Contractor vs Employee in Iceland
Icelandic tax law distinguishes clearly between employees (launamenn) and self-employed contractors (verktakar). Misclassification — known as gerviverktaki (disguised employment) — creates serious tax liability for both parties. This guide explains the difference.
Key differences at a glance
Employees receive salary with tax withheld by the employer. Contractors invoice clients and pay their own taxes (31.49% / 37.99% / 46.29%), tryggingagjald (6.35%), and pension (15.5%).
Employees have set hours, use employer equipment, and follow direct supervision. Contractors control their methods, bear business risk, and typically work for multiple clients.
What is gerviverktaki (disguised employment)?
Gerviverktaki occurs when someone is treated as a contractor on paper but works like an employee in practice. Red flags include: working exclusively for one client, fixed daily hours set by the client, using client equipment, and no genuine business risk.
Skatturinn and Vinnumálastofnun actively investigate misclassification. Penalties include back taxes, social security arrears, and fines for both the worker and the client.
Tax implications of misclassification
If reclassified as an employee, the client becomes liable for employer social security (6.35%), pension employer share (11.5%), and may owe back withholding tax. The worker loses contractor deductions and may face revised tax assessments.
Legitimate contractors using Fustle maintain clear records — invoices, multiple clients, and independent work arrangements — that demonstrate genuine self-employment.
How to stay on the right side
To qualify as a genuine contractor:
- Work for multiple clients when possible
- Use your own tools and workspace
- Set your own schedule and methods
- Invoice for completed work, not fixed monthly salary
- Register with RSK 5.02 and file taxes through Fustle
If unsure, consult Skatturinn or a tax advisor before signing contracts.
Related guides
Official resources
Frequently asked questions
Can I work full-time for one client as a contractor?
Working exclusively for one client long-term is a strong indicator of disguised employment. Skatturinn looks at the substance of the relationship, not just the contract label.
Does Fustle help prove I am a real contractor?
Yes. Fustle maintains a complete record of your invoices, tax filings, and payments — evidence of genuine self-employment that supports your status if questioned.
Fustle handles taxes — you handle the work
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