Hire Employees in the Faroe Islands

Two routes exist. Registering a Faroese entity gives you direct employment, followed by setup with TAKS for withholding and contribution transfers.

An Employer of Record removes that setup. The EOR is the legal employer, runs payroll through the TAKS withholding scheme and routes holiday pay correctly, while day-to-day direction stays with you.

The mechanics here are unusually prescriptive. Payments must move through the right channel at the right moment, and a transfer that does not comply is simply refused rather than corrected later.

The Faroese system puts the mechanism ahead of the rate. Contribution percentages are set by statute and by collective agreement, but what distinguishes payroll here is how and when money must move.

Pension contributions must be paid through the TAKS withholding scheme at the same time as the salary is transferred. Under the Eftirlønarlógin the employer has a duty to transfer the employee’s pension contribution and to ensure every individual salary payment complies. A salary transfer that does not comply with the law is rejected by TAKS.

There is no statutory minimum wage. Terms come from collective agreements negotiated between employer associations and unions, so the applicable agreement determines pay rather than legislation.

Break-even rule of thumb: EOR fees begin to exceed the running cost of a Faroese entity somewhere between 15 and 25 employees. Model both, see EOR vs Entity for the framework.

The employer is invoiced monthly. The bill for the labour market pension levy is sent through minrokning.fo at the start of each month. It can be settled automatically, or the employer can establish a payment agreement with TAKS so the levy is transferred from the account without further action.

Pension savings carry an annual ceiling on the obligation. Regardless of the prescribed percentage, no one is obliged to pay more than DKK 150,000 a year in gross pension contributions. Amounts above that may be repaid by the pension provider where the agreement permits it.

Employees may voluntarily contribute more than the prescribed percentage.

Pension savings must be held with a life insurance company, a pension fund or a bank, and providers must notify TAKS of the schemes they operate. Administration and handling fees must be transparent as a matter of law.

Employees with B-income are responsible for paying their own pension contributions.

Gross monthly salaries in Danish kroner. Contribution rates follow statute and the applicable collective agreement.

Benchmarks below are gross monthly salaries in Danish kroner. Employer contribution rates are set by statute and collective agreement and should be confirmed with TAKS before quoting.

Holiday pay does not go to the employee. It falls due at the same time as salary and must be paid to the relevant employee union for safekeeping, or, where no representative union exists, to the Frítíðargrunnurin, the Holiday Fund, until the holiday is actually taken.

Monthly-paid employees have the right to holiday with pay, and a holiday supplement of 1½% of the salary earned in the preceding earning year is provided on top.

The union chooses how holiday pay is taxed, for a given earning year, between two routes: tax deducted from salary when the employer transfers it through the withholding scheme with the holiday pay passed on in full; or the holiday pay transferred in full and taxed when the union later passes it through the scheme.

The employer may deduct holiday pay in the year it is paid to the union or the Holiday Fund.

Section 118 of the tax law obliges the employer to inform both the tax authorities and the employee of the holiday pay paid during the income year. Breach is punishable under section 146.

Income tax is calculated by tax year and municipality of residence through the TAKS system, with separate treatment for Faroese and foreign income.

There is no statutory minimum wage. Pay and conditions are set by collective agreements between employer associations and unions across sectors.

The Faroese labour market is small and tightly organised, and the applicable agreement therefore governs far more of the employment relationship than legislation does.

Working time, overtime and holiday entitlement all sit within those agreements rather than in a single statutory code.

Recent political debate has centred on economic issues including a shorter working week, so agreement terms may move.

Contracts should record pay, hours, leave, notice and termination terms, and identify the applicable collective agreement and the employee’s union.

Establish where holiday pay must be routed before the first payroll run, to the union, or to the Holiday Fund where no representative union exists.

Confirm the employee’s municipality of residence, since it affects the withholding calculation.

Working hours and overtime follow the applicable collective agreement.

The holiday supplement of 1½% is calculated on salary earned in the preceding earning year, so it lags rather than tracking current pay.

Because pension transfers must accompany each salary payment, any off-cycle or supplementary payment needs the same treatment as ordinary salary.

The Faroe Islands observe Lutheran and national public holidays, including Ólavsøka at the end of July, which is the principal national celebration and runs across two days.

The Faroe Islands observe Lutheran and national public holidays, including Ólavsøka at the end of July, which is the principal national celebration. Dates are set out below.

The labour market pension is residence-based rather than purely contributory. Entitlement requires at least three years of fixed residence in the Faroe Islands between the ages of 15 and 67, with registration in the Faroese population register at the same time.

The full payout is DKK 6,650 a month in 2026. The amount actually received depends on length of residence: one fifteenth of the full pension for each year, up to a maximum of fifteen fifteenths.

Pension age depends on year of birth.

On death during the savings period, pension savings are treated as capital pension with inheritance rights unless otherwise agreed. A surviving spouse or cohabiting partner, though not a child, may transfer all or part of it into their own pension savings tax and duty free.

Decisions under the pension law may be appealed within four weeks to the tax and duties appeals board.

Termination follows the applicable collective agreement and general employment law.

Holiday pay accrued but not yet taken sits with the union or the Holiday Fund, so exit handling differs from jurisdictions where it is simply paid out with the final salary.

The section 118 reporting duty covers holiday pay for the income year, and applies regardless of when in the year the employment ends.

Final salary payments must still carry the accompanying pension transfer through the TAKS scheme.

Income tax is calculated by tax year and municipality of residence, with the TAKS system providing separate treatment for income from Faroese employers and for foreign income and deductions.

That municipal element means two employees on identical salaries can face different withholding depending on where they live.

Work authorisation for foreign nationals is employer-sponsored; confirm current requirements before committing to a start date.

The Faroe Islands sit within the Danish realm but operate their own tax administration, so Danish rules do not carry across.

A non-compliant salary transfer is rejected outright. Pension contributions must move through the TAKS withholding scheme at the same time as salary, and TAKS refuses transfers that do not comply with the Eftirlønarlógin.

Holiday pay is not the employee’s to receive directly. It goes to the union or the Holiday Fund for safekeeping until the holiday is taken, paying it to the employee would misdirect it.

The section 118 reporting duty is enforced. Failure to inform the tax authorities and the employee of holiday pay is punishable under section 146.

Note also that no statutory minimum wage exists; that the obligatory pension contribution caps at DKK 150,000 a year; and that income tax varies by municipality of residence.

Work backwards from the start date. An EOR hire takes three to six weeks; entity formation runs two to five months.

Set up the TAKS withholding scheme first, pension transfers cannot lawfully happen outside it.

Identify the collective agreement and the employee’s union, confirm the municipality of residence, establish where holiday pay must be routed, and arrange the monthly levy through minrokning.fo or a payment agreement.