The Italian Tax Authority, through its answer to question no. 550/2020 published last 23 November, provided its position, within the more general area of detaxation of the performance bonus, regarding achievement of increasing objectives set by the employer as a condition for distributing a detaxed performance bonus and, specifically the time to verify achievement of the same.
in terms of this specific favourable taxation regime that governs distribution of the performance bonus, the tax authority first stated that this procedure was introduced by Italian Law no. 208 of 28 December 2015 (2016 Budget Law), article 1, paragraphs 182 to 189. It introduced a procedure in the tax regime, starting from the 2016 tax period, for preferential tax treatment consisting of application of a substitute tax for IRPEF (Italian income tax) and relative surcharges of 10% for “performance bonuses of variable amount, with consideration tied to increases in productivity, profitability, quality, efficiency and innovation, measurable and verifiable based on criteria defined with the decree as per paragraph 188”, or with the decree issued by the Ministry of Labour and Social Policies on 25 March 2016.
Among other things this law established that level II collective contracts or trade unions agreements must include measurement and verification methods of increases in productivity, profit, quality, efficiency and innovation, by identifying some measurement criteria for incremental indexes that must be proportionate to the bonuses. In terms of the period included in the contract (so-called “adequate period”), or the maturity of the bonus, it is thus necessary that “an increase of one of the indicated objectives, constituting the requirement for application of the preferential tax treatment”.
Therefore, the Tax Authority underlines that it is not sufficient that the objective set by the company contract be reached, since it is also necessary that the result achieved by the company is “an increase compared to the result before the start of the bonus maturity period”: the increase requirement, measured by the “comparison between the value of the objective reported at the start of the adequate period and that resulting at the end of the same”, thus constituting an essential characteristic of the tax relief.
The facts described in the case in question involved an employer apply ordinary taxation to the performance bonus paid to employees, despite the fact that a regular company contract had been stipulated previously aimed at normalising the tax relief of the bonus and determining the necessary measurement methods for the indicators used. In detail the petition – employee of the company in question – informed the Tax Authority that the supplemental level II contract was stipulated on 1 October 2019, identifying in the sum of gross profit of two companies belonging to the same group as the parameter for measurement of the profit objective to reach in 2019, in order to pay the variable performance bonus and apply the tax benefit envisaged for the following year.
The claimant represented how this bonus, paid with the pay slip of July 2020, was subject to ordinary taxation based on the assumption that on the date the second level supplemental contract was signed (1 October 2019) there were no doubts about reaching the profit objective measurable with the parameter identified in the contract, or that the total gross profit at 31 December 2019 would be higher than that reported in 2018. In this regard, the worker felt that the companies, when the supplemental contract was signed, could only possess knowledge of the figures relative to the first half of 2019, which show a gross profit well below the annual objective set in the company agreement. Therefore, the claimant believed that the two companies, at the time the agreement was signed, could have presumed that the 2019 figure would be higher than the 2018 one was only their point of view. And, based on this, concluding that there is a right to detaxation of the sums paid by the company
In terms of the facts in question, the Tax Authority explained how the law – in addition to the abundant practices resulting over time – had envisaged how the measurement methods must “be determined with a reasonable lead time compared to a possible future productivity not yet realised”. This circumstance is to be considered in an absolute sense and not as necessarily anchored to a specific time reference.
Generally, the Tax Authority considered that the favourable tax regime is applicable only when the company agreement states that achievement of the increased objective is effectively uncertain on the date it is signed, for example because the trend of the adopted parameter at the time of negotiation was subject to variations.
If this does not occur, for example because the company – as in the case in hand – inferred the trend of the economic results thanks to reliable indicators “suitable for assessing the trend of the economic results achieved up to a certain time and to obtain projections for the end of the specific financial year”, then application of the tax relief on the paid performance bonus would not be legitimate, since it was lacking the requirement of uncertainty of achieving the company objective at the time the agreement was stipulated.
The Tax Authority concluded by affirming that such assessments, even if they are marked by a predictive nature and can be influenced by external or internal factors, have however been carefully estimated by the substitute tax, that thus – acting correctly – did not apply the 10% taxation to the amount of the bonus paid.
The National Inspectorate of Labour, with the note no. 1057/2020, has provided clarifications on the conditions to enter and reside in Italy as part of “Intra-Corporate Transfers” or “ICT”) for non-EU workers, under art. 27-quinquies of Legislative Decree no. 286/1998, also known as the “Consolidated Immigration Act.”
Specifically, this provision, with Legislative Decree no. 253/2016 introduced into our legal system the implementing Directive 2014/66/EU, which governs the entry into Italy of executives, specialised workers or workers undergoing training to perform their work under employment contract following intra-corporate transfers, outside the quotas under Art. 3, paragraph 4, of the Consolidated Immigration Act.
