Employment in Italy: fulfilments due by the employers
Not everyone knows that international companies can hire employees in Italy also when they have no legal entities or presence in this country.
The procedure requires just a couple of weeks, once the few necessary documents and information have been collected.
Indeed, on a general basis, each company hiring or employing personnel in Italy is obliged to observe some specific fulfilments, regardless it is foreign or Italian-based:
- registering at social security authorities;
- running a monthly payroll in compliance with the applicable National collective labour agreement (“NCLA”), if any, that determines – among other things – the minimum gross salary the employee is entitled to;
- submitting compulsory reports to labour authorities to declare, for instance, salaries paid and taxes, social contributions withheld.
As per Italian regulation, employer’s most important obligations towards each employee consists of:
- paying the salary and indemnity due under the terms and conditions set by the employment contract respecting the minimum wages and terms provided by Italian labour law;
- withholding and paying taxes and social security contributions linked to the employment relationship within the deadline provided by Italian regulation;
- ensuring health and safety at work and insuring employees against accidents at work.
The above being stated, according to Italian labour law, compulsory registrations are as follows:
- National Work Insurance Administration (“INAIL”), before the first hiring date;
- National Social Security Administration (“INPS”), within the 16th day of the month following the first hiring date;
- Local Labour Office (“Centro per l’Impiego”), before the first hiring date. To this regard, please consider that each hiring must be reported to such authority within the day before the employment starting date.
As said, the above fulfilments are due regardless the employer is foreign or Italian-based. To this purpose, please consider that foreign employers willing to hire or employ personnel in Italy are obliged to a preemptive fulfilment, that is the application for the tax code for both the company and its legal representative.
Such application must be made towards the Italian Revenue Agency (“Agenzia delle Entrate”) and consist of the release by this latter of (i) a numerical code that identifies the company and of (ii) an alphanumerical code that identifies its legal representative before any Italian authorities. Without the tax codes, employing personnel in Italