Payroll settings

Core payroll settings — salary items, municipalities, collection agency credentials, holiday pay, payslips and time entry

Payroll settings (Settings → Payroll → Payroll settings, or the quick link on the payroll overview) is the hub for the core payroll setup. At the top are cards that open sub-pages for salary items, municipalities and collection agency credentials, plus the Holiday pay card. Below them are company settings that are saved directly on the page: how holiday pay is deposited to the holiday account, what payslips show, how hours are split across salary items and the time clock settings. The page is visible with payroll read permission.

At the top is a breadcrumb (“Payroll”) that goes back to the payroll overview, the heading Payroll settings and the description “Manage payroll settings, including pension funds, trade unions, municipalities and salary items.” The page is made up of these parts, in the order they appear on screen:

Part	What it does	More
Salary items (card)	Opens the sub-page where salary items are defined: basic pay, overtime, bonuses, deductions and so on	The “Salary items” section below
Municipalities (card)	Opens the list of municipalities and their municipal income tax rates	The “Municipalities (municipal income tax)” section
Collection agencies — credentials (card)	Opens the page where credentials are entered for collection agencies of pension funds and trade unions that require authentication when receiving a payroll return	The “Collection agencies — credentials” section
Holiday pay (card)	Shows the default holiday pay rate for the year and the “Book holiday pay liability opening balance” button	The “Holiday pay” section
Holiday pay: deposit method	Choice between net and gross deposit to the holiday account, with an explanation of withholding tax on holiday pay	The “Holiday pay” section
Payslips	A switch that decides whether the employer cost is shown on payslips	The “Payslips” section
Time entry	Daily regular-hours limit, salary items for overtime and major public holidays, classification of hours from work orders and shift premium windows	The “Hour classification (Time entry)” section
Time clock	Long shift, breaks (meal time) and manager approval before shifts go to payroll	The “Time clock” section
Calculator: net vs. gross	Works out an example of both holiday pay deposit methods using the tax settings of the year	The “Holiday pay” section

Pension funds, trade unions and tax settings (tax brackets, personal tax credit and the default holiday pay rate for the year) are central master registers that apply to all companies and are not managed from here. A system administrator (super admin) maintains them and they are updated from skilagrein.is; in the employee setup you simply choose from the lists. The old addresses for pension funds, trade unions and tax settings under Payroll settings now only show a notice that the register is central and a “Back to Payroll” button.

Enlarge

Payroll settings: the Salary items, Municipalities, Collection agencies — credentials and Holiday pay cards, with the holiday pay deposit method below them

Salary items

Salary items are the building blocks of the payslip — e.g. basic pay, overtime, bonuses, benefits and deductions. The items defined here are then assigned to employees in the employee setup and used in payroll processing. At the top of the page is an information banner: “This defines all the salary items that can be used on payslips. Salary items can be earnings, deductions or employer costs.” If any active salary items have unconfirmed rates, a yellow banner above it lists them (see “Default VR values are UNCONFIRMED” below).

Top of the page

There are two actions at the top right:

Load defaults — compares the company’s salary items with the central list of default salary items. If no item conflicts with the defaults, the missing ones are added straight away (“X salary items added”, or “All default salary items already exist”). If items with the same code already exist but differ from the default, the “Review default salary items” window opens: it shows how many new items will be created and, for each conflicting item, the fields that differ (columns Field, Current and Default). For each item you choose Update or Skip (Skip is the default; quick choice “Update all”/“Skip all”) and confirm. Nothing is deleted. If default values replace an item’s rates, those rates become unconfirmed again.
New salary item (primary button) — opens a window for creating a new salary item.

Field	Description	Required
Search…	Search box that filters by salary item name or code	No
Type filter	Drop-down: “All types”, “Earning”, “Deduction”, “Employer cost”	No

Table view

The table shows all salary items (25 per page). Columns adapt to the screen size — some only appear on larger screens.

