Iceland: Unionized Employees Receive Final 3.50% Salary Increase on January 1, 2027

On January 1, 2027, all unionized employees in Iceland are entitled to a mandatory annual salary increase of 3.50%, with a minimum increase of ISK 23,750. This is the fourth and final increase under the VR collective wage agreement signed in March 2024, which expires in 2027.

Who is affected

This increase applies to all employees in Iceland who are members of a labor union covered by the VR collective wage agreement. Employers with unionized workers must apply this increase regardless of company size or industry.

What's changing

The VR collective wage agreement established a series of four annual salary increases between 2024 and 2027. The January 1, 2027 increase marks the final scheduled adjustment under this agreement.

Employers must apply the 3.50% increase or ISK 23,750, whichever is greater, to each unionized employee's base salary. The mandatory increase must be provided equally to all union members. Employers may provide additional discretionary increases, but these must be processed separately from the mandatory adjustment.

What NEO partners and clients should do

• By January 1, 2027: Apply the 3.50% salary increase (minimum ISK 23,750) to all unionized employees in Iceland
• By January 1, 2027: Process the mandatory increase separately from any discretionary salary adjustments
• Before December 2027: Monitor for announcements regarding the next collective wage agreement, as the current VR agreement expires in 2027