and the tax withheld. Each payment goes in a box by type, for example pay in box 02, car benefits in box 60 and withholding tax in boxes 70 and 71. Wage statements for 2026 pay are filed in January 2027. In Skatturinn's tax calendar, the final date for information for the 2026 tax returns was 20 January 2026. The company also files a payroll return as part of its own tax return, RSK 1.04.

The mistakes that cost the most

• Social security tax on the salary alone. The tax is calculated on pay plus the employer pension contribution. In the example above, leaving the contribution out makes a difference of 4.747 kr. a month.
• The wrong bracket for an employee with two employers. If pay from one employer is above 498.122 kr., the other employers must withhold 37,99%, according to Skatturinn.
• The personal tax credit used twice. The employee tells the employer whether to use the credit, from which date and in which bracket. Credit used in two places builds a tax debt by year end.
• A private pension without the match. When an employee chooses 2 to 4%, the company pays 2% on top under the collective agreement, and the private pension is deducted from the withholding base.
• Pension contributions paid after the final date. Late-payment interest then runs from the due date, the 10th of the next month, not from the final date.
• A return filed but not paid. Lífeyrissjóður verzlunarmanna points out that contributions are not paid just because the return has been filed.
• A payslip without itemisation. One figure for pay and one for deductions does not meet article 1.9.1, and the time off in lieu must be shown.

Kassify handles payroll

Everything above repeats every month, and one wrong figure runs through the payslip, the return and the wage statement. Kassify is a whole finance department for one fixed price: an accounting firm that uses AI, with certified bookkeepers and chartered accountants behind the work. From employment contract to payslip, Kassify manages your payroll.

• Every payslip carries the correct withholding tax, pension contributions, union dues and employer charges under Icelandic law and the collective agreements.
• Withholding tax and social security tax reach Skatturinn before the final date on the 15th, and pension returns go to the funds and unions.
• The full payroll cost is visible before payroll runs, and a new hire is included in the next pay run.
• Payroll, bookkeeping, VAT returns, the app, the annual accounts and the tax return for one fixed monthly price. 20% lower annual accounting costs than at a traditional firm, see what bookkeeping costs.
• The move in less than 7 days, included in the price. Kassify talks to your bookkeeper, and the payslips and transaction history come with you.
• A bookkeeper replies within 24 hours.

More on Kassify's payroll service.

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