Annual leave
The Annual Leave Act establishes both the entitlement to annual leave and the employer’s responsibility to organize it in a way that ensures employees receive adequate rest and rejuvenation.
Annual leave entitlements may however differ between employees in the public sector and those working in the general labour market, as these are determined by the relevant collective agreements.
Central government, state institutions, and municipalities
Employees for the central government, state institutions, and municipalities are eligible for 30 days of annual leave. The accumulation of vacation time is proportional to the duration of employment within the holiday year, which spans from May 1st to April 30th.
General labour market
For full-time employment over a full leave year, the statutory minimum is 24 working days of annual leave, with vacation pay amounting to 10.17% of total wages. Annual leave is accrued over the leave year, which runs from 1 May to 30 April.
Enhanced entitlements apply under the collective agreement between the Confederation of Icelandic Enterprise (SA) and BHM based on length of service:
- After 5 years in the same profession, employees are entitled to 25 working days of leave and 10.64% vacation pay.
- After 5 years with the same employer, entitlement increases to 27 working days and 11.59% vacation pay.
- After 10 years with the same employer, entitlement rises to 30 working days and 13.04% vacation pay.
These entitlements take effect from the beginning of the next leave year following the relevant service milestone.
Employees who earned a 30-day leave entitlement with a previous employer regain that entitlement after three years with a new employer, provided the previous entitlement can be verified.
At least four weeks (20 working days) of leave should be taken between 2 May and 15 September. Employees who, at their employer’s request, are unable to take the full 20 days during this summer leave period are entitled to a 25% pay supplement for any shortfall.
Upcoming Changes from 1 May 2025 (affecting leave taken from 1 May 2026)
From 1 May 2025, the following changes to annual leave entitlements will take effect:
- After 6 months with the same employer, employees will be entitled to 25 days of leave and 10.64% vacation pay.
- After 5 years in the same profession, employees will be entitled to 26 days of leave and 11.11% vacation pay.
- After 4 years with the same employer or 10 years in the same profession, employees will be entitled to 28 days of leave and 12.07% vacation pay.
- After 6 years with the same employer, entitlement will increase to 30 days of leave and 13.04% vacation pay.
Verified rights based on previous employment with another employer will be restored after two years of service with a new employer.
Legally binding agreement
The collective agreement between SA and BHM is legally binding and applies to all companies and their employees on the general labour market, according to Article 1 of Act No 55/1980.
More information
For more detailed information, please refer to our member associations.