Definition of intra-corporate transfer
The Inspectorate wishes to clarify intra-corporate transfer, which is defined as “the temporary transfer of a foreigner by a company established in a third-party country to the host entity, understood as:
It has been clarified how the host entity may coincide (i) with the headquarters, branch or representative office located in Italy which belongs to the company for which the employee works, or, alternatively, (ii) with a company belonging to the same group, given that the employee is required to have a minimum seniority at the parent company.
Conditions imposed on the host entity
The Inspectorate notes how the system requires the Italian host entity to be subject to “a series of conditions, in the absence of which the authorisation is refused or revoked, including the commitment to comply with social security and welfare obligations under Italian law, unless there are social security agreements with the country of origin (paragraph 5, letter h).”
According to the Inspectorate, it is necessary to carry out checks on the host and the parent company’s financial capacity and check that the latter can make up for the branch’s social security and welfare obligations financial failure. The Inspectorate mentions that the group’s consolidated balance sheet, translated into Italian, is a useful document to confirm the group’s adequate financial resources.
The underlying aim is to confirm that the host company has not been created “for the sole purpose of facilitating the entry into Italy of workers under intra-corporate transfer,” or if it is subject to liquidation proceedings, or has been liquidated, or does not carry out any actual financial activity.
Paragraph 15 of Article 27-quinquies introduces “cases of refusal or revocation of authorisation, for example, when the host entity has been established for the sole purpose of facilitating the entry of these workers.” It requires the necessary controls by the regional Inspectorates when the Immigration Office’s opinion is issued.
These checks cannot refer only to the analysis of the documentary data of the Italian host company turnover but must be extended to the inspections which ascertain “the effective carrying out of the company financial activities.”
In circular no. 133 of 24 November 2020, INPS provided clarifications for the correct management of the contribution exemption under art.6 of Decree Law no. 14 August 2020 no. 104 ( “August Decree”), converted, with amendments, by Law 13 October 2020 no. 12.
Regulatory references
Art. 6 of the August Decree introduced an exemption from the payment of social security contributions by employers, except for those in the agricultural sector, when hiring employees under a permanent contract (including part-time) between 15 August and 31 December 2020. Workers must not have had a permanent relationship with the same employer in the six months before their recruitment.
The exemption applies when a fixed-term employment contract is made permanent during the above period, and for hires under a permanent contract for employment agencies. The exemption does not apply to workers under an apprenticeship or a domestic work contract, or with an intermittent employment contract.
The incentive is available for a maximum of six months from the date of recruitment/contract modification and is equal to the social security contribution payable by the employer, excluding INAIL premiums, and other minor contributions such as any due contributions to the funds referred to in articles 26-29 of Legislative Decree 148/2015 and the contribution of 0.30% for the financing of interprofessional funds.
The maximum monthly exempt contribution is € 671.66 (to be re-proportioned for part-time employment). This means that the maximum amount is the lower amount between the normal monthly exempt contribution due and the monthly benefit limit.
INPS clarifications
In its circular, INPS specifies that the right to benefit from the exemption is subject to the possession of the requirements provided for by Article 1, paragraph 1175, of Law 296/2006, namely: (i) the possession of the single insurance contribution payment certificate; (ii) the absence of violations of the fundamental rules for the protection of working conditions and compliance with other legal obligations; (iii) compliance with collective national, regional, local and company bargaining agreements signed by the employers’ and workers’ trade unions that are nationally comparatively more representative.
The circular specifies that, as other social security contribution exemptions, it is necessary to meet the conditions set out in art.
31 of Italian Legislative Decree no. 150/2015. The social security contribution exemption is granted if the employment (i) does not violate the entitlement to recruitment priority established by law or collective agreement, to rehiring a worker and (ii) does not concern workers dismissed, in the previous six months, by an employer who, at the date of dismissal, had a control or subsidiary relationship with the hiring employer.
For the employer, to use the benefit, must electronically apply to the Institute, using the benefits portal (former Diresco).
In the application the following must be indicated:
Once an admission request has been received, the formal requirements and the availability of the allocated financial resources are checked. INPS will then calculate the incentive amount and authorise the exemption for the relevant period.
Under Article 6, paragraph 3, of the August Decree INPS, stated that this exemption can be combined with other social security contribution exemptions provided by the legislation within the due social security contribution’s limits.
With the approach of the year-end adjustment operations, the tax treatment of policies entered into by employers to cover the risk of contracting COVID-19, in favour of their employees, represents a very topical issue.
On the point, it is noted that the Revenues Agency has intervened with circular no.11/E/2020.
