Employer of Record (EOR) in Italy

Employment Contracts in Italy

Employment contracts in Italy are a cornerstone of the employer-employee relationship, shaped by a well-defined legal framework that prioritizes worker rights and benefits. Italian labor laws require contracts to outline key terms like job responsibilities, compensation, and working hours, with added protections for employees through collective bargaining agreements in many industries. Understanding these contractual requirements is essential for both employers and employees, as compliance ensures fair practices and contributes to a secure working environment.

Dependent Employment Relationship (Legislative Decree No. 81/2015)

In Italy, the subordinate employment relationship is characterized by the employee’s obligation to work under the direction of an employer in exchange for remuneration. This relationship is governed by Legislative Decree no. 81/2015, which outlines various forms of employment:

• Permanent Employment Relationship: This is the most stable employment form, characterized by its indefinite duration. It can only be terminated for justified reasons or good cause.
• Fixed-term Employment Contract: This type of contract has a maximum duration of 12 months but may be extended to 24 months under specific conditions such as:
  • Temporary and objective needs unrelated to regular business activities.
  • Replacement of absent employees.
  • Unpredictable, significant increases in normal activity.
• Part-time Work: Employees may also work part-time under either a permanent or fixed-term contract. Part-time arrangements can be:
  • Horizontally: Working fewer hours each day.
  • Vertically: Working full-time only on certain days.
  • Mixed: A combination of both approaches.
• Apprenticeship Training: This is a subordinate contract aimed at training young individuals, divided into three types:
  • For professional qualifications and diplomas for ages 15-25.
  • Professional apprenticeships for ages 18-29.
  • Further education and research training for higher qualifications for ages 18-29.
• Intermittent Employment Contract: This fixed-term or open-ended contract allows employees to work on an intermittent basis as per the employer’s needs, applicable mainly to individuals under 24 or over 55. There are limits on total workdays.
• Temporary Employment Contract: This involves a tripartite relationship where an authorized agency (employment agency), a company (user), and the employee (temporary worker) are involved. It includes both a commercial lease agreement and an employment contract.

Semi-Subordinate Employment

Parasubordinated work represents a hybrid employment model situated between subordinate employment and self-employment. This type of work allows for continuous collaboration that is coordinated with the employer’s organizational structure but does not establish a direct subordinate relationship. It enables flexibility while still ensuring some level of integration within the employer’s operations.

Independent Work

Self-employed individuals operate independently, providing services to clients without entering into a subordinate relationship. The primary types of self-employment in Italy include:

• Employment Contracts with VAT Number: This arrangement applies to professionals who issue invoices for their services.
• Occasional Service Contracts: These are limited engagements where individuals may earn up to €5,000 annually from a single client or cumulatively from multiple clients without establishing a formal contract.

Conditions and Provisions of Individual Employment Contracts According to Italian Law (Contratto di Lavoro in Italia)

The individual employment contract in Italy, as defined under Article 2099 of the Civil Code, entails the employee’s commitment to work under the employer’s supervision for remuneration. For a contract to be valid, the following elements must be present:

• Consent of the Parties: Both employer and employee must have the legal capacity to enter the agreement, typically attained at the age of 16. The consent must be free from error, coercion, or fraud.
• Lawful Purpose: The purpose of the contract must be legal and adhere to public policy and morality.
• Description of Activity: The contract must clearly outline the job description, ensuring that it is:
  • Lawful: Complying with existing laws.
  • Possible: Feasible based on the employee’s qualifications.
  • Determined or Determinable: Clearly defined or able to be defined by reference to collective agreements.
• Favorable Conditions: The contractual conditions must not be less favorable than those stipulated in national collective agreements (Contratti Collettivi Nazionali di Lavoro, CCNL).

Italian Employment Contract Concludes

Typically, prior to formal employment, the employer issues a “letter of hiring,” which serves as a commitment to the employee. This letter must include crucial information such as:

• Identification of the parties involved.
• Job location and start date.
• Job classification and description.
• Details on the probationary period, salary, holidays, working hours, and notice periods.

While a written contract is preferred to ensure clarity, in the absence of such documentation, the employer bears the responsibility to prove the contract’s content.

