Payroll in Italy – an introduction
If you are planning to setting up a new company in Italy, you might have started to think about how to organize your payroll. In general, the Italian labor law system can be considered quite complex and full of peculiarities, and it is important to collaborate with a partner that has local expertise and experience that can guide you through the different rules, regulations and procedures.
This document serves to outline some of the basic things you need to know before you start up, or enter the Italian market.
First step – notify the public employment service
The first thing the employer has to do when starting any type of employment is to notify the public employment service (Centro per l’Impiego). This has to be done at least 24 hours prior to the start of the employment. By doing this, the employer fulfills the obligation to notify the relevant social security institutions (i.e. INPS and INAIL), which are mandatory for all employees in Italy.
As soon as a company has registered its operations with the appropriate authorities, it is time to start recruiting the staff. This is when you will get in contact with the Italian employment laws. The italian workforce is represented by various unions and collective labor agreements (CCNL), that depend on the type of job that the employer is expected to perform. These agreements influence the work hours per week, minimum wages, probation periods etc., so it’s a wise choice to define the contract together with a professional as it can have an important impact on your business.
There are different durations of trial periods in Italy, and the length is set in the many different collective agreements (CCNL), depending on the category of the employee. During the trial period, either party (the employee and the employer) may terminate the working relationship at any time, without any notice, obligation or payment of indemnity.
Salaries, contributions and taxes
In Italy, for law and in practice, the payments of salary takes place between the 31st of the current month or the 5th of the following month: i.e. the January salary will be paid on January 31st or February 5 at the latest.
For the payment of contributions and taxes, the deadline is the 16th of every month and the employer must have an Italian current account for the payments.
One particularity is that the salary payments are made 13 times per year, and under some collective agreements even 14 times per year. The 13th must be paid just before Christmas and the 14th (if applicable) is due in July.
Severance payment – TFR
For any termination of the contract of employment, on whatever ground, even for dismissal for just cause or by resignation, the employee is entitled to receive from the employer a severance payment (trattamento di fine rapporto or TFR) which is considered to be a part of salary, set aside every year and kept by the employer (for whom it is an important source of self-financing), The portion to be set aside for TFR annually is determined by dividing the annual remuneration by 13.5.
Read more on TFR here!
Taxes and deductions
In Italy, it is the employer that is responsible to deduct taxes from their employees payslips, and make sure that they are paid on time and to the correct amount.
The deductions are based on different factors like for example the annual income, family allowances, number of dependents or if the individual is disabled.
The individual income tax rate ranges from 23 – 43 % of an employee’s salary.
Lastly there are also local taxes that the employer must take into account. These may vary depending on where an employee lives and can be up to 3,3% on a regional level. There is also a minor municipal tax to be added with a maximum extra 0,8% (in Rome 0,9%).
Social Security contributions
The social security contributions in Italy are paid the national social welfare institution (INPS), and employees can also join private pension funds provided by the National collective agreements (CCNL) to increase their social security benefits. The National Institute for Insurance against Accidents at Work, (INAIL) covers almost all employees for accidents caused in the workplace as well as occupational diseases.
The total social security rate is around 40% of the employee’s gross compensation, divided approximately between Employer (30%) and Employee (10%). The rate depends on the type of work performed by the company, the number of employees and the employee’s position.
A part from the funds covered above, the contributions also cover other funds like unemployment, sickness, maternity, temporary unemployment compensation, social mobility and other smaller funds.
Internago can support you with incorporation in Italy, connecting you with tax experts, bookkeeping as well as handling your payroll. We offer a full payroll solution with local payroll consultants and a web system for an easy workflow of payroll processing.
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This document is only intended to give an overview of the basics of the Italian payroll. Payroll and taxes is a complex area with constant changes and each case should be evaluated carefully. If you want to know more and discuss any particular questions, please contact Internago email: firstname.lastname@example.org and we will be happy to support you.