The aim of the measure is to ensure, to the extent
possible, that firms keep workers on their payrolls, rather than dismissing
them. The maintenance of employment relations is of value to both workers and
businesses. It is important to protect workers against the consequences of a
temporary contraction in the economy so as to minimise the negative financial
and social effects suffered by each individual.
A business may ask its employees to agree to a
reduction in working time with an equal reduction in pay only on the condition
that it has been forced to reduce its operations because of the current unusual
A reduction in working time with reduction in pay can
only take place on the basis of an agreement (see link below this pdf on the
website) concluded between the employer and the employee.
Main features of the legislative provisions providing
for the payment of unemployment benefits in cases of reduced working time:
- Any decision to implement reduced working
time for reduced pay must be based on an agreement concluded between the
firm and each individual and stipulating the proportion by which working
time is reduced and the period during which the reduction will apply.
- The reduction in hours worked must be at
least 20 percentage points.
- The number of hours worked after working
time has been reduced must correspond to at least 25 per cent of
- Partial unemployment benefits are paid out
in direct proportion to the reduction in hours worked.
- The sum of wages received from the
employer and unemployment benefits paid is limited to 90 per cent of
the pay earned prior to the reduction in working time taking effect, and may
not exceed ISK 700,000.
whose pay for a full-time position prior to the reduction was ISK 400,000
or less will receive full compensation.
whose pay for a full-time position prior to the reduction was higher than
ISK 400,000 are given a guarantee that the sum of wages received from the
employer and unemployment benefits paid will not fall below ISK 400,000.
- Agreements on reduced working time for
reduced pay do not affect workers’ rights to receive wage-related
unemployment benefits if they lose their jobs at a later date.
- Students at the university level are
entitled to receive partial unemployment benefits if they meet the conditions
laid down in the legislation.
- Workers’ rights to receive payments from
the Wage Guarantee Fund are safeguarded in cases
where an employer becomes bankrupt.
- Self-employed persons are
covered by the legislation.
- The legislative provisions outlined above
are to remain in force from 15 March to 1 June 2020.
A few points of clarification:
- If a firm requests that its employees
agree to a reduction in working time with an attendant reduction in pay without
a period of notice, an employee may refuse to accept this and may insist that
the period of notice be respected.
- An employer may not require a worker to
put in longer hours of work than stipulated in the agreement on reduced working
- The right to receive unemployment benefits
as a compensation for reduced working time applies to all workers, including
students at the university level, irrespective of their rights to other
How to apply for partial unemployment benefits
Workers apply for partial unemployment benefits by
filling in an electronic form in the My pages section of the website of the Directorate of Labour. The
employer concerned must also provide certain information on its pages on the
Directorate’s website. The application for partial unemployment benefits can be
processed as soon as both the worker and the employer have entered the required information.
For more information: