Hire Employees in Italy – A Guide to Hiring Options, Employment Legislation, and Payroll

Hiring employees in Italy, like the rest of European Union, is strictly regulated, especially regarding foreign workers.

If you want to expand into the country and hire employees, you must be aware of these rules.

We wrote this guide to give you a better understanding of employment laws and options for companies interested in hiring employees in Italy.

hire-employees-italy

 

Requirements to hire employees in Italy

Italy is a leading economy in Europe and a popular choice for foreign companies to establish operations. It offers access to the full EU market, from a centrally located base and with a well-trained and affordable workforce.

This guide will help companies understand Italian employment law and requirements, how payroll operates, and how best to handle their Italian recruitment and employment.

Employment law in Italy is well defined but sometimes difficult to understand. in addition to national employment laws, there are collective bargaining agreements defined for different areas, which can make rules complex.

To hire employees in Italy, a local company is neededThe alternative to setting up a new company is to use a Professional Employment Organization (PEO) on your behalf. Such a company is legally registered in Italy and is able to hire and manage employees. It can also handle payroll, benefits, and tax remittances.

Overview of options to hire employees in Italy

To hire staff in Italy, a foreign company will either need to set up a local EU-based company. Or it can make use of a PEO to hire on its behalf. A combination of the two can be used as well, with a PEO handling staff on either a temporary or long-term basis, leaving the company free to concentrate on other business.

Employment contracts in Italy

Whichever route is taken to hire staff, a suitable employment contract is needed. Under EU law this must be provided in full in writing and must include:

  • Starting date and ay trial/probation duration
  • Expiration date if for a fixed term
  • Salary and benefits and frequency of payment
  • Working hours
  • Vacation entitlement
  • Employee’s duties and the related work “category” as established by the Civil Code

Contracts in Italy are using defined as open-ended for an unlimited duration, although fixed-term contracts can also be given.

The following are the main types of contract that can be defined:

  • Full time, unlimited duration contract. This is the standard contract type used most commonly. Full time is defined as a minimum of 40 hours per week.
  • Part-time contract. This can be defined for any amount under 40 hours, and clauses can be added to make hours more flexible. Pay and other benefits are offered pro-rata based on working hours.
  • Fixed-term contract. This can be defined for any length up to 36 months or extended 5 times up to this maximum length. Renewals after this must have a gap of 20 days (for contracts over 6 months in length).
  • On-Call contracts (“Lavoro a Chiamata o intermittente“). This allows workers to be called in for any duration of work over a specified period of time.
  • Apprenticeship contracts (“Apprendistato“).
  • Temporary agency contract (“Contratto di somministrazione di lavoro”).

Contract law is well defined in Italy. In addition to the strict requirements for contract definition and recording, labor laws also control the use of contract types. In general, the total number of fixed-term contracts issued cannot exceed 20% of the permanent contracts. Fixed-term contracts also cannot be used to replace workers on strike or those involved in collective dismissals.

Companies must also report all employment contracts and their terms to the Insurance Institute, Labor Agency, and social security office.

 

Hiring & employment practice in Italy

Employment law in Italy

Employment is governed in Italy in two main ways. There is legislation established in national law that sets certain minimum standards and rules in several areas that must be adhered to.

The main laws governing employment include:

  • The Constitution
  • The Civil Code (Employment is covered in Section III).
  • Italy is also subject to several EU laws on employment, such as European Union Directive No. 533/91 covering contracts

And in addition to these laws, there are Collective Bargaining Agreements (CBA). These agreements are made between trade unions and employer’s association and set employment terms and conditions on top of anything set in standard law. They cover rates of pay and increases, as well as employment terms such as vacation and sickness. CBAs can make the legal situation very complicated in Italian employment.

CBAs are very common and apply to most workers. They can be set at a national level as well as industry level or even company level. Each company will need to determine (and has the ability to choose) which CBAs it is subject to, but most take part. An EU study into the application of CBAs in 2019 found that 80% of employees were covered at an industry level. This was lower for company levels CBAs at 30% to 40%.