Column	Description
Code	Short unique code of the item (e.g. BASE)
Name	Name of the salary item (e.g. Base salary). Can be sorted by name. An item with unconfirmed rates gets the tag “Unconfirmed · VR default”, and an item you confirm during the visit gets the tag “Confirmed”
Type	Colour tag: Earning (green), Deduction (orange), Employer cost (blue)
Calculation	Calculation method of the item (Fixed amount / Percentage / Hourly rate / Formula). Large screens only
Rate	Hourly items only: e.g. “0.8235% of monthly salary”, “33% of regular-hours rate” or “Multiplier 1.5” (legacy model). Medium screens and up
Taxable	Tag “Yes”/“No” — whether the item is subject to withholding tax. Medium screens and up
Pension	Tag “Yes”/“No” — whether the item affects the pension base. Medium screens and up
Social security	Tag “Yes”/“No” — whether the item is included in the social security contribution base. Large screens only
Status	Colour tag: Active (green) or Inactive (grey)
Actions	“Confirm rates” (only when rates are unconfirmed), pencil (edit) and bin (delete, with the confirmation “Delete salary item?”). The bin is disabled for system salary items

System salary items are the core items of the payroll system. They can be edited — e.g. to adjust the rates to the collective agreement — but their code is locked and they cannot be deleted (the bin is disabled and the server refuses the deletion).

Open the window

Click “New salary item” to create one, or the pencil icon on a row to edit an existing one. The window title is “New salary item” or “Edit salary item”.

Code and Name

Enter the Code (required, up to 20 characters, e.g. BASE) and the Name (required, e.g. Base salary). The code must be unique — otherwise you get an error that a salary item with that code already exists. The code of a system salary item cannot be changed.

Type

Choose the Type (required, default “Earning”): “Earning”, “Deduction” or “Employer cost”. This decides how the item is treated on the payslip.

Calculation method

Choose the Calculation method (required, default “Fixed amount”): “Fixed amount”, “Percentage”, “Hourly rate” or “Formula”. The fields below change with the choice (see the table below).

Fill in the relevant values

Fixed amount → “Default amount” in ISK. Percentage → “Percentage” (0–100, two decimals). Hourly rate → choose a “Rate basis” (% of monthly salary, % of regular-hours rate or Legacy multiplier) and an “Hour class”; with a percentage basis you enter the “Rate percentage” (required, e.g. 0.8235 for overtime 1 under VR), while with “Legacy multiplier” the field “Multiplier (legacy model)” appears instead (see the “Rate model” section below). Formula → no extra values in the window.

RSK category

Choose the RSK category (withholding tax) — how the item is classified in returns to RSK. The default is “Salary”.

Effect on calculations

Turn the switches on or off: “Taxable”, “Affects pension”, “Affects holiday pay” and “Included in the social security contribution base”. They decide which bases the item is counted in.

Sort order and status

Set the “Sort order” (whole number, 0 or higher, decides the display order) and turn “Active” on or off. Inactive items do not appear in payroll processing.

Save

Click “Create” (new item) or “Save changes” (edit). A confirmation appears: “Salary item created” or “Salary item updated”. Click “Cancel” to close without saving.

Field	Description	Required
Code	Unique code, up to 20 characters (e.g. BASE). Locked on system salary items	Yes
Name	Name of the salary item (e.g. Base salary)	Yes
Type	Earning / Deduction / Employer cost	Yes (default Earning)
Calculation method	Fixed amount / Percentage / Hourly rate / Formula	Yes (default Fixed amount)
Default amount	Amount in ISK — only appears when the method is “Fixed amount”	No
Percentage	Rate 0–100 with two decimals — only appears when the method is “Percentage”	No
Rate basis	% of monthly salary / % of regular-hours rate / Legacy multiplier — only appears when the method is “Hourly rate” (a new item defaults to % of regular-hours rate)	No
Rate percentage	Percentage with up to 4 decimals (e.g. 0.8235, 1.0385, 1.375 or 33) — with a percentage basis	Yes, with a percentage basis
Hour class	Regular hours / Overtime / Major-holiday work / Shift premium	No
Multiplier (legacy model)	Multiplier on the regular-hours rate, up to 4 decimals — only appears when the rate basis is “Legacy multiplier”	No
RSK category (withholding tax)	See the table “RSK category — options” below	No (default Salary)
Taxable	Whether the item is subject to withholding tax	No (on by default)
Affects pension	Whether the item counts towards the pension base	No (on by default)
Affects holiday pay	Whether the item counts towards the holiday pay base	No (off by default)
Included in the social security contribution base	Whether the item is subject to the social security contribution	No (on by default)
Sort order	Whole number, 0 or higher, that decides the display order	No (default 0)
Active	Whether the item is in use	No (on by default)

The social security contribution base is independent. A vehicle allowance is subject to the social security contribution even though it is exempt from withholding tax, while per diem within the limits is outside the base. So set “Taxable” and “Included in the social security contribution base” separately according to the nature of the item.