The Collective Labor Agreement (CCNL) and Its Impact on Employees, Regardless of Union Membership

In Italy, the CCNL serves as a key instrument regulating employment conditions. While primarily impacting union members, case law has extended its benefits to all workers based on Article 36 of the Constitution, which guarantees sufficient remuneration for a dignified life. This principle mandates that employers cannot pay less than the minimum standards established in the CCNL, thereby safeguarding worker rights and ensuring fair labor practices.

Working Hours

The standard working time is established at 40 hours per week. However, collective labor agreements may specify a shorter duration and link the normal working time to the average hours worked over a period not exceeding one year.

Probation Period

In Italy, as in many countries, the duration of the probation period can vary based on the employee’s employment status. For executives, the maximum probation period is six months, while for non-executives, it lasts up to three months.

13th Month Salary

In Italy, the 13th-month salary is a legal entitlement for many employees, representing a significant benefit offered by numerous companies. This additional payment, known as the tredicesima, is typically disbursed around the Christmas holidays and equates to one extra month’s salary at the end of the year.

The amount of the tredicesima is calculated based on the employee’s actual working days accrued as deferred remuneration. The formula for determining this bonus is:

Tredicesima = Gross monthly salary x Number of months worked ÷ 12

Termination, Severance Pay, and Notice Period

Severance Pay

According to Section 2120 of the Italian Civil Code, employees are entitled to receive a severance indemnity, known as Trattamento di Fine Rapporto (TFR), upon termination of their employment, regardless of the reason for the termination. The amount of TFR is based on the employee’s salary and length of service, calculated as approximately 7.4% of the total salary earned throughout the employment period.

Notice Period for Redundancy

The notice period an employer must provide before making an employee redundant is determined by the applicable collective bargaining agreement (CBA). Notice periods are calculated in calendar days, beginning on the first and sixteenth days of each month. The following notice periods apply:

For employees with up to 5 years of seniority:

• Quadri and Level I: 60 days
• Levels II and III: 30 days
• Levels IV and V: 20 days
• Levels VI and VII: 15 days

For employees with over 5 years and up to 10 years of seniority:

• Quadri and Level I: 90 days
• Levels II and III: 45 days
• Levels IV and V: 30 days
• Levels VI and VII: 20 days

For employees with more than 10 years of seniority:

• Quadri and Level I: 120 days
• Levels II and III: 60 days
• Levels IV and V: 45 days
• Levels VI and VII: 20 days

Overtime Pay

Employers are required to compensate employees for any overtime hours worked, as specified in the employment contract and the collective bargaining agreement (CBA). Typically, this compensation includes an increase of 15% to 50% on the employee’s standard hourly wage. In Italy, employees are limited to a maximum of 250 overtime hours per year.

Employees vs Independent Contractors

In Italy, the distinction between employees and contractors is crucial for understanding workers’ rights, obligations, and benefits. While both groups contribute to the workforce, their working conditions, relationships with employers, and legal entitlements differ significantly. This overview aims to clarify these differences by comparing key aspects of employees and contractors in Italy, enabling better insights into the implications of each classification.

Social Security in Italy

Social security in Italy is a comprehensive system designed to provide financial protection to individuals against various life risks such as unemployment, illness, disability, and retirement. The Italian social security system is primarily governed by the National Social Security Institute (Istituto Nazionale della Previdenza Sociale – INPS), which oversees the collection of contributions and distribution of benefits.

Structure of the Social Security System

Mandatory Contributions

• Social security contributions are compulsory for both employees and self-employed individuals. These contributions ensure that workers are insured against events that could prevent them from performing their work, such as illness, disability, or retirement.
• Contributions are paid periodically and can be deducted from salaries for employees, while self-employed individuals must manage their own payments.

Contribution Allocation

• For employed workers, the employer pays a significant portion of the social security contributions, typically covering about one-third of the total contributions. The remaining two-thirds are deducted from the employee’s salary.
• Self-employed workers are responsible for paying their contributions directly to INPS based on their income, ensuring they meet the established deadlines.