 

Hiring foreign workers

As Italy is in the European Union (EU), workers can be hired from any EU country under the same procedures. If a worker plans to stay for more than three months, registration must be made with the local police office, but no visa is required.

For non-EU workers, a work visa must be obtained, and there is a quota system in place. This is a national system, with numbers reviewed annually. Some workers (such as foreign executives, professional nurses, and university lecturers) are exempt from the quota system but must still meet employment criteria for a visa.

 

Probationary period

Employment law in Italy defines the maximum duration for any probationary period. During this period, both the employer and employee can terminate the contract at any point, without notice or penalty. After this period, standard contract terms and notices apply.

This is defined as:

  • 6 months maximum for executives and high-level employees
  • 3 months for other employees
  • Specific CBAs may define a different period, between 45 days up to 6 months.

 

Working hours

The standard working hours for full-time employees are 40. Hours in excess of this should be paid at overtime rates, usually specified in a CBA.

Italian law classifies workers into four different levels (with each level often further split for treatment under CBAs):

  • Executives
  • Quadri” (roughly equivalent to senior / mid-level management)
  • White-collar workers
  • Blue-collar workers

There is no working hour cap on the top two levels (executives and ‘Quadri’).

 

Annual leave

Italy, like several other European countries, has very generous annual leave benefits for employees.

Employees on full-time contracts are entitled to 20 days of vacation per year. This accrues monthly from the start date. Many employers (including most state employers) offer higher allowances up to 28 days. Some CBAs also specify higher amounts.

Employees also have the right to roll up to two weeks leave over to the next year, if not taken in any one year. Employers cannot force employees to use vacation within the year.

 

Public holidays

Italy has 12 national public holiday days per year. These must be given as non-working days, and most businesses will close on these days (although for some roles, they can, of course, be switched to other days).

There are also certain regional public holidays that are observed in addition to these. For example, in Rome, June 29th is a public holiday (to honor the local Saint Peter and Saint Paul).

 

Sick leave

Sick leave should be paid as followed:

  • Up to 3 days. Paid in full by the employer.
  • From day 4 to day 20. 50% paid by state social security (INPS). The remaining 50% usually paid by the employer as set out by a CBA.
  • From day 21 to 180. 66% paid by state social security (INPS). The remaining 34% usually paid by the employer as set out by a CBA.

Companies are required by law to hold a job position open for a CBA defined retention period (often for 180 days) in the event of illness. After this period, the contract can be terminated using standard termination procedures and payments without a notice period.

 

Maternity leave

Mothers are entitled to five months of maternity leave. Either one or two months can be taken before birth, at the choice of the mother.

Maternity pay is set at 80% of salary and is paid by the state social security provider, INPS. In some cases, as specified by CBAs, the employer has to pay the remaining 20%.

For the father, seven days of paternity leave are offered (at any time within five months of the birth).

 

Minimum wage

There is no countrywide minimum wage set by law in Italy. Italy is one of the few countries in Europe not to define this. However, minimum levels are set for most employees by the various CBAs. These will set the minimum for each industry and each grade of employee.

Where minimum wages are set by CBA, they tend to be around 7 Euros per hour at minimum.

14th month salary

The concept of giving employees an extra one or two months’ pay is common in Italy. This is referred to as a 13th or 14th-month salary. The requirements for this are specified in CBAs.

The 13th-month pay (“tredicesima mensilità“) applies to many workers, including most manual workers. It is usually paid in December, before Christmas.

A 14th-month pay (“quattordicesima mensilità“) applies to certain workers, usually including longer serving staff and executives. It is paid in July.

 

Severance and redundancy

The rules for severance and termination were tightened significantly in 2015. Minimum notice periods are set by CBA and defined for different employee grades and lengths of service. For the highest level managers and executives, serving over 10 years, this is up to 120 days. Lower levels workers with up to 5 or 10 years of service have the lowest minimums of 15 or 20 days notice.

