Act No. 55/1980 states that wages and other terms of employment agreed between the social partners in collective agreements are minimum terms, regardless of sex, nationality, and term of employment etc., for all workers in the relevant occupation within the area covered by the agreement.
The minimum wage for each sector of the labour market is negotiated in collective agreements by the social partners and is therefore not the same for every occupational sector. The minimum wages are determined on grounds of the nature of the work, seniority and education.
The wage scales of collective agreements are generally subject to annual changes, i.e. on 1 January every year, or upon the entry-into-force of a new collective agreement.
The minimum rates do not always reflect the wages that are actually paid in the relevant sector. This is a special feature of the wage formation on the labour market and allows for certain freedom of spot negotiations between individual workers and their employers reflecting market conditions. Information about the going wage rate in a particular sector can be obtained from the social partners. Another source of information is Statistics Iceland which collects information, on a regular basis, on wages and working time in various sectors of the labour market.
VR trade union has negotiated a wage system for its members which features a combination of a straightforward wage scales system and a system which emphasis wage settings in direct negations between each worker and his or her employer. Under this system the worker enjoys the protection of the minimum terms but has also a contractual right to meet his or her employer once a year for re-negotiation of wages.