Benefits Provided

The contributions collected fund a variety of benefits, including:

• Pensions: Social security contributions play a crucial role in providing retirement benefits, calculated based on the total contributions made over an individual’s working life.
• Sick Leave and Maternity Pay: Workers are entitled to benefits during periods of illness or maternity leave, allowing them to maintain some income during these times.
• Unemployment Benefits: The system provides financial assistance to individuals who lose their jobs, helping them during periods of unemployment.

Contribution Calculation

The amount of social security contributions is determined by several factors, including:

• Type of Employment: Employees and self-employed individuals have different contribution rates. For instance, employees typically contribute around 33% of their gross salary, while self-employed contributions can vary based on income and the type of professional pension fund they belong to.
• Minimum Wage Regulations: Contributions cannot be lower than those calculated on the minimum wage required by law, ensuring that all workers receive a fair level of coverage.

Payment Deadlines

• For Employees: Employers must remit social security contributions by the 16th of the month following the pay period. This ensures timely payments and avoids penalties for late contributions.
• For Self-Employed Workers: Payments are made directly by the workers, with specific deadlines set throughout the year, such as May 16, August 20, November 16, and February 16 for fixed contributions, and on June 30 and November 30 for income-based contributions.

Importance of Supplementary Pensions

Given the evolving nature of public pensions and the increasing uncertainty surrounding retirement income, many Italians are encouraged to consider supplementary pension options. These additional plans can help bridge the gap between expected retirement income and actual living expenses, ensuring financial stability in retirement.

Payroll in Italy

Italy has a comprehensive regulatory framework governing employment, payroll, social security, and benefits. This framework ensures compliance with national laws and protects the rights of employees while providing businesses with clear guidelines on their obligations. Below is an overview of the key requirements and processes involved.

Government Requirements

Registration Requirements

Chamber of Commerce and Tax Office

• All businesses intending to provide services, engage in sales, trading, or manufacturing must register with the Chamber of Commerce. This registration is essential to obtain a VAT number, which serves as a unique identifier for the company in dealings with national authorities, tax payments, and social security contributions.
• Failure to register, or late registration, may lead to penalties.

Social Security Authority (INPS):

• Companies planning to hire employees must register with the Istituto Nazionale della Previdenza Sociale (INPS) to obtain a registration number. This number enables INPS to track the company’s social security contributions for employees.
• Registration should occur immediately after hiring the first employee, and different contribution rates apply based on the company’s sector and employee classification (white or blue-collar, executives, expatriates, etc.).

Labor Office (Centro per l’Impiego):

Companies must also register with the Labor Office to receive a username and password for submitting notifications related to employee hiring and terminations.

Mandatory Notifications:

• Hiring Notifications: Must be submitted electronically through the Labor Office portal by the day before employment begins.
• Termination Notifications: Must be submitted electronically within five days after the end of employment. Late notifications can incur penalties.

Insurance Against Workplace Injuries (INAIL):

• Before commencing work activities with employees, companies must register with INAIL to obtain a registration number that identifies the company and each workplace.
• Companies are assigned a specific risk classification and contribution rate, which ranges from 0.4% to 9% of the gross salary, based on the type of activities performed.
• Both late registration and late payment of premiums result in penalties.

Ongoing Compliance Requirements

Payment of Withholding Taxes:

• Employers are responsible for withholding income taxes from employees’ salaries on a monthly basis, calculated according to income levels, ranging from 23% to 43%.
• Regional and municipal taxes are also applicable based on the employee’s residence. Benefits in kind, such as company cars or gifts, have a tax-free limit of €258.23 per year, with an increased limit of €3,000 for employees with dependent children for the 2023 tax period.

Annual Income Certification:

• At the end of the fiscal year or upon employment termination, employers must calculate the balance of taxes owed based on actual income paid. This process occurs in December, with any overpayments refunded or underpayments withheld during payroll.
• By March 16 of the following year, employers must issue the “Certificazione Unica” (CU), detailing income paid, taxes withheld, benefits in kind, and severance indemnity.

Annual Statement of Tax Withheld (770 Form):

• Withholding tax agents must electronically submit the 770 form, detailing taxes withheld and paid on behalf of employees, typically by the end of October of the following year. Late submissions incur penalties.

Payment of Monthly Social Security Contributions:

• Employers must pay social security contributions to INPS monthly using the F24 form. Employee contributions are approximately 10% of gross salary, while employer contributions range from 27% to 31%. Late payments result in penalties.