The Agency clarified that premiums paid by the employer in favour of all employees or categories of employees, following the signature of policies to cover the risk of contracting COVID-19, fall within the scope of application of Article 51 of the Consolidated Law on Income Taxes. Therefore, those premiums do not contribute to forming taxable income from employment for the workers involved.
In circular no. 133 of 24 November 2020, INPS provided operating instructions for the exemption from social security contributions for hires under permanent employment contracts from 15 August 2020 to 31 December 2020.
The exemption applies when a fixed-term employment contract is made permanent during the same period. Apprenticeship contracts and domestic work contracts are excluded from exemption application.
The exemption, lasts up to six months from hiring or conversion into permanent contract. It is equal to the INPS contribution paid by the employer, up to an annual limit of € 8,060. INAIL premiums and any minor contributions are excluded.
The exemption is subject to the submission of an electronic application to INPS by the employer.
The Court of Udine with its ruling no. 106/2020, confirmed that an employer that is forced to dismiss an employee for unjustified absence has the right to withhold from the post-employment benefits due to the same the amount paid to INPS for the purposes of unemployment tax (known as “NASPI ticket”).
Facts of the case
In the specific case a worker orally indicated to the employer’s legal representative his intention to resign due to his father’s health problems and asked to be formally dismissed in order to obtain monthly unemployment benefits, i.e. NASPI.
After being refused, the worker threatened to remain absent from work. Despite this, the company decided to grant him a lengthy period of holiday in order to help his father. Once the holiday period ended the worker did not return to work and did not justify his absence in any way despite repeated requests.
Due to the continuation of the unjustified absence, after having attempted the disciplinary procedure as per art. 7 of Italian Law 300/1970, the company dismissed the worker for just cause. But there is more. The company then also withheld the amount of the dismissal tax due to INPS from the amount owed for post-employment benefits as well as other sums as compensation for damages sustained due to the employee’s failure to perform his job.
The worker submitted an appeal for injunction in order to have the sums withheld returned to him expecting that the unilateral decision to terminate employment would have been made by the employer.
The company objected to the injunction handed down against it so it would be revoked. The worker challenged it asking for rejection of the appeal submitted by the same and, thus confirmation of the decision in question.
The Court’s decision
The Court’s opinion was adequately proven, within the performed inquiry, that the decision to termination employment was taken unilaterally by the worker. He – faced with the company’s refusal to proceed with the requested dismissal – had, deliberately remained absent in order to be dismissed.
Therefore, according to the Court, “the expenses sustained by (editor’s note by the company) to carry out (involuntarily) the decision to withdraw made by the worker can only be borne by him and, specifically, the (editor’s note the worker) shall be required to pay the plaintiff the sums it spent for the purpose of the so-called dismissal ticket. The so-called dismissal ticket is an expense that the (editor’s note the company) had to sustain exclusively because the (editor’s note the worker), instead of resigning, without costs for the company, deliberately placed it in a position of having to terminate the employment relationship”.
In consideration of the above, the Court revoked the injunction issued against the opponent and verified, in terms of what interests us, the existence of credit of the same for the amount of the dismissal ticket, since the withdrawal is attributed to the employee’s omissive conduct.
◊ ◊ ◊ ◊
The ruling in question (no precedents have been found to date) basically reaches the conclusion whereby the employer, forced to dismiss a worker for unjustified absence, has the right to compensation for the damage sustained and corresponding to the amount of the NASPI ticket paid to INPS.
The Supreme Court of Cassation, with its ruling no. 24145 of 30 October 2020, confirmed that, in the event of transfer of a company, the worker has the right to maintain the distinctive component of remuneration included in the individual employment contract.
Facts of the case
The Court of Appeal of Catanzaro upheld the appeal filed by a worker, with the qualification of anaesthesiologist, who transferred to employment with another company due to a company transfer.
Specifically, the worker, had claimed his right to maintaining the distinctive component of his remuneration (called “EDAPR”) attributed to him by the transferor and used for more than a decade (from 4 January 2001 to 27 May 2011), asking, based on this, to sentence the transferee to pay the sums due for this purpose during the period from 27 May 2011 to 31 January 2015.
On this point, the District Court had considered that (i) the worker be accredited with the amount for “EDAPR” as a flat rate payment for any overtime work performed (so-called “flat rate overtime”) and (ii) the same if it was transformed, over the course of employment, into an extra allowance constituting an integral part of the worker’s remuneration.
Thus the local court had recognised the right to maintaining the distinctive component of remuneration and seniority matured by the worker as a correct application of art. 2112 Italian Civil Code, when it provides that the transferor’s employee maintains all of the rights resulting from the original employment, excluding, at the same time, the impossibility of referring to paragraph 4 of the same article as a foundation for unilateral changes of employment by the transferee.
