Hiring and paying employees in Italy can be a complex process due to the country’s comprehensive labour laws, extensive employee benefits, and intricate payroll system. This guide provides international businesses with a detailed overview of the key elements of hiring and paying employees in Italy, including employment laws, payroll requirements, and employee benefits.
Understanding Italian employment law
Italy’s employment framework is highly regulated, and the rights and obligations of employers and employees are governed by national laws, collective labour agreements (CLAs), and European Union regulations.
Key components of Italian employment law
- Employment contracts: Employment contracts in Italy can be full-time, part-time, or fixed-term. Written contracts are mandatory and must outline job duties, working hours, remuneration, and other terms.
- Collective labour agreements (CLAs): Industry-specific CLAs play a significant role in setting minimum wages, working conditions, and employee benefits. Employers must adhere to these agreements when hiring employees in a specific sector.
- Working hours: The standard workweek is 40 hours, but CLAs often specify lower limits. Overtime is permissible but must comply with legal and contractual provisions.
- Termination laws: Termination must follow strict legal procedures, including valid reasons for dismissal (economic, disciplinary, or just cause). Severance payments (TFR) are mandatory.
Recruitment and hiring process
Steps to hire an employee in Italy
- Register with the authorities:
- Obtain a Codice Fiscale (tax identification number) from the Italian Revenue Agency.
- Register the company with the Italian Social Security Institute (INPS) and the National Institute for Insurance against Accidents at Work (INAIL).
- Post job vacancies: Advertise positions through job boards, recruitment agencies, or the Italian Public Employment Service.
- Conduct interviews and select candidates: Ensure compliance with anti-discrimination laws during the selection process.
- Draft an employment contract: Use the appropriate CLA to ensure compliance with sector-specific rules.
Employment eligibility
- EU/EEA/Swiss citizens: No additional permits are required.
- Non-EU citizens: Employers must sponsor a work visa under Italy’s quota system (Decreto Flussi).
Payroll system in Italy
The payroll process in Italy is stringent, requiring businesses to comply with tax, social security, and reporting obligations.
Key payroll components
- Gross salary: Includes base pay and any bonuses, as dictated by CLAs.
- Tax deductions: Employers deduct personal income tax (IRPEF) and municipal/regional surcharges from employee salaries.
- Social security contributions:
- Employee contributions: Typically 9-10% of gross salary.
- Employer contributions: Range from 30-33% of gross salary, depending on the sector and contract type.
- Payslips: Employers must provide detailed payslips each month, outlining gross pay, deductions, and net salary.
- Payment deadlines: Salaries are typically paid monthly, no later than the 27th of each month.
Payroll taxes
- Income tax (IRPEF): Progressive rates ranging from 23% to 43%.
- Regional tax (IRAP): Varies between 0.7% and 1.4%, paid by employers.
Payroll process in Italy
Managing payroll in Italy requires precise adherence to tax regulations, social security contributions, and reporting obligations. Below is a step-by-step outline of the payroll process in Italy:
1. Employee registration
- Before employment starts, employers must register the employee with:
- INPS (Italian Social Security Institute): To ensure the employee is covered for pensions, unemployment, and health benefits.
- INAIL (National Institute for Insurance against Accidents at Work): To provide work-related injury insurance.
- A written employment contract must be signed and submitted to the relevant authorities, specifying the job details and salary terms.
2. Payroll calculation
- Calculate gross salary based on the employment contract and the applicable Collective Labour Agreement (CLA).
- Factor in additional compensation like overtime, bonuses, and allowances as stipulated by the CLA or individual agreements.
3. Tax and contribution deductions
- Deduct the employee’s portion of:
- Income tax (IRPEF): Based on progressive tax brackets (23%–43%).
- Municipal and regional surtaxes: Rates vary by region and municipality.
- Social security contributions: Typically 9–10% of gross salary.
- Calculate and withhold employer contributions for social security, which range between 30%–33% of gross salary, depending on the industry.
4. Payslip issuance
- Generate a detailed payslip each month, which must include:
- Gross salary
- Tax deductions (IRPEF and surcharges)
- Social security contributions
- Net salary
- Payslips must comply with Italian legal requirements and be provided in a format easily understandable by employees.
5. Salary payment
- Transfer the net salary to the employee’s bank account.