RSK category — options

The RSK category decides which box the item ends up in when reporting to RSK. The box numbers in brackets are those the drop-down shows.

Option	Description
Salary	Ordinary salary (default)
Per diem	Per diem payments
Vehicle allowance	Driving allowance / mileage payments
Company car benefit	Benefit from a car owned by the employer
Calculated remuneration	Calculated remuneration of owners/self-employed people
Financial activities tax base	Items that make up the base for the financial activities tax
Clothing benefits (box 27)	Clothing provided by the employer
Housing benefits (box 28)	Housing provided by the employer
Meal benefits (box 33)	Meals provided by the employer
Other benefits (box 34)	Other benefits
Board fees (box 220)	Fees for sitting on a board
Sports and fitness grant (box 405)	Sports and fitness grants
Commuting grant (box 410)	Commuting grants
Reimbursed expenses (box 11)	Reimbursement of costs the employee paid out
Other taxable payments (box 82)	Taxable payments that do not fall into another category
Other tax-exempt payments (box 93)	Tax-exempt payments that do not fall into another category
Grants and donations (box 61)	Grants
Sickness benefits (box 19)	Sickness benefits

Deletion is soft. When you delete a salary item it is not removed from the database but set to inactive, so older payslips are preserved. System salary items cannot be deleted and their code cannot be changed.

Rate model: overtime, major public holidays and shift premiums

Hourly pay, overtime and premiums are calculated from salary items (Payroll settings → Salary items) using a rate basis and a rate percentage. This way the overtime rate follows the employee’s monthly salary instead of being a fixed amount.

Rate basis and rate percentage

% of monthly salary — the rate is a percentage of the employee’s *reference monthly salary*. This is how VR overtime and major-holiday pay work: e.g. overtime 1 = 0.8235% of the monthly salary.
% of regular-hours rate — the rate is a percentage of the regular hourly rate. This is how shift premiums work: e.g. a 33% premium = 33% of the regular-hours rate.
Legacy multiplier — the older model (regular-hours rate × multiplier), still supported for salary items that have not been moved over. VR overtime is *not* a multiplier (0.8235 and 1.0385 are not “multiples of the regular-hours rate”) but a percentage of the monthly salary, so prefer a rate basis and percentage.

How the hourly rate is calculated

The reference monthly salary is the base salary (the BASE salary item on the employee’s salary table, the full-time amount — not reduced by the employment ratio). If there is none, the regular-hours rate on the salary table (DV) × divisor is used, and after that the employee’s hourly rate × divisor.
Regular-hours rate = reference monthly salary ÷ divisor. The divisor is the one recorded on the employee, otherwise the “Hourly rate divisor” on the Time entry card on this page, and by default 173.33.
% of monthly salary: rate = reference monthly salary × percentage. % of regular-hours rate: rate = regular-hours rate × percentage. The rate is rounded to whole ISK before it is multiplied by the hours.

Example: monthly salary ISK 1,024,650 → regular-hours rate ISK 5,912. Overtime 1 (0.8235%) = ISK 8,438 per hour and overtime 2 (1.0385%) = ISK 10,641 per hour.

Order of precedence

If more than one source gives a rate, the one higher in the list applies:

Priority	Source	Description
1	Fixed rate	An amount in the Rate field on the employee’s line in the salary table (greater than 0)
2	Employee percentage	The Percentage (%) field on the employee’s line in the salary table, used with the salary item’s rate basis (% of regular-hours rate if the item has none)
3	Salary item percentage	The rate basis and rate percentage on the salary item itself
4	Legacy multiplier	Salary item multiplier × regular-hours rate (no multiplier = 1)
5	No rate	Nothing to work out a rate from: the line pays ISK 0 and the payroll run shows a notice

Rate fields on a salary item

When the calculation method is “Hourly rate”, the fields Rate basis, Hour class (Regular hours, Overtime, Major-holiday work or Shift premium) and, depending on the rate basis, either Rate percentage (up to 4 decimals) or Multiplier (legacy model) appear. The hour class says what kind of hours the item pays for.

Default VR values are UNCONFIRMED. The default salary items carry values from the VR/SA general collective agreement: overtime 1 (OT1) = 0.8235%, overtime 2 (OT2) = 1.0385% and major-holiday pay (HOLIDAY) = 1.375% of the monthly salary; night work (NIGHT) has the same rate as overtime 2; plus shift premiums of 33%, 45% and 90% of the regular-hours rate (VAKT33, VAKT45 and VAKT90). These values are not verified for your company. The employer is responsible for comparing them with the employees’ applicable collective agreement, changing them if needed and confirming them. While the rates of an hourly item with a percentage basis are unconfirmed, the salary items page shows a yellow banner and the tag “Unconfirmed · VR default” on the item. Click Confirm rates once you have reviewed them; changing the rate basis, percentage or multiplier also counts as confirmation. A salary item you create yourself counts as confirmed. The payroll run warns about unconfirmed rates.

Holiday pay

The Holiday pay card shows the default holiday pay rate for the year (e.g. 10.17%) from the central tax settings. It is read-only here; it can be overridden per trade union or per employee (see Employees). If the rate cannot be read, the card says “The default holiday pay rate for the year is not available here.” The card also has the Book holiday pay liability opening balance button.

Holiday pay liability opening balance

The button books the holiday pay accrued before the holiday pay liability was recorded in the ledger: one journal entry, debit 2205 Holiday pay and credit 4415 Holiday pay liability. It only concerns employees whose holiday pay method is to accrue it.

Choose the date

Choose the “Opening balance date” — the day holiday pay booking started. The window then works out the balance on that day and shows the vacation year and the number of working days per month (from the tax settings of the year).

Choose the counter account

Expense to the year (2205) charges the holiday pay to this year’s income statement. Adjust equity puts the debit on an equity account you choose (the retained earnings account is preselected if it exists), so holiday pay earned in earlier years does not hit this year’s result.

Review the table

One line per active employee who accrues holiday pay: Employee, Remaining days, Daily rate, Calculated liability and Amount to book, which you can correct. Calculated liability = remaining days × monthly salary ÷ working days per month, rounded to a whole ISK. The monthly salary is the base salary from the salary table, otherwise hourly rate × 8 h × employment ratio, otherwise the monthly salary from the employee record.

Compare with the posted balance

Below the table are “Total to book”, “Current balance of 4415” and “Difference” (the total to book minus the posted balance of 4415 on the date).

Book

Click “Book opening balance” and confirm “Book the holiday pay liability opening balance?”. Once the entry is booked its number appears together with the “View journal entry” button.

Booking requires payroll write permission, and accounts 2205 and 4415 must exist in the company’s chart of accounts; booking into a closed accounting period is refused. If an opening balance is already booked, the window shows “An opening balance is already booked: [number] ([date])” and booking stops unless you tick “Book another opening entry anyway”.

Holiday account deposit method

The Holiday pay: deposit method card decides how holiday pay is deposited to the holiday account of employees using the “Deposit to holiday account” method. The choice applies to the company but can be overridden per employee. Choose a method and click Save method (the button turns green with “Saved”). A user without permission to change it sees “You do not have permission to change this setting.”