Objecting to the lower court’s ruling, the losing company appealed to the Cassation Court.
The Supreme Court of Cassation’s ruling
The Court of Cassation, in rejecting the company’s appeal, reiterated the particularities contained in art. 2112 of the Italian Civil Code confirming verbatim that it “guarantees in favour of employees of the employer that transfers the company or its business unit the guarantee of maintaining all of the rights resulting from employment with the transferor and aimed at protecting credits the worker already matured and compliance with the treatments in effect”.
Moreover, the Supreme Court also pointed out how in the case in hand the compensation was correctly identified as remuneration functional to the overall job and that “the flat rate compensation of the service rendered beyond normal work hours granted to the worker for a long time, where not correlated to the presumable amount of overtime rendered, is an allowance that, over time, assumes a different function from the original one, typical of overtime compensation, and becomes a monthly component that is part of ordinary remuneration and not unilaterally related to the employer”.
According to the Court, the employer can opt for recognition of a flat rate compensation – all-included and not restricted to the number of hours actually worked beyond normal hours – aimed at paying the worker for services of an overtime nature. The relative amount is not the consequence of a final measurement of the overtime hours performed multiplied by the relative increases. Its measurement is determined beforehand based on an agreement between the parties to compensate a number of overtime hours that are “presumed” to be rendered through constant delivery over time.
This remuneration, thus becomes an ordinary component of the worker’s pay and cannot be unilaterally revoked by the employer.
With these motivations, the Court of Cassation rejected the appeal submitted by the employer, sentencing it to pay court costs.
Italian Legislative Decree no. 122/2020, published in the Official Gazette no. 229 of 15 September 2020, adopted the EU Directive 2018/957 concerning transnational posting: the new provisions are contained in Legislative Decree no. 136/2016, the current reference for this institution in the Italian legal system, where a series of amendments were made.
The intention of the European government – right from the first measures made on the matter – are aimed at the various cases of transnational posting in order to prevent and eradicate distortive phenomena of the EU job market, such as dumping and unlawful temporary employment.
Examining the new provisions established by the Legislative Decree no. 122/2020 there appears to be a general tightening of the regulations, made stricter in terms of numerous areas of interest. First of all, it is possible to see how the legislation’s field of application has been expanded: in particular, the regulations regarding transnational posting are also applied to posting cases that are more complex, such as those by temporary employment undertakings or placement agencies, which in the past were excluded from the regulations.
More specifically, this is the case of temporary employment undertakings or placement agencies located in another Member State different from Italy that, for transnational provision of services, post workers to their own production unit or to another company, including belonging to the same group, with registered office in Italy to then hire them out to Italian user companies. In this case, the new legislation has established that workers in these situations are to be considered as posted in Italy directly by the temporary employment undertaking or placement agency with which they have an employment relationship.
Moreover there is a precise information obligation for the Italian user company to inform the posting temporary employment undertaking about the working and job conditions that need to be applied to the posted workers.
The legislative decree under review also clarified how – in terms of guaranteeing a complete protection of the rights and working conditions – the posted workers must be recipients of the same rules and guarantees applied to workers of the destination country. For this purpose, the text of the decree contains a clear list of matters where the Member State laws where the job is performed must be applied, if they are more favourable.
For example, the law states institutions such as maximum work periods and minimum rest periods, the minimum paid annual leave, remuneration, including increases for overtime, health, safety and hygiene at work, etc. Specifically referred to remuneration institutions, the items that compose individual remuneration must be perfectly separated and identifiable in order to discourage payment of simulated reimbursements, with the sole purpose of getting around social security contribution payment obligations on the actual remuneration received by the worker.
The Government’s intervention also involved the maximum posting duration: specifically, the maximum duration of 24 months is reduced to 12, with the possibility of a 6 month extension subject to motivated notice to the Ministry of Labour and Social Policies. The legislation now states that once this period has elapsed and the concerned worker has not returned from the posting, all of the work and employment conditions provided for in Italy under the law and regulatory provisions and under the national and territorial collective bargaining agreements, save for those concerning the procedures and the conditions for ending and terminating the employment agreement, non-compete clauses and sector supplementary pension schemes, shall be automatically applied. This overall maximum duration also refers to the case where one or more posted workers are replaced to perform the same duties in the same place. The identity of the duties performed by the workers is assessed case by case, also taking into account the nature of the service provided, work to perform and place where the job is performed.
Source: Sintesi
In Norme & Tributi Plus Diritto of Il Sole 24 Ore, an article written by our employment advisor Andrea Di Nino on the opinion of the Italian Tax Authority, intervening regarding the tax treatment applied to the social security contribution paid by the employer to INPS for the university years of some workers involved in a trade union agreement to incentivise leaving early. The article can be downloaded here by subscription.
