A parent shall apply for payments to The Directorate of Labour 6 weeks before the expected date of birth, primary adoption or permanent foster care. If a parent wishes to begin taking maternity/paternity leave before the expected date of birth, the application must be submitted 3 weeks before the planned start date of the maternity/paternity leave. 

Calculation of payments is based on information The Directorate of Labour obtains about parents’ income from tax returns, the withholding tax register, and the tax authorities’ social security contributions register. 

To be entitled to payments from The Maternity/Paternity Leave Fund a parent must have been in at least a 25% employment ratio and continuously working for the last 6 months in the domestic labour market before the date of the birth of a child or before the child enters the home after primary adoption or permanent foster care. When a maternity/paternity leave begins earlier, it shall be the last 6 months before the start date of the maternity/paternity leave. 

An employee’s full-time employment is 172 hours per month, but generally the number of working hours considered to be a full time job according to collective agreements shall be taken into account. In which case, 43 working hours would generally be considered to be a 25% employment ratio. 

When parents have been employed in another member state of the EEA Agreement during the aforementioned 6 month period, this will be taken into account if the parents have started working in the domestic labour market within 10 working days from when they ceased employment in the labour market in that country and are participating in the domestic labour market at the birth of a child, primary adoption or permanent foster care. In such instances, a parent shall submit a S-041 certificate with their application which confirms their employment periods and accrued insurance in another state of the EEA agreement, and an employment contract which confirms when employment commenced in the domestic labour market. 

In addition to continuous work, there are certain instances which are also considered participation in the domestic labour market. See more details in the section on what else is considered participation in the domestic labour market. 

In addition to continuous work, the following also considered participation in the domestic labour market: 

1. Annual leave or other leave according to law, a collective agreement or an employment contract, even though it may be partly or entirely unpaid. (If an employee has been on unpaid leave, a copy of an employment contract and agreement with the employer has to be submitted.) 
2. The time during which a parent receives unemployment benefit payments, is on a suspension period for such payments, or would have been entitled to them if the parent had registered as being unemployed. (The Directorate of Labour’s payment office assesses whether parents would have been entitled to unemployment benefits if they would have applied for them. A copy of the assessment must be submitted.) 
3. The time during which a parent receives per diem payments for illness and accident injury, spends in the waiting period for per diem payments or would have been entitled to them if they had applied to the Icelandic Health Insurance, or receives payments from a union’s sickness fund, providing that the parent stopped work for health reasons. (Icelandic Health Insurance assesses whether parents would have been entitled to payments if they would have applied for them. A copy of the assessment must be submitted.) 
4. The time during which a parent receives compensation from an insurance company in lieu of wages due to temporary loss of employment resulting from an accident. 
5. The time during which a parent receives wage-related payments under Section III of the Act on Payments to Parents of Chronically Ill or Severely Disabled Children, or would have been entitled to such payments if they had applied for them from The Social Insurance Administration. (The Social Insurance Administration assesses whether parents would have been entitled to payments if they would have applied for them. A copy of the assessment must be submitted.) 

Accrual period 

• The accrual period for calculating payments to an employee is a 12-month continuous period which ends six calendar months before the month when a child is born, or the month when a child enters a home after primary adoption or permanent foster care. 

• Despite the aforementioned 12-month rule, only the months when a parent has been in the domestic labour market shall be considered as well as incidents mentioned in items a-e, see further details under the item what else is considered to be participating in the domestic labour market. Calculation of payments shall be never be based on fewer than 4 months. 
• Parents who for instance pursue studies amounting to more than 10 ECTS credits, have been working abroad or are employed in less than 25% employment ratio could be entitled to having those months excluded from calculation of payments and thus increase their payments of maternity/paternity leave. If parents believe that this may apply to their circumstances, they are requested to inquire with the staff of The Maternity/Paternity Leave Fund who will guide them through the next steps.   

Calculating payments 

• A monthly payment to a parent is 80% of average gross wages of the months in the accrual period. 
• Wages are all kinds of income, compensation and calculated remuneration according to legislation on social security contributions as well as instances in items a-e under what else is considered participation in the domestic labour market and payments according to the Act on The Wage Guarantee Fund, Article 5, items a and b. 

• Calculation of payments is based on information obtained regarding parents’ income from tax returns, the withholding tax register, and the tax authorities’ social security contributions register. 
• Low income parents are entitled to a certain minimum payment amount, subject though to a maximum, see more under maximum and minimum payments. 

Minimum payments 

Low income parents are entitled to a certain minimum payment amount in proportion to their employment ratio. The duration of a maternity/paternity leave is determined by the year of birth, primary adoption or permanent foster care. 

• Information regarding payments for those employed in 25-49% and 50-100% of a full-time position you will find here. 

Maximum payments 

Even though payments from The Maternity/Paternity Leave Fund are 80% of the average gross wages for a certain period, they can never be higher than a certain amount. The duration of a maternity/paternity leave is determined by the year of birth, primary adoption or permanent foster care. 

• Information on maximum payments can be found here. 

Payments are made retroactively, for the preceding month. 

Example: A parent who has been on maternity/paternity leave in January will be paid on the last working day of that month. 

• While on maternity/paternity leave, a parent pays a 4% minimum of maternity/paternity leave payments to a pension fund and The Maternity/Paternity Leave Fund pays a contribution at a minimum of 11.5%. 
• A parent is permitted to pay to a private pension fund but The Maternity/Paternity Leave Fund does not pay a contribution. 

• A parent is permitted to pay to a union while on maternity/paternity leave. If that is not done, entitlements provided by a union may be reduced or terminated.