Method	What happens	Example on the card
Net (default)	Withholding tax, pension and union dues (if any) on the holiday pay are deducted from the deposit. The salary account ends up exactly as if no holiday pay were deposited. The most common method.	To holiday account ISK 31,449, to salary account ISK 401,340
Gross	The holiday pay is deposited in full to the holiday account, while withholding tax, pension and union dues (if any) on it are deducted from the salary. The salary account is reduced accordingly. Permitted under the ASI agreement.	To holiday account ISK 50,850, to salary account ISK 381,939

The examples on the card assume a salary of ISK 500,000 and 10.17% holiday pay. Below the choice is the collapsible section “How does withholding tax on holiday pay work for the holiday account?”: withholding tax on holiday pay is taken when the holiday pay is deposited, not when it is paid out; total withholding tax, total payout and employer charges are the same with both methods — only where the tax is taken from differs. At the bottom of the page is the Calculator: net vs. gross: enter a monthly salary and choose a holiday pay rate (collective agreement steps from 10.17% / 24 days up to 13.04% / 30 days), and the table shows the holiday pay, pension, withholding tax and union dues on it, the deposit, the salary account and the totals for both methods using the tax settings of the year. Lines that differ between the methods are highlighted.

Payslips

The Payslips card has one switch: Show employer cost on payslips. It is off by default; then employees do not see the employer pension contribution, social security contribution and other payroll-related charges on their payslip. The switch applies to payslips as PDF and by email and is saved as soon as you click it (“Setting saved”).

Hour classification (Time entry)

The Time entry card controls the import of hours from work orders and the quick actions in time entry: how hours are split across salary items, the hourly rate divisor and shift premiums. Changes are saved with Save settings. At the bottom of the card the rules are summarised, with a reminder that the defaults follow the VR/SA general collective agreement but are unconfirmed.

Field	Description	Default
Daily regular-hours limit (h)	Maximum regular hours on a weekday; used by “Fill weekdays” in time entry (0.25–24, step 0.25)	8
Salary item for overtime 1	The salary item overtime 1 goes to	OT1
Salary item for overtime 2	The salary item overtime 2 goes to	OT2
Salary item for major public holidays	The salary item hours on major public holidays go to	HOLIDAY
Weekday regular-hours window	From–to (HH:MM); weekday hours inside it can go to regular hours	08:00–17:00
Hourly rate divisor	Reference monthly salary ÷ divisor = regular-hours rate (1–999.9999); a divisor on the employee takes precedence	173.33
Full-time hours per month	“Working days × daily regular hours × employment ratio” or “Fixed number (the divisor)”, which is the divisor × employment ratio	Working days × daily regular hours × employment ratio
Overtime split	“Two tiers” (overtime 1 up to full time for the month, overtime 2 beyond it) or “One tier” (all overtime on the overtime 1 item); the split can be overridden per employee	Two tiers
Shift premium (shift workers)	Windows (from, to, shift premium item) for weekdays, weekends and other public holidays, and major public holidays. “Add window” and a bin; windows of the same day type must not overlap and each window needs a salary item	Weekdays 00:00–08:00 VAKT45 and 17:00–24:00 VAKT33; weekends 00:00–24:00 VAKT45; major public holidays 00:00–24:00 VAKT90

Rule	How it works
Regular hours	Weekday hours inside the regular-hours window go to Regular hours (DV) up to the daily limit, as long as the month’s total hours are within full time. Full time is calculated with the employee’s employment ratio.
Overtime (two tiers)	Other hours go to overtime 1 while the month’s total hours are within full time and to overtime 2 beyond that. An hour that crosses the limit is split between the tiers.
Overtime (one tier)	All hours outside regular hours go to the overtime 1 salary item.
Major public holidays	New Year’s Day, Good Friday, Easter Sunday, Whit Sunday, 17 June, Christmas Eve from 12:00, Christmas Day and New Year’s Eve from 12:00. Hours on these days go to the major holiday item.
Other public holidays	Other statutory public holidays (e.g. Maundy Thursday, Easter Monday, Ascension Day, Whit Monday) are overtime, not major public holidays. For shift premiums they use the weekend windows.
Shift workers	An employee marked “Shift worker” gets all hours as regular hours (with no daily limit) until full time for the month is reached, plus the shift premium item when the hours fall in a shift premium window. Beyond full time the hours are overtime without a premium; major-holiday hours then go to the major holiday item.

Time of day only applies to hours from work orders. Classification by time of day is based on the start and end time of work order hours. Manually entered hours in the time entry table go to the salary item you choose, but they count towards the month’s total hours when hours from work orders are classified.

Time clock

The Time clock card comes after the Time entry card and holds the time clock settings: long shift, breaks (meal time) and manager approval. Changes are saved with Save.

Long shift (h) — a shift longer than this is marked as long and asks “When did you finish?” at clock-out.
Breaks — four options: No breaks (breaks are not recorded and nothing is deducted from shifts), Automatic deduction (a fixed deduction, an unpaid break, on shifts longer than a set number of hours), Clock breaks (staff clock breaks in and out and unpaid breaks are deducted) and Both (breaks can be clocked, but if the clocked unpaid breaks are shorter than the automatic deduction, the deduction applies — nothing is ever deducted twice).
Manager approval for payroll — the card shows from what time approval is required. Shifts that started before that time count as approved for payroll, but later shifts only go to payroll once a manager has approved them. The time can be moved back with the Move button but not forward.

Rate notices

On the payroll period a “Rate notices” box appears. The notices do not block anything, but review them before the payroll run is approved:

Overtime rate below the regular-hours rate — a salary item pays less than regular hours.
Employee hourly rate differs from the regular-hours rate on the salary table — the regular-hours rate on the salary table is used.
Base salary ÷ divisor ≠ regular-hours rate on the salary table (difference above ISK 1) — align the base salary and the regular-hours rate.
Employee hourly rate differs from base salary ÷ divisor — the base salary is used and the hourly rate on the employee is ignored.
Base salary reduced by the employment ratio — a part-timer’s paid base salary is base salary × employment ratio, so the base salary on the salary table must be the full-time salary; if it is already entered reduced, it is reduced twice.
Overlapping rate change — more than one line for the same salary item applies in the period; only the one in effect at the end of the period is used.
Unconfirmed salary item rates — see the warning above.
Time line pays ISK 0 — no rate is found for the line.

Collection agencies — credentials

Some collection agencies of pension funds and trade unions require authentication (a username and password issued by the agency) when a payroll return is sent electronically. This page automatically lists the collection agencies your employees pay into (worked out from the employees’ pension funds/trade unions) and lets you enter credentials and test the connection for those that require it. The “Payroll settings” breadcrumb goes back to the hub.

If credentials are missing, a yellow banner appears at the top: “Credentials are missing for X collection agencies — You cannot send a payroll return to these agencies until credentials are entered.” If no employee is linked to a fund or union, you see instead: “No collection agencies — Your employees are not yet linked to any pension funds or trade unions.”

Column	Description
No.	The agency’s collector number. Can be sorted
Collection agency	Name of the agency with its national ID (kennitala) below. Can be sorted by name
Employees	Number of employees who pay into the agency. Can be sorted
Username	Registered username of the credentials, or “—” if none
Status	Colour tag for the authentication status (see the table below)
Actions	“Set up” or “Edit”; when credentials exist also “Test connection” and “Delete”. Agencies that do not require authentication show “—”

Status	Colour	Meaning
Does not require credentials	Grey	The agency accepts payroll returns without authentication — no credentials needed
Credentials missing	Yellow (warning)	The agency requires authentication but no credentials are registered
Inactive	Grey	Credentials are registered but the “Active” switch is off
Connection confirmed	Green	Credentials active and the last test succeeded (date in the tooltip)
Connection failed	Red	The last test failed (error message in the tooltip)
Credentials set — untested	Blue	Credentials are active but the connection has not been tested

Find the agency

Agencies that require authentication but lack credentials are marked “Credentials missing” (yellow). Agencies marked “Does not require credentials” need nothing (the actions column shows “—”).

Open the credentials window

Click “Set up” (key icon) for a new agency, or “Edit” (pencil) for an agency that already has credentials. The window shows the address of the agency’s web service that the credentials will be sent to (it can be copied).

Enter the credentials

Fill in “Username” (required) and “Password” (required). When the agency already has credentials, the field is called “New password (enter to change)” — leave it empty if you do not want to change the password.

Activate

Set the “Active” switch (Yes/No). Only active credentials are used when a payroll return is sent.

Save

Click “Save”. A confirmation appears: “Credentials saved”. Click “Cancel” to close without saving.

Test the connection

After saving, the lightning icon “Test connection” appears in the actions column. Click it to confirm that the credentials work. On success you see “Connection succeeded (HTTP …)”; otherwise “Connection failed: …” and the status turns red.