- Payments are typically made monthly, no later than the 27th of each month unless otherwise stated in the employment contract or CLA.
6. Tax and contribution remittance
- Pay the withheld income taxes and social security contributions to the Italian Revenue Agency (Agenzia delle Entrate) and INPS, respectively.
- These payments are usually due by the 16th of the following month.
7. Monthly and annual reporting
- Submit monthly reports to INPS and INAIL detailing employee salaries, contributions, and hours worked.
- Prepare and submit the Certificazione Unica (CU) annually, detailing employee income and taxes withheld, to both the employee and the tax authorities.
- File the 770 form with the Italian Revenue Agency to declare all withheld taxes for the year.
8. Record keeping
- Maintain detailed records of payroll calculations, payments, and reports for at least five years, as required by Italian law.
Social security and employee benefits
Mandatory contributions
- Employers and employees contribute to Italy’s social security system, which covers:
- Pensions
- Health insurance
- Unemployment benefits
- Maternity and paternity leave
- Work injury insurance
Employee benefits
- Paid leave:
- Annual leave: At least 4 weeks of paid holiday.
- Sick leave: Paid leave is guaranteed, with costs shared between INPS and employers.
- Parental leave: Up to 10 months for parents, with partial pay from INPS.
- Severance pay (TFR): Employers must allocate a portion of gross salary annually to a severance fund, payable upon termination.
Employment costs in Italy
Employer cost breakdown
- Gross salary: Determined by CLAs and includes additional benefits like bonuses.
- Social contributions: Approximately 30-33% of gross salary.
- Other costs:
- Training expenses
- Safety compliance costs
- Employee benefits (e.g., meal vouchers, company cars).
Example of employment costs
For an employee earning €30,000 annually:
- Gross salary: €30,000
- Employer social contributions (33%): €9,900
- Total cost to employer: €39,900
Tips for managing payroll in Italy
- Engage a local payroll provider: Consider outsourcing payroll to ensure compliance with Italian laws and CLAs.
- Use payroll software: Opt for software tailored to Italian payroll requirements to simplify calculations and reporting.
- Stay updated on regulations: Labour laws and tax rates may change annually, so maintain compliance through regular updates.
Conclusion
Hiring and paying employees in Italy involves a structured process governed by robust labour laws and collective agreements.
International businesses must ensure compliance with tax, payroll, and employment regulations while understanding the nuances of sector-specific requirements.
By partnering with international payroll experts and leveraging modern payroll tools, businesses can navigate the complexities of Italian employment seamlessly.
FAQ
Employment contracts, payslips, and official communications must be provided in Italian. While bilingual contracts are acceptable, the Italian version will prevail in case of disputes.
No, salaries must meet the minimums established by the applicable CLA for the industry and job role. Offering a lower salary is a violation of Italian labour laws.
Yes, probationary periods are permitted but must be specified in the employment contract. The duration depends on the job role and the CLA but typically ranges from one to six months.
Remote workers in Italy must still comply with Italian labour laws, including taxation and social security contributions. Employers must also ensure compliance with health and safety regulations for home-based work environments.
Many CLAs require employers to pay a 13th-month salary, typically in December, as a bonus. Some agreements may also include a 14th-month payment or additional allowances during holiday periods.
Late or missing social security payments can result in significant penalties, including fines and interest charges. Employers may also face legal action from both employees and authorities.
Yes, the Italian government often provides tax breaks or social contribution reductions for hiring certain groups, such as young workers, women returning to work, or long-term unemployed individuals. Programmes vary annually.
Employers must follow strict legal procedures, including providing valid reasons for termination and respecting notice periods defined by the CLA. Failure to do so can result in legal claims and compensation payouts.
Meal vouchers are not mandatory nationwide, but many CLAs require employers to offer them as part of the benefits package, especially for full-time employees. The value is typically €5–€8 per working day.
Yes, foreign businesses frequently partner with local payroll providers or professional employer organisations (PEOs) to handle payroll and ensure compliance with Italian laws and regulations. This is a common practice to simplify administrative burdens.
Overtime work must be compensated as per the terms outlined in the CLA, often with a higher pay rate or time off in lieu. There are legal limits on the total number of overtime hours an employee can work annually.
Labour disputes are usually settled through negotiation or mediation, but unresolved cases can be taken to the Labour Court. Italian employment law generally favours the employee in such disputes.