Laws requiring businesses to prove they are paying men and women equally have come into force in Iceland.

The legislation applies to employers with 25 or more staff, and requires businesses to obtain equal pay certification from accredited auditors.

All affected workplaces have to have obtained the certification by the end of 2021, and it will then have to be renewed every three years.

Businesses that do not meet the requirements may be fined, the Government said.

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A statement from the Ministry of Welfare said the laws were a world first.

"Even though Iceland has been ranked in the first place in international comparisons regarding gender equality, equality in practice has not been achieved in all areas in Icelandic society," the statement read.

The legislation was announced last March to coincide with International Women's Day.

It passed the country's parliament in June last year and came into force in the New Year, the ministry said.

A 'legally binding tool kit' for gender equality

The legislation was welcomed by the Icelandic Women's Rights Association.

"Of course it has always been illegal to unequally pay women … but this is a legally binding toolkit," chairwoman Frida Ros Valdimarsdottir told the New York Times.

Iceland has claimed the top spot on the World Economic Forum's Global Gender Gap report for the past nine years.

Last year, the report showed Iceland had closed more than 87 per cent of its gender gap.

Australia was 35th on the list, with a score of 73 per cent.

Iceland also has a female prime minister. Left-Green party leader Katrin Jakobsdottir formed a three-party coalition and assumed the office last in November year.

Top countries for gender equality

Rank Country Score, where 1 = parity 1 Iceland .878 2 Norway .830 3 Finland .823 4 Rwanda .822 5 Sweden .816 6 Nicaragua .814 7 Slovenia .805 8 Ireland .794 9 New Zealand .791 10 Philippines .790 35 Australia .731

Source: World Economic Forum Global Gender Gap Report 2017