Read more in the downloadable subscription article by Norme & Tributi Plus Diritto de Il Sole 24 Ore.
The HR Breakfasts of De Luca & Partners are returning to webinar mode.
Last 19 November, HR Capital and De Luca & Partners organised the HR Virtual Breakfast with a technical and legal focus on the latest developments in employment.
Our Employment Advisor Nunzio Lena and Alessandra Zilla, Senior Associate of De Luca & Partners took stock of the situation on the recent emergency decrees with the moderation of the Managing Partner of De Luca & Partners, Vittorio De Luca.
The event was held from 9:00 am to 10:00 am using the Zoom platform.
AGENDA:
Attendance is free subject to registration
For information: comunicazione@hrcapital.it
Following the evolution of the coronavirus situation, the government approved a new decree containing help for companies and workers.
Specifically. Italian Law Decree no. 137/2020, also called the Ristori Decree, strengthens the wage guarantee schemes and wage integrated fund, which will be available to companies for 6 additional weeks from 16 November 2020 to 31 January 2021, as long as they already benefited from the 18 weeks allocated by the August Decree. Moreover, it introduces a new contribution exemption for companies that have used social safety nets for the COVID-19 emergency in the month of June and do not intend to use these additional 6 weeks.
The decree also introduces the suspension of INPS contribution and INAIL premium payments for employers effected by the restrictive measures of the DPCM of last 24 October, such as bars/cafes, restaurants, cinemas and theatres: thus these employers may make payments due in November 2020 by 16 March 2021 or, alternatively, in 4 instalments starting from the same date.
The Supreme Court of Cassation, by Order no. 16135 of 28 July 2020, confirmed that meal vouchers do not constitute remuneration and, consequently, the employer may suspend their monthly distribution to employees at any time, including unilaterally.
The facts of the case involve a worker who instituted legal proceedings against his employer, aimed at having the company’s decision to suspend meal voucher distribution to its employees ruled as unlawful. Specifically, in his appeal the worker claimed the function of meal vouchers as a supplement to the contract, a component of remuneration including based on the legitimate expectations of workers following the repeated and generalised company practices from 1999 to 2006. Consequently, meal voucher distribution should be linked to the principle of irreducibility of remuneration.
The Supreme Court judges – in upholding the ruling of the Court of Appeal – first confirmed that meal vouchers do not represent an element of ordinary worker remuneration and thus, are not considered as distribution of a remuneration nature.
According to the Supreme Court, meal vouchers are classifiable as a benefit of a predominantly welfare nature and related to employment by a link that is merely occasional in nature.
In terms of the remuneration nature of meal vouchers, the repeated distribution of the same over time by the employer is not significant, even if such distribution constituted a consolidated company practice. Therefore, since meal vouchers are not part of remuneration in the strict sense, the employer may decide unilaterally regarding their distribution, because it is a company measure of a discretionary nature and completely unrelated to contractual or bargaining agreement provisions.
Given the above considerations, the Court of Cassation rejected the worker’s appeal and confirmed the lawfulness of the employer’s actions.
Art. 1 of Decree Law no. 14 August 2020 no. 104 ( “August Decree”), converted, with amendments, by Law 13 October 2020 no. 126, has reviewed the period of ordinary and extraordinary wage subsidies and ordinary allowance that can be requested in the second half of 2020 to deal with the current health emergency.
The employer could have access to a maximum period of 18 weeks (nine plus a further nine) from 13 July 2020 to 31 December 2020.
INPS guidelines
The operating guidelines for wage subsidies for the Ordinary Redundancy Fund (CIGO), Wage Subsidy Fund (FIS) and Extraordinary Redundancy Fund (CIGD) for COVID-19 reasons, are laid down in INPS circular no. 115 of 30 September.
In this circular, the Institute set a 31 October 2020 deadline to submit applications for wage subsidies for July and August. It should be noted that the original legal deadline was 30 September 2020.
The August Decree confirmed that consultation with trade unions and a joint examination by the most representative trade union organisations was preparatory and mandatory to apply for the subsidy to the Institute. Employers who have less than five employees are exempt from this obligation.
The operating procedure requires two separate applications to be sent to INPS.
Employers are granted 18 weeks, divided into two distinct nine-week periods, to be used during 13 July and 31 December 2020.
For the first nine weeks, the wage subsidy application can be sent using the INPS platform and the “COVID- Nazionale” reason using the same method for wage subsidy applications under the “Cura Italia” and “Relaunch” Decrees.
For the additional nine weeks of wage subsidy, the August Decree introduced an additional contribution to be paid by the employer, making the use of social shock absorbers for COVID-19 reason “on a payment basis”, under turnover conditions as described below.
