For the expanding global company, each new country presents unique challenges. From managing employees who speak a different language and navigating complex employment and payroll regulations, to ensuring workers are compensated on time and in full compliance with national and local laws, international payrolls can pose many challenges... and perhaps nowhere is this more true than in Italy.
Although employers enjoy stunning scenery, centuries-old historical riches, and delicious food when expanding to Italy, they also face a particularly challenging regulatory environment. Since penalties for noncompliance can be stiff, it is critical that global companies understand the nuances of payroll in Italy and establish practices to meet all applicable guidelines. For ongoing success, consider the following major components of conducting payroll in Italy as part of your comprehensive global payroll strategy.
In order to set up payroll operations in the country, the company, or a legal representative, must register with the Labor Office, Social Security Institute and Insurance Institute. The deadlines for registering with these public authorities vary (the first day of employment for the Insurance Institute, the fifth day after employment for the Labor Office and the 16th of the following month for the Social Security Institute). Failure to meet these deadlines can result in penalties, with interest based on how overdue they are, and possibly a visit from authorities.
In addition, the organization must obtain a company identification number and fiscal code, a process that can take up to 15 days and requires them or their representative to sign documents in front of a notary public. This can delay payroll implementation, as companies are prohibited to starting employees until the fiscal code is obtained. The employer will also have to attain tax advisory support to ensure it is assigned a VAT number as well.
Once a company has successfully registered its operations with the appropriate authorities, the next challenge is to hire employees. This can be particularly difficult for multinationals expanding to Italy, as they must contend with the country’s extensive and outdated employment laws.
The complexity stems largely from the fact that much of the workforce is represented by various unions, worker councils and collective labor agreements, depending on their job type. Employers hiring in Italy will have to adjust their payroll operations to account for union membership fees and differing standards regarding the number of work hours each week, minimum wage rates and time off policies that are affected by collective agreements.
Generally, all employment contracts in Italy are required to be in writing. When hiring and onboarding new employees, organizations will find that these processes are also impacted by unions. Many collective agreements provide probationary periods, ranging from 20 working days to six calendar months, during which both parties may terminate employment without notice. To successfully onboard new workers, the company is required to provide the employee’s personal data to local authorities no later than their starting date. Moreover, the employer is required to send the appropriate information to the Insurance Institute on the starting date and to the Labor Agency within five days of the employee’s start date. Failure to provide the required documentation by deadline can result in significant fines.
There are no laws in Italy regulating the frequency with which employees should be paid; rather, it is often determined by the various unions and collective agreements for each position. In most cases, employers are expected to pay their employees on a monthly basis by the 27th of each month. However, in industries such as construction and agriculture, payments are generally made on a weekly or bi-weekly basis.
Despite the variances payment timelines, most employers in Italy universally provide a 13th month bonus to their employees, often paid in December. Many provide 14th month bonus as well, sometimes following performance reviews.
In addition, all employees (regardless of why their contracts of employment end) are entitled to a termination payment. The amount of these payments is based on length of service, typically equating to one month’s pay for each year of service, including unused vacation time and bonus pay. Upon determination, the employer must make all of the necessary entries in the employee’s employment record and provide him or her with a copy of the income tax declaration. The employer must also notify all relevant bodies, including the local employment office (within five days of termination) and the National Social Insurance Institute.
One of the most complicated aspects of incorporating Italy into a payroll compliance program is ensuring the nation’s complex taxation rules are followed. It is the employer’s responsibility to deduct taxes from their employees’ paychecks appropriately and make sure they are submitted to the proper tax authorities on a monthly basis. Tax deductions are determined based on an employee’s annual income, as well as other factors, such as the number of dependents or if the individual is disabled.
The individual income tax rate ranges from 23 to 43 percent of an employee’s salary. The employer must also account for local taxes, which vary depending upon where an employee lives and range between 0.9 and 2 percent. Stakeholders of multinational organizations should keep in mind that the Italian government is currently attempting to revise the taxation law, so the rates may change in the near future.
Social Security Considerations
Similar to the above areas, the total amount of social security contributions the employer deducts from their employees is determined by a number of factors, such as the individual’s job category, business sector and size of the company. All employee contributions are payable as a percentage of each employee’s total gross pay, typically between 8.89 and 9.89 percent, although an additional 1 percent may be added based on the amount of income.
As for the employer, the amount of social security contributions depends on the type and size of the business and the rank of the employee. Aggregate contributions range from approximately 36% to 45% of the aggregate remuneration accrued in the relevant year. The employer will need to ensure that all payments and associated forms are sent to the local Social Security authorities by the 16th of each month. Both employees and employers also contribute to a pension fund at a rate determined by salary.
Overtime & Leave Considerations
A 40-hour workweek is standard in Italy and overtime applies to hours exceeding the 40-hour threshold, at a cap of 8 hours per week and 250 hours per year. Overtime rates and other wage considerations are stipulated under the collective agreements.
Unless collective agreements stipulate more favorable terms for employees, the minimum length of annual “holiday” (vacation) leave is four weeks per year. Employees are entitled to 3 days paid sick leave, 5 months’ maternity leave, and many other potential leave options – spanning adoption, paternity, wedding, and parental leave as well as leave linked to public and/or jury duties, family circumstances or education.
|Date||Italy's Public Holiday Schedule|
|January 1st||New Years Day|
|Monday after Easter Sunday||Easter Monday|
|April 25th||Liberation Day|
|May 1st||Labour Day|
|June 2nd||Republic Day|
|August 15th||Assumption Day|
|November 1st||All Saints Day|
|December 8th||Immaculate Conception Day|
|December 25th||Christmas Day|
|December 26th||St. Stephens Day|
Hiring employees in Italy, and ensuring they receive the proper compensation, is a great challenge for any multinational organization looking to expand its footprint to the country. From providing the necessary documentation of all activities, to ensuring compliance with a range of national and union regulations, conducting payroll operations in Italy can be daunting. However, the companies that utilize a cloud-based global payroll solution backed by in-country subject matter expertise can overcome the complexity of Italian payroll.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.