Pension Requirements

• Registration with Integrative Health Funds: Companies and employees can opt to register with integrative health funds, which supplement the national healthcare system. These can be open (accessible to all) or closed (specific to certain sectors or NCLAs).
• Registration with Integrative Pension Funds: Similar to health funds, integrative pension funds provide additional retirement benefits. Registration follows the regulations of the applicable NCLA.
• Ongoing Compliance for Pension Contributions: Contributions to health and pension funds are deducted through payroll, with payment schedules varying by fund regulations (monthly, quarterly, or annually).

Employment Obligations

• Minimum Salaries: National Collective Labor Agreements (NCLAs) establish minimum salaries based on employee rank (executive, manager, etc.). Employers must adhere to these minimums and provide periodic salary increases as stipulated.
• Severance Indemnity (TFR): The Trattamento di Fine Rapporto (TFR) is a severance payment accrued monthly and paid out upon termination of employment. It amounts to approximately 7% of the gross salary and may include other bonuses or benefits.
• Mandatory Hiring of Disabled People: Companies with more than 15 employees must hire one disabled individual for every 15 employees, with increasing ratios for larger companies.
• Gender Equality Report: Companies with over 50 employees must submit a biannual report on gender equality within the workforce, due by April 30 of the year following the reporting period.
• Declaration of Regular Contributive Position (DURC): Companies must maintain a DURC certificate, proving compliance with social security contributions, to be eligible for subsidies and contracts with public and private entities.

Payroll Requirements

• Monthly Payroll Processing: Payroll is processed monthly, with employees typically receiving their salaries through 13 or 14 installments, depending on NCLA provisions. The most common payment date is the 27th of each month.
• Pay Slips: Employees must receive pay slips on the same day as salary payments, with the option of electronic delivery. Some roles may have different pay frequency arrangements, agreed upon in advance.

Banking Requirements Related to Payroll

Salary Payment Methods

• Net salaries can be paid via check, money order, or electronic funds transfer, with bank transfers being the most common method.
• An Italian bank account is required for paying taxes and social security contributions.

Personal Income Tax in Italy

The Personal Income Tax (PIT), known as Imposta sui redditi delle persone fisiche (IRPEF) in Italian, is a key component of the Italian tax system. It is levied on the income of individuals, encompassing various sources of income, and is characterized by a progressive tax rate structure.

Tax Structure

Tax Rates

The PIT is applied at progressive rates, meaning that higher income levels are taxed at higher rates. For the fiscal year 2024, the rates are as follows:

• 0 to 28,000 EUR: 23%
• 28,001 to 50,000 EUR: 35%
• Over 50,000 EUR: 43%

Calculation of Taxable Income:

Taxable income includes various types of income, such as:

• Employment income
• Business income
• Income from property (e.g., rental income)
• Capital gains
• Foreign income (for tax residents)

Tax Residents vs. Non-Tax Residents:

• Tax Residents: Individuals who reside in Italy are taxed on their worldwide income. This includes income generated both domestically and abroad.
• Non-Tax Residents: Individuals who do not reside in Italy are taxed only on income produced within Italy (e.g., income from employment performed in Italy).

Additional Tax Considerations

• Wealth Tax: Tax residents are also subject to a wealth tax on real estate and financial investments held outside of Italy. This includes a requirement to declare all foreign investments in their Italian tax return.
• Tax Regime for Neo-Domiciled Individuals: Individuals transferring their tax residency to Italy may opt for a flat substitutive tax of €100,000 on foreign income. Family members may also qualify for a lower rate of €25,000. Eligibility requires prior non-Italian residency for at least nine out of ten years.
• Additional Tax on Variable Compensation: Variable compensation for executives in the financial sector is subject to an additional 10% tax. The taxable base is calculated based on specific guidelines depending on the timing of the compensation.
• Productivity Bonus: A productivity bonus paid to employees is subject to a 5% substitutive tax for FY 2024 (reduced from 10%). The bonus cannot exceed €3,000 per year and requires specific eligibility criteria, including gross annual earnings not exceeding €80,000.