In addition to the explanatory circular on the August Decree provisions, with message no. 3525 of 1 October 2020, INPS issued the application procedures with the new “COVID 19 con fatturato” application reason for additional nine weeks, which may apply to periods before 14 September 2020 and completed by 31 December 2020.
Requests for the additional nine weeks, starting from 14 September 2020, requires the employer to send the self-certification attesting the turnover decrease for the first half of 2020 compared to the first half of the previous year.
The employer must self-certify the existence of one of the following conditions: not having suffered a drop in turnover, having had a reduction in turnover of less than 20 per cent, having suffered a drop in turnover of 20 per cent or more or, having started a business after 1 January 2019.
Access to the second period of nine weeks of wage subsidies without charges to the requesting employer will only be possible for employers who (i) have suffered a reduction in turnover in the first half of 2020 of at least 20 per cent compared to the first half of 2019 or (ii) have started a business after 1 January 2019.
When there is a reduction in turnover of less than 20 per cent, the employer will be subject to the payment of the additional contribution of nine per cent of the salary that would have been due to the worker for the unworked hours during the business suspension or reduction.
If there is no reduction in turnover, the additional contribution due will be 18 per cent.
To identify the rate of the additional contribution referred to in art. 1 of the August Decree, the requesting employers must attach the INPS application for wage subsidy with a declaration of responsibility, made under art. 47 of Presidential Decree no. 445/2020. With this declaration, employers must alternatively self-certify the existence and index of any turnover reduction and the right to exemption from the payment of the additional contribution if the business started after 1 January 2019.
As expressly stated in message no. 3131 of 21 August 2020, if the application is unaccompanied by the self-certification, the additional contribution requested will be a maximum of 18 per cent of the total remuneration that would have been due to the employee for the unworked hours during the suspension or reduction of work.
If the employer is unable to advance the wage subsidies and opts for direct payment by INPS, they will be required to send the Institute the data necessary for the wage subsidy payment or balance by the end of the month following the month to which the wage subsidy period refers (SR41 form).
To simplify the bureaucratic process to access the extraordinary redundancy fund, which required sending the wage subsidy application to the relevant Region and INPS, the August Decree ordered the transmission of applications to be carried out using the same methods used for CIGO and FIS, i.e. using the INPS platform directly.
With Circular 105/2020, INPS, has provided initial clarifications for the management of social security contribution exemption obligations for employers who do not need further wage subsidies due to the COVID-19 epidemiological emergency.
August Decree provisions
Article 3 of Decree Law no. 14 August 2020 no. 104 ( “August Decree”), converted, with amendments, by Law 13 October 2020 no. 126, outlines an economic incentive, in the form of social security contribution exemptions, for employers who (i) do not require further wage subsidy periods under the same decree and (ii) have already benefited from wage subsidies in May and June under Decree Law 17 March 2020, no. 18 ( “Cure Italy” Decree).
The contribution exemption can be used for up to four months, by 31 December 2020, and up to double the hours of wage subsidy already obtained in May and June 2020.
Employers who have benefited from this exemption are subject to the prohibitions against collective and individual dismissals for justified objective reasons, referred to in Article 14 of the August Decree. Violation of this provision shall result in the contribution exemption’s retroactive revocation and losing the right to apply for wage subsidies under the same Decree.
INPS clarifications
In its circular, INPS, made it clear that, other than the agricultural sector, private employers, including non-entrepreneurs, can benefit from the reduction in contributions, if they:
INPS specified that employers who applied for social security benefits based on the “Cure Italy” Decree before 15 August (date of the August Decree’s entry into force), or alternatively after 14 August, may still benefit from this exemption. This is conditional on the subsidy periods starting before 13 July and ignoring wage subsidies that may partially accrue after 12 July.
Wage subsidy payments are based on individual production units belonging to the same employer (INPS number), and the employer can choose between the social shock absorber or contribution exemption for each production unit.
The incentive is equal to the employer’s unpaid contribution, excluding INAIL premiums and contributions and other minor contributions (such as, the 0.30% contribution for financing interprofessional funds. The contribution due to the “Fund for the payment of severance indemnities to private sector employees under Article 2120 of the Italian Civil Code”) – for double the hours benefited under social shock absorbers during May and June 2020 and regardless of the number of employees for whom wage subsidies have been paid.
The total incentive must be recalculated and applied on a monthly basis (within the maximum limit of the contribution theoretically due in the month by the beneficiary employer) for a maximum of four months and by 31 December 2020 which is the final deadline to use the benefit.
The Institute specified that the contribution exemption is subject to compliance with (i) the conditions to access contribution benefits and (ii) the ban on dismissals under Article 14 of the August Decree, with the approval of the European Commission.
