Employer bankruptcy

The Directorate of Labour is permitted to pay employees of bankrupt companies unemployment benefits for the period they are without work while on termination notice period and awaiting final settlement of their wage claims according to legislation, providing that they meet the requirements of the Unemployment Insurance Act.

It is also a condition that the employee assigns the Unemployment Insurance Fund this part of their claim against the Wage Guarantee Fund, which is the amount of unemployment benefits they receive during this period.

The following documents must be submitted as appropriate when applying for unemployment benefits during the termination notice period:

  • Confirmation of employment period, or a conformation of worked hours from your labour union if it is not possible to obtain a confirmation of employment from the employer.
  • Confirmation from your labour union that a claim will be lodged for the entitlement to termination notice.
  • A fit to work certificate if the case of impaired work capacity.
  • If you are in other employment, information regarding this must be registered in the application for unemployment benefits.
  • Payments from pension funds, Social Insurance Administration (Tryggingarstofnun), and other administrations and organisations, must be reported via the “Report income or work” (tilkynna tekjur eða vinnu) function in My pages.
  • Confirmation from school regarding the completion of studies, stipulating the applicant’s study period.
  • Confirmation from school regarding the study ratio.
  • All forms are available here

Applications for unemployment benefits also include an application for participation in labour market measures.

  • Payments are from the date that the termination notice is valid, and upon completion of the termination period the individual may receive general unemployment benefits.
  • Employees of bankrupt companies may be paid wage-indexed unemployment benefits.


Wage Guarantee Fund

The Wage Guarantee Fund guarantees payments of claims for unpaid wages, compensation due to termination of employment contracts, vacation, work injury benefits and pension fund contributions in an employer’s estate which is established and operates in Iceland. The fund’s responsibility depends on the condition that the claims have been recognised as priority claims in accordance with the Act on Bankruptcy.

Further information regarding the Wage Guarantee Fund is available here.

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