Regional and Municipal Income Taxes

In addition to the national income tax, individuals are also subject to:

• Regional Income Tax: Ranges from 1.23% to 3.33% depending on the region of residence.
• Municipal Income Tax: Ranges from 0% to 0.9%, with municipalities having the authority to set progressive tax rates based on income levels.

Filing Requirements

• Tax residents must file an Italian tax return annually, declaring all sources of income, both domestic and foreign.
• Non-residents are only required to report income sourced in Italy.

Employee Benefits in Italy

Italy, with its complex labor laws and diverse workforce, offers a variety of employee benefits that are essential for attracting and retaining talent. At Mercans, we understand the importance of navigating the intricacies of employee benefits in Italy, which can vary based on sector, employee demographics, and regional regulations. Here’s a comprehensive overview of the employee benefits landscape in Italy.

Mandatory Employee Benefits

In Italy, certain benefits are mandated by law and are applicable to all employees. These include:

• National Health System (Servizio Sanitario Nazionale – SSN):
  All Italian citizens, including employees, are entitled to healthcare services funded through contributions from both employers and employees.
• Pension Contributions:
  Employees are required to make pension contributions that can differ by profession or activity type. These contributions support the national pension system and are shared between employers and employees.
• Workplace Accident Insurance:
  Employees must be covered by state-mandated insurance for workplace accidents, managed by the Istituto Nazionale per l’Assicurazione contro gli Infortuni sul Lavoro (INAIL). This insurance holds employers accountable for accidents caused by negligence.
• Sickness Benefits:
  Employees are entitled to short-term sickness benefits:
  • The first three days of sick leave are paid by the employer (up to five instances per year).
  • From days 4 to 21, employees receive 50% of their salary, with different rules applying thereafter.
• Sector-Specific Requirements:
  Individual labor contracts in specific sectors may impose additional mandatory benefits, such as specialized insurance coverage.

Supplementary Employee Benefits

In addition to mandatory benefits, many employers in Italy provide supplementary benefits, often guided by collective labor agreements specific to their industry. These benefits enhance employee satisfaction and contribute to a competitive employment package.

Key Sectors Influencing Employee Benefits:

• Manufacturing: Includes sectors like pharmaceuticals.
• Commerce: Encompasses technical services and IT.

Employee Groups Impacting Benefit Design:

• Executives
• Middle Managers
• Employees
• Blue-Collar Workers

Sector-Specific Benefits

Executives

• Industrial Sector:
  • Life Insurance: Coverage of €200,000 for singles and €300,000 for those with families.
  • Personal Accident Insurance: Coverage of 5 times the annual gross salary (AGS) for death and 6 times for permanent disability.
  • Medical Insurance: Enrollment in the FASI fund for medical expenses.
  • Retirement Plans: Employers with over 50 employees must contribute to the TFR (severance fund) into a pension fund or INPS.
• Commerce Sector:
  • Life Insurance: Amounts vary based on age and gender.
  • Medical Insurance: Enrollment in the FASDAC fund.
  • Retirement Plans: Employers contribute 15.17% of AGS, capped at €59,224.54 for 2023.

Middle Managers, Employees, and Blue-Collar Workers

• In both sectors, there are generally no mandatory provisions for life, personal accident, or long-term care insurance. However, pension contributions to the TFR or other pension funds are required for companies with over 50 employees.

Importance of Collective Agreements

Collective labor agreements are crucial in defining employee benefits across various sectors in Italy. These agreements ensure that employees receive fair treatment and adequate compensation tailored to their specific roles and industries. Employers must stay informed about the relevant agreements affecting their workforce to ensure compliance and competitiveness in the labor market.

Work Permit in Italy

If your company is expanding its operations into Italy, understanding the work permit process is essential for successfully relocating employees or hiring new talent. Italy has specific requirements and regulations that must be adhered to for foreign workers to legally live and work in the country.

Types of Work Permits

In Italy, foreign nationals typically require a Nulla Osta, a type of work permit that allows non-EU, EEA, and Swiss citizens to work in the country. Citizens from EU member states enjoy the benefit of working in Italy without a permit.

