Employment contracts for the disabled

Employment contracts for the disabled are reimbursement contracts with employers who have recruited people with impaired work capacities.

An employment contract for the disabled is meant to increase the possibilities of job seekers with impaired work capacity to become employed in the general labour market.


The prerequisites for a person’s right to create an employment contract for the disabled is stipulated in Article 12 of Act No. 55/2006 on Labour Market Measures. The requirements are, amongst other things:

  • That the individual receives disability pension payments, disability grants, rehabilitation pension or less than 50% of accident disability benefits. The depletion of pension payments during the working period is in accordance to the legislation on social insurance. If pension payments are suspended, the employment contract for the disabled will be terminated.
  • Individuals must have capacity for work that they have not used in the labour market, and no other considerable income to provide for themselves, except pension from social insurance.
  • The individual must be employed in the labour market.

Employment contracts for the disabled

Employment contracts shall be in accordance with the valid collective agreements in the relevant profession. Agreement on wages in the contract shall never be lower than minimum wages. An work contract for the disabled is not valid as an employment contract.
If the employment ratio is to be increased after a contract has been made, the contract must be renewed with the administrator acting as an intermediary.

Period of validity:

  • The period of validity of a contract for the disabled can never be longer than the period of validity of a disability assessment/rehabilitation pension/accident disability benefits of an employee.
  • The maximum period of a contract for the disabled is two years at a time. A contract which is about to expire can be extended with the administrator acting as an intermediary.
  • If wages, including all bonus payments are higher than 861.513.- per month (average monthly wages based on one year), then payments from The Social Insurance Administration will be depleted and consequently the disability work contract.
  • If an employment agreement between the employer and the employee is terminated during the validity period, the work contract for the disabled will also be terminated.

Further information
The Directorate of Labour must provide information to the tax authorities every year regarding reimbursements to employers due to work contracts for the disabled.
If changes occur in a company’s operation, for example in ownership or registration, a transfer of a work contract for the disabled to the new parties is necessary if they want to keep the employee on a work contract.
The Directorate of Labour assesses whether is is permitted to take over a contract.


The employer pays an employee on a work contract and submits payslips on a monthly basis via the employer's portal.  The Directorate of Labour then reimburses the employer a proportion of the wages and wage-related expenses according to an existing agreement.
The reimbursement ratio is 75% for the first two years of employment, the ratio is then reduced by 10% per year until it reaches a minimum of 25% reimbursement ratio.
Reimbursements never exceed a 100% employment ratio.
Reimbursements include fixed wages. In special circumstances they also include overtime, bonuses, and premium pay provided that it is stated in the application for a work contract.


The Directorate of Labour appoints an administrator from a group of professionals who handle job search and vocational rehabilitation for people with reduced work capacity. Further information about who have been appointed as administrators throughout Iceland can be obtained by sending an email to the email address vinnusamningar@vmst.is 

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