Italy Payroll and Benefits Guide

What global businesses need to know about doing business in Italy

Italy is the land of Renaissance art, the birthplace of the Roman Empire, and the home of the Prancing Horse of Ferrari. What’s more, the opportunities for foreign businesses there are just as mouth-watering as the pizza and pasta for which the country is famed.

The strength of the Italian economy has had its ebbs and flows in the last 15 years – thanks in no small part to the global economic crisis and the COVID-19 pandemic. However, it still generally ranks within the top ten of world economies, and is normally fourth in Europe behind Germany, the United Kingdom, and France. Add this to European Union membership and high levels of education and skills in the workforce, and it’s easy to see why Italy is such an attractive place to do business.

It’s worth noting that the Italian economy is divided along geographical lines to a substantial extent. Wages and prosperity are generally much higher in the north, where a service-driven economy dominates. Further south, agriculture still dominates, along with the tourism that warmer weather brings.

Meanwhile, it’s also important to remember that there are many different administrative factors to take into account when expanding into Italy, especially from a payroll perspective. Tax rates and labor costs can be high, and working regulations can be complex. This guide gives you all the key facts and information.

Getting Started

Though setting up a business in Italy takes a few more days than some other European countries, it has become easier and the time frame involved for incorporation can be as little as 15 days from the start of the process. However, due to Brexit, any British nationals who were not living in Italy before 1 January 2021 must now apply for a business visa before being able to start a business in the country. This is also the case for anyone from outside the EU or European Free Trade Association (EFTA) area.

You can register as one of three types of company; a limited-liability company (SrL), joint-stock company (SpA) or a branch. There are a variety of features attributed to each type of company so it’s important to work out which one is best-suited to your business. Setting up a business bank account is mandatory in Italy for incorporated companies.

You will need to execute deeds of incorporation and company by-laws before a notary public. You must also register with the Tax Agency (Agenzia delle Entrate), Labor Office (Provincia), Social Security Institute (INPS) and Insurance Institute (INAIL). You will also be required to deposit the appropriate documents to the Register of Enterprises, purchase corporate and accounting books, and obtain a fiscal code and VAT number. 

Employment Considerations

Employment law in Italy is complicated for two reasons. The first is that it’s based on a system that combines EU regulations with Italian-specific legislation, and the second is that union activity and collective bargaining are very strong in Italy. As a result, the statutory rules that are in place can often vary substantially, depending on the industry involved and the result of negotiations.

There is no cap by law on working hours in Italy, but 40 hours is considered the standard and 48 the maximum. Overtime pay is determined by collective bargaining agreements, and is normally between 115% and 150% of normal salary. There is, however, a legal limit on overtime hours of 250 a year.

There is no legal requirement for a written employment contract: however, in the absence of one, an employee must receive a written statement of their basic working information within 30 days of starting work. Probation periods are generally three months, rising to six months for those with managerial responsibilities, but again can be varied through CBAs. Notice periods are 30 days for employees and 60 days for managers (although managers who resign can reduce this to 45 days.)

Compensating, Bonuses and Severance

Italy is one of the few countries in Europe where there is no statutory minimum wage. As a result, many low-paid workers (especially in the south) are often paid as little as €7 per hour (approximately £6.20; $7.50). Collective bargaining therefore tends to set rates of pay at industry or even individual company levels, and these rates tend to get legal recognition in courts if disputed.

Equally, when it comes to payroll frequency, there are no specific laws. Instead, this is often determined by the various unions and collective agreements for each position. Typically, 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. A 13th-month bonus (and sometimes even a 14th-month bonus if agreed in a CBA) is common in Italy, but not a legal requirement.

Severance pay is awarded, irrespective of the reason for the termination. For each year worked, the payment is the annual salary divided by 13.5. Pro-rata payments for incomplete years, and payment in lieu for unused paid leave should be added to this. Once termination has been set, the employer is responsible for making all of the necessary entries in the employee’s employment record and providing that employee with a copy of their income tax declaration. It is then the employer’s responsibility to notify all relevant bodies, including the local employment office (within five days of termination) and the National Social Insurance Institute.

Tax and Social Security

The employer is responsible for deducting taxes from their employees’ pay and submitting those deductions to the proper tax authorities on a monthly basis. The annual income of the employee determines the appropriate level of tax deduction, as well as other factors including whether or not the employee is disabled or has any dependents.

Income tax rates for individuals ranges from 23% to 43% of an employee’s salary and is broken down as follows:

23% up to €15,000 (approx. £13,200; $16,200)
27% from €15,000 up to €28,000 (approx. £24,800; $30,200)
35% from €28,000 up to €50,000 (approx. £44,100; $53,900)
43% over €50,000

There are also regional income taxes the employer must also account for, which are subject to variation, depending upon where an employee lives. This ranges from 1.23% to 3.33%.

Social security contributions in Italy are between 29.32% from employers, and 10% from employees. Employers should also pay 0.4% to cover insurance for injuries sustained at work. 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.

Holidays and Leave

There are 12 public holidays in Italy, which are not included in the minimum holiday entitlement. Unless collective agreements specify more favorable terms for employees, all employees are entitled to a minimum of four week’s paid holiday/vacation time per year. There is no unpaid entitlement, unless a collective bargaining agreement specifies otherwise.

Employees are entitled to three days of paid sick leave (covered entirely by the employer), which is subject to a doctor’s notice. This applies to the first two periods of sick leave within a year: rates reduce to 66% on the third occasion and 50% on the fourth. Any further periods of sick leave, or any sick leave beyond three days, is unpaid.

The allowance for maternity leave is five months: this is taken two months prior to the expected date of childbirth and the three months following. Maternity pay is 80% of salary, and while employers should cover this, they can get this reimbursed from the authorities. Paternity leave has recently been increased to ten compulsory days on full salary. Additionally, any employee can take unpaid parental leave for up to a maximum of ten months.

In Summary

After continuing reform, Italy is ranked eighth in the world for market confidence and fourth in the EU, showing the world that success is part of the Italian strategy. As with taking business into any country, however, there are challenges. Alongside a heavy tax system, unemployment is high and further reform is inevitable. That’s why it’s more important than ever that you have a global payroll solution to navigate you through the complexities ahead and help make your expansion into the country as smooth as possible.

This guide 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. Click here to see more country payroll guides from CloudPay.

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