Requirements for a Work Permit

To obtain a work permit in Italy, employees must have a confirmed job offer. The employer is responsible for initiating the application process, which includes securing the Nulla Osta. Here are the key requirements:

• Job Offer: Candidates must have a job offer in Italy before applying.
• Supporting Documents: The employee will need to provide various documents, including:
  • A signed employment contract.
  • The original and a copy of the Nulla Osta.
  • A valid passport (with at least two blank pages).
  • Recent passport-sized photos.
  • A completed long-stay visa application form.
  • Proof of accommodation in Italy.
  • Proof of payment for the visa fee.
  • Relevant diplomas and certificates.
  • International medical insurance with a minimum coverage of €30,000.
• Application Process: The employer must apply for the work permit at the immigration office in the relevant Italian province. Once approved, the employer can forward the necessary documentation to the Italian embassy or consulate where the employee will apply for the work visa.

Duration and Renewal

The work permit is typically valid for up to two years, depending on the employment contract, and can be renewed for a maximum of five years. After arriving in Italy, employees must also apply for a permesso di soggiorno (residence permit) within eight days.

Additional Considerations

• Quota System: There is a set quota of work permits issued each year, with a recent increase from 69,700 to 82,705 permits available for non-EU nationals.
• Highly Skilled Workers: Certain categories of highly skilled workers may be exempt from these quotas but must still comply with the application process.

Get Professional Assistance

Navigating the intricacies of work permits in Italy can be complex and time-consuming. That’s where Mercans comes in. Our team of experts can assist your organization with the entire process, ensuring compliance with all regulations and streamlining the transition for your employees. Whether you’re relocating existing staff or hiring new talent, Mercans can provide the support you need to facilitate a smooth and efficient move to Italy.

EOR Solutions in Italy

• EOR Services for Employees: Mercans offers best-in-class Employer of Record (EOR) solutions in Italy, streamlining the employment process from candidate selection onward. Our services encompass payroll, benefits, tax compliance, and HR administration, ensuring a compliant and efficient transition. With a solid understanding of Italian labor regulations, we handle contracts, salaries, and benefits seamlessly, so you can focus on growing your team with confidence.
• EOR and Recruitment Assistance: Mercans provides unmatched EOR solutions across Italy, simplifying the hiring and onboarding process for top talent. Our dedicated team manages all stages, from candidate selection to integration, handling essential functions like contracts, payroll, benefits, tax compliance, and HR administration for a hassle-free onboarding experience.
• Expedited Visa Sponsorship and Mobility: As part of our EOR solutions, Mercans facilitates visa sponsorship for expatriates and oversees global mobility in Italy. Our expertise streamlines the visa process and ensures compliance with Italian immigration regulations, creating a smooth transition for expatriate employees to join your team efficiently.
• Agent of Record (AOR) in Italy: Serving as an Agent of Record (AOR), Mercans offers compliant, documentation-ready contractor payment solutions across Italy. Our EOR expertise ensures efficient, legally compliant transactions, making us the trusted choice for contractor payments.
• Transitioning Independent Contractors to Employees: Mercans’ EOR services in Italy support companies in converting independent contractors to permanent employees, handling the intricate regulatory aspects smoothly. Our technology-driven, efficient solutions focus on compliance and accuracy for a seamless employment transition.
• HCM Integration: Integrate Mercans’ EOR services with your Human Capital Management (HCM) systems in Italy, facilitating real-time data flow, enhanced compliance, and cost-effective operations. Our integration support enhances workforce management and payroll processes.
• Employment in Italy: Italy’s employment market, with its unique regulations and evolving landscape, requires insight and precision. With Mercans’ EOR solutions, you gain comprehensive support in understanding Italy’s labor laws, including complex compliance and regulatory matters.
• Differentiating Employees and Contractors: Precision in distinguishing employees from independent contractors in Italy’s EOR landscape is vital. While employees under EOR enjoy labor protections, including tax and insurance management, independent contractors operate autonomously without employment benefits. Mercans’ EOR services provide comprehensive support and precise workforce classification, helping you navigate Italy’s labor regulations.
• Hiring and Recruitment Solutions in Italy: To facilitate hiring in Italy, Mercans offers a tailored recruitment solution to streamline sourcing, assessment, and onboarding. Our tool ensures a compliant, efficient recruitment experience in Italy’s competitive job market, especially within in-demand fields like sales, IT, finance, and marketing.