Field	Description	Required
Username	Username issued by the collection agency	Yes
Password	Password for the authentication; stored encrypted and never shown again. When editing: leave empty to keep it unchanged	Yes (when first entered)
Active	Whether the credentials are used when sending the payroll return	No (default Yes)

To remove credentials, click the red bin and confirm “Delete credentials?”. A message appears: “Credentials deleted”. The agency stays in the list but returns to the “Credentials missing” status if it requires authentication.

The list updates automatically based on employees. If you add or remove employee links to pension funds or trade unions, the “Employees” column changes and agencies can appear in or disappear from the list. Test connection sends an empty payroll return together with the username and password to the agency’s web service to check the authentication; no payment data is included. In the demo company the actions are locked.

Municipalities (municipal income tax)

Municipal income tax is the part of income tax that goes to the municipality, and it depends on where the employee is legally domiciled. The municipal income tax rate of each municipality is kept in a separate municipality register used in the payroll calculation (withholding tax). The register is central — the same list and the same rates apply to all companies. The Municipalities page opens from the “Municipalities” card on Payroll settings.

Because the register is central, only a system administrator (super admin) can create, edit, delete or load default municipalities. Ordinary payroll users see the list and the municipal income tax rates; the buttons are shown to them too, but the server refuses to save their changes.

At the top of the page is a breadcrumb (“Payroll / Settings”), the heading Municipalities and an information banner: “Municipalities and their municipal income tax percentage are registered here. Municipal income tax is part of income tax and depends on where the employee is legally domiciled.” Below it is a search box (“Search for a municipality…”) that filters by name or code.

Top of the page

There are two actions at the top right:

Load defaults — adds a list of Icelandic municipalities with their municipal income tax rates (only adds those not already present, matched by code; deletes nothing and changes nothing already there). A message appears: “X municipalities added”.
New municipality (primary button) — opens a window for creating a new municipality.

Column	Description
Name	Name of the municipality (e.g. Reykjavik City). Can be sorted by name
Code	Code of the municipality (e.g. 0000), or “-” if none
Municipal income tax %	The municipal income tax rate with two decimals and a full stop as the decimal separator (e.g. 14.94%), right-aligned. Can be sorted
Status	Colour tag: Active (green) or Inactive (grey)
Actions	Pencil (edit) and bin (delete with confirmation)

The table shows 20 municipalities per page. To delete a municipality, click the red bin and confirm: “Delete municipality? — Are you sure you want to delete this municipality?” (“Yes” / “No”). Deletion is soft: the municipality is not removed but set to inactive so older payroll calculations are preserved.

Open the window

Click “New municipality” to create one, or the pencil icon on a row to edit an existing one. The window title is “New municipality” or “Edit municipality”.

Name and code

Enter the Name (required, e.g. Reykjavik City) and, if applicable, the Code (optional, up to 10 characters, e.g. 0000). The code must be unique — otherwise you get an error that a municipality with that code already exists.

Municipal income tax (%)

Enter the Municipal income tax (%) (required) — a number field with the range 0–20, step 0.01 and two decimals, with “%” after it. The default value in a new window is 14.94.

Active

Set the Active switch (on by default). Inactive municipalities are shown with a grey status and are excluded from the active list that the municipal income tax choice is based on.

Save

Click “Create” (new) or “Save changes” (edit). A confirmation appears: “Municipality created” or “Municipality updated”. Click “Cancel” to close without saving.

Field	Description	Required
Name	Name of the municipality (e.g. Reykjavik City)	Yes
Code	Unique code, up to 10 characters (e.g. 0000)	No
Municipal income tax (%)	Municipal income tax rate, 0–20 with a step of 0.01 and two decimals	Yes
Active	Whether the municipality is in use	No (on by default)

Municipal income tax rates often change from year to year. Because the register is central, a system administrator only needs to update each municipality once and the change applies to all companies. “Load defaults” quickly gives a base list of municipalities — it never overwrites rates that are already registered.

Changes to the payroll settings affect payroll processing going forward. Make sure the salary items and rates, the time entry settings, the holiday pay deposit method, the collection agency credentials and the municipal income tax rates are correct before a period is processed and the payroll return is sent.

Payroll payments

Task board