Since it is addressed to a target group, it is considered as “State aid” for which prior authorisation by the European Commission is required, as underlined by the INL (National Labour Inspectorate) note of 16 September 2020, no. 713.
For the benefit’s effective application, we are waiting for the necessary authorisation from the European Commission and subsequent operating instructions from INPS.
With Resolution no. 55/E/2020, of 25 September, the Inland Revenue responded positively to a request submitted by a Company intending to activate a Welfare plan using two separate company regulations under which employees would be granted a Welfare credit to be used through a specific web platform, upon achievement of a minimum turnover target.
The Company asked:
Inland Revenue Considerations
For tax regime applicability under art. 51 paragraphs 2 and 3 of the TUIR, the Inland Revenue stated that the amounts granted as Welfare credit were not considered as part of income if the benefits were made available to all employees or categories of employees.
This was confirmed by Circular no. 28/E/2016, when the Inland Revenue had underlined the possibility of bonus-related welfare plans, even if provided to all or similar employee categories.
The expression “categories of employees” is to be understood broadly and not limited to the categories provided for by the Italian Civil Code. For example, employees of a certain “level”, “classification” or with a certain “seniority” are considered “categories.”
According to the Inland Revenue, the regime under art. 51 paragraphs 2 and 3 applies to bonus or incentive-related Welfare plans where the provision goods and services is linked to the achievement of a company objective, and when goods and services are provided as employee bonuses.
In this case, the Agency has considered employee “loyalty” as a prevailing aspect, which does not cease to apply when the distribution of benefits “is not based on the evaluation of the employee’s work, either individually or collectively, i.e. on evaluations strictly related to the work performance.”
According to the Inland Revenue resolution, a welfare plan must follow paragraphs 2 and 3 of article 51 of the TUIR, reward employees if the company’s turnover increases, with benefit payments based on the gross annual salary of each employee and ensure benefits do not replace the fixed or variable salary.
The Inland Revenue has not shown any issues in applying art. 95 of the TUIR for deductibility of the Welfare Plan costs for IRES purposes, if the welfare credits are provided to employees under a contract, an agreement or a company regulation which includes the fulfilment of a contractual obligation.
The Inland Revenue, with Circular no. 28/E of 15 June 2016, clarified that for a regulation to constitute the fulfilment of a contractual obligation, must not be revocable or modifiable autonomously by the employer. In this case, the welfare plan costs incurred by the employer are fully deductible for IRES purposes and not only limited to the five per thousand provided for by art. 100 of the TUIR.
The Supreme Court of Cassation, under Order no. 18955 published on 11 September 2020, stated that in cases of dismissal due to reaching the age limit, the employee is due notice or related pay in lieu.
Facts
The case facts concern an employee, classified as a manager, to whom the National Collective Labour Agreement (CCNL) for managers in the industrial sector was applied. The manager (who was entitled to an old-age pension from 4 February 2009, the date on which he turned 65) had received an initial employment termination notice on 26 March 2008 with effect from the following 30 June.
On 14 January 2009, the company notified the manager of the employment termination on 4 February 2009, and amending the notice sent on 26 March 2008.
The manager referred the matter to the judicial authorities and, as the losing party , appealed.
The Court of Appeal before which the case was brought held that there was an employer’s obligation to give notice, noting that art. 2118 of the Italian Civil Code did not place any restrictions, nor did art. 22 of the National Collective Labour Agreement exclude such an obligation for employment termination due to age limits.
As for the quantum, the Court of Appeal observed that the notice received by the employee was only 18 days, from 14 January 2009 to 4 February 2009, not even remotely in line with the collective bargaining agreement, which has consequences in terms of indemnity payment for the period not granted. For this reason, the Court of Appeal ordered the employer to pay the manager the indemnity in lieu of notice referred to the difference between the 12 months due under the national collective bargaining agreement and the 18 days of notice received.
The employer appealed the Court ruling, and the manager replied with a counter-claim.
The Supreme Court of Cassation’s ruling
According to the Supreme Court, the ruling under appeal specified that the employer’s conduct confirmed that reaching an age limit did not exempt it from an obligation to give the employee notice, even though it authorised the company to proceed with the ad nutum dismissal. This was in line with a correct interpretation of art. 22 of the National Collective Labour Agreement.
The same Court stated on several occasions that “the typical and peremptory nature of employment termination reasons excludes automatic termination upon reaching a certain age or the attainment of pension requirements.” This is unlike what happens, for example, for mandatory retirement in the public administration employment.
In the absence of a valid termination measure by the employer, the Court felt that the relationship “continues with the employee’s right to receive wages even after reaching the age of 65. In private employment, relationship termination due to age limits, the employer must give notice.”
