Minimum wages are set by the collective wage agreements. Certain rules, written and unwritten, apply when wages are either overpaid or unpaid.


  • Wages

    Wages and payments are addressed by law and in collective wage agreements. Wages are set by collective wage agreements and are minimum wages for everyone working in that field according to article 1 of the Act on Termes and Pension Rights Insurance, no 55/1980.

    Most of public employees work according to wage agreements or institutional agreements. In the private sector the collective agreements set the minimum wages but often there are better terms negotiated for in individual employment contracts.

    The wages are regulated and protected by the Constitution of Iceland (chapter VII article 75). This has been confirmed with judgements of the Supreme court of Iceland. This also applies to “earning capacity” that is a person’s capacity to make some earnings. It is illegal to pay wages with setoffs, that is to reduce wages to pay debts, unless this has been agreed on beforehand. This is stated in act No.28/1930 on wage payment and has been confirmed in many judgements by the Supreme Court.

  • Overpayment of wages

    It can happen that an employee gets overpayment of his wages, that is they get a higher amount paid than they are entitled too. There can be various reasons for this but the most common one is that the employer miscalculated the wages. It also happens that the employee geta a double payment, but these errors are obvious and easy to correct. In many cases the employees are getting different figures paid each month for example because of different number of overtime hours and other factors. Therefore, this overpayment can be missed by the employee and they could be unaware of this mistake.

    An employee in good faith

    In general, it is accepted than an employer cannot reclaim overpaid wages if the employee was in good faith when he received the payment. The reason is that wages are mainly used to pay the cost of living and unjust that the employee only is answerable for the employer’s mistake.

    An employee in bad faith

    If the employee is aware of the overpayment or if the employee gets paid wages that they were not expecting and do not make a note of it to the employer, they are seen to have accepted the payment in bad faith and the employer can reclaim the wages. This was the case in judgement no E-4351/2006 by the district court of Reykjavik, when a summer employee was paid wages for 8 months after he finished his contract and then had to repay the amount.

    Wrong information given by the employee

    If an employee deliberately gives wrong information to the wage payer, then the overpayment is considered the employee’s fault and the employer has every right to demand repayment. Overpayment that is built on misunderstanding are, in general, not repaid, as seen in the judgment of the Supreme court 1969:721.

  • Unpaid wages

    If wages are not paid altogether the employee is entitled to wage adjustment plus a late payment penalty from due date to payment date. It there has been errors in the wage calculations for a period, the adjustment should go back if necessary or up to four years. Expiry date of wage demands are four years.

    If an employee finds errors in the wage calculations, he/she should inform the employer immediately. If this is not done the employee might lose his/her rights to refund. Therefore, it is a golden rule to always take a proper look at the pay slip every month or at least on a regular basis.

    The affiliated unions of BSRB are more than happy to help when necessary.

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