Employers terminating a contract (other than for specified reasons such as misconduct) must offer the following payments:

  • A pro-rata payment to cover all untaken holiday (including for previous years)
  • A termination payment (“trattamento di fine rapporto“) equivalent to 1/13.5 of the annual salary, for each year of service.

payroll-taxes

Payroll, deductions, and taxes in Italy

Italy has a generally high taxation and social contributions system. Like in all European countries, employers should make deductions from employees’ salaries and pay these directly to the appropriate government bodies. This includes both social security taxation, and income tax.

Employers should also note the requirement to pay a fixed fee (termination payment) upon the termination of the contract. This is set a 1/13.5 of the salary for each year. While this does not need to be deducted during the employee’s service, it is good practice to take account of this in company finances.

 

Mandatory deductions: Social security

These need to be paid both by the employee and the employer. The employee contribution should be deducted from salary and paid to the government, and the employer contribution paid in addition to this. Contributions are managed and paid to the Italian Social Security Administration (Instituto Nazionale Previdenza Sociale / INPS).

There are complex determinations of social security deduction. For all employees other than executives (the top grade of the employee), the total contribution is around 40%, split as follows (full details can be found on the INPS website):

  • For employee contribution, the total depends on the grade and category of the employee and the company’s size and business sector. It will be between 9.19% and 10.48% of total salary.
  • The employers contribution varies based on similar factors. It will be between 27% and 28% of the total salary.

Employees classed as executives are treated differently. In this case, social security contributions from the employee will include:

  • INPA contribution of 9.19% on salary up to €47,379 and 10.19% on salary above this.
  • A pension fund contribution of 1% for commercial executives and 4% for industrial executives (up to defined limits).
  • A fixed contribution to a medical care fund (this is around €1,000).

 

Individual income tax

Income tax paid by employees should be deducted from the salary as well. Italy has a progressive scale of taxation, with higher levels of income having higher taxation on that band only.

As of 2020, the income tax rates for all employees are set as follows:

  • 23% up to €15,000
  • 27% from €15,000 up to €28,000
  • 38% from €28,000 up to €55,000
  • 41% from €55,000 up to €75,000
  • 43% over €75,000

 

Regional income tax

In addition to the individual income tax, there is a separate regional tax paid on salary. This varies by region but is between 1.23% and 3.33% of total income. The region is based on the registered residence of each employee.

In addition, some locations impose an additional municipal tax of 0.1% to 0.9%.

hire-employees-usa

 

How to hire employees in Italy without a local entity

The business and payroll situation in Italy is well established but can be quite complex. Despite some indication in recent years that some systems could be simplified (such as minimum wage legislation and income tax levels), this has not happened.

Legislation remains complex, and employment is governed by both national laws and separate CBA rules. Splitting employees into different categories can further complicate this. Companies need to be careful they follow the correct levels set in each area.

Payroll deductions as well are well defined but can be difficult to manage. Again, they vary between employee categories. And there are regional differences too. Especially with relatively high levels of deductions in Italy, it is important to get this right.

Companies, though, do not need to handle this alone. Instead of setting up a new legal entity and managing recruitment and payroll themselves, companies can use a PEO (Professional Employer Organization) solution. Using this model, the company contracts with a qualified specialist company to act as the Employer of Record (EOR) for their Italian employees. This company will then handle the recruitment, payroll determination and management, and required INPS payment and reporting.

Some of the advantages of using a PEO in Italy include:

  • No need to set up a legal entity/company. This is especially beneficial for new companies, getting them into the market quicker.
  • The company maintains day to day control of the employee.
  • Contract structure is important in Italy, and a PEO can help determine the correct contract and contents to use.
  • PEO will handle all paperwork, compliance, payroll administration, and government / INPS.
  • INPS rules and criteria for contributions are complex. The PEO can advise on the best way to handle this when recruiting staff and set up payment correctly.
  • PEO has detailed knowledge of employment and payroll law and procedures and remains up to date with changes. Much of the legislation and government information is only provided in the local language, which should be a consideration for companies.
  • Many PEO providers can also provide employment and payroll services in other countries. Workers can move easily around the EU, and a local PEO can assist with this.