Contrary to what was ruled on appeal, the Court considered the employer’s first notice sent to the employee dated 26 March 2008, valid instead of the second notice sent on 14 January 2009. According to the Supreme Court of Cassation’s judges, the second notice did not extinguish the first, as it “was only aimed at bringing forward the originally fixed employment relationship termination date without prejudice to the expressed termination intention.”
However, the deadline applicable in this case (12 months from 26 March 2008) was not fully complied with, with the consequence that the Court of Cassation granted the employee the right to an indemnity in lieu of notice corresponding to the unbenefited period, equal to a month and twenty-two days (from 4 February 2009 to 26 March 2009). This solution was considered consistent with art. 1231 of the Italian Civil Code, which excludes novation (and an extinguishment) if there are modifications concerning the application or cancellation of a term.
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The ruling concludes that in the private employment field when terminating the relationship due to the employee’s age limit, the employer can proceed with an “ad nutum” termination while complying with contractual notice obligation.
Decree Law no. 125 of 7 October extended the current COVID-19 pandemic emergency to 31 January 2021. The previous deadline was 15 October 2020.
Simplified smart working follows a different timeline from the emergency extension. Previous provisions of the “Relaunch” Decree, stated that simplified smart working is to be extended until 31 December 2020.
Until that date, employers can grant workers smart working arrangements without having to enter into individual agreements. However, electronic communication to the Ministry of Labour using the “Cliclavoro” portal is still required within the usual terms. Further measures could be issued to regulate smart working and related deadlines.
With Circular No. 116 of 2 October 2020, INPS has given the relevant operational instructions on the ways in which employees may benefit from the so-called Covid-19 leave in case their school-age children are in quarantine.
As is well known, article 5 of Law by Decree No. 111/2020 has introduced an indemnified leave in favour of parents who are employees (the so-called COVID-19 leave for the school quarantine of their own children) to be used in order for them to be able to be absent from work, either totally or partially, for the period of quarantine of the cohabitant child of less than fourteen years of age, ordered by the Prevention Department of the territorially competent Local Health Authority (ASL) following the relevant contact to said extent inside the school complex.
Both parents may alternatively benefit from the aforesaid leave if they cannot do their respective job on a smart working basis.
In its Circular, the Italian National Social Security Institute has shown the cases of compatibility and incompatibility between the Covid-19 leave under examination and other types of absence.
For example, benefitting from the aforesaid leave is incompatible with types of absence like sick leave, maternity/paternity leave, holidays, unpaid leave, as well as the days off and leaves under Law No. 104/1992.
Furthermore, the Italian National Social Security Institute has shown the cases of incompatibility between the leave at issue and other types of absence concerning the other parent cohabiting with the child. Amongst same, it is possible to find parental leave, the daily rest of the mother or of the father, as well as the relevant income support measures upon suspension of work.
The Circular has also specified that the application must exclusively be filed through the Internet, (I) through the www.inps.it Web page, if one is a holder of the PIN issued by the Italian National Social Security Institute or (ii) through the Integrated Contact Centre of the Italian National Social Security or through the services offered by the relevant Benevolent Funds.
The application may concern periods of benefit from the leave prior to the date on which any such application is submitted, provided that falling within the period running between 9 September 2020 and 31 December 2020.
The application must mention the details of the quarantine decision ordered by the Prevention Department of the territorially competent Local Health Authority (ASL).
Following the August decree provisions, with the 18 September circular no. 105, INPS has provided the first instructions about the contribution exemption for employers who do not require further wage supplements.
Aid will be available to employers who have already benefited from the Covid-19 emergency wage supplement measures in May and June 2020.
INPS has specified that this is a total exemption, with the exclusion of INAIL premiums and other minor contributions and is equal to the unpaid contribution for twice the hours of wage supplement obtained during May and June 2020.
The exemption amount shall be recalculated and applied monthly for up to four months and may not exceed the due monthly contributions for each month.
To apply the exemption, it will be necessary to wait for the European Commission authorisation and an additional INPS message.
It is well known that the August Decree earmarked a further 18 weeks of supplementary wage support (cassa integrazione) to be used between 13 July and 31 December 2020. These are split into two separate periods of 9 weeks, as the INPS clarified in its message 3131/2020. Any weeks already used since 13 July based on the previous decrees will be taken into account in calculating the first 9 weeks. Applications for the two periods should be submitted to INPS separately.
More particularly, the Decree provides that the last 9 weeks can availed of only if the entire previous 9-week period has been used. When submitting the application for the last 9 weeks, the employer will also have to self-certify any reduction in turnover occurring as a result of the COVID-19 emergency during the first six months of 2020. Without such self-certification, the company will be obliged to pay the INPS an additional contribution of 18% of the pay that would have been owed to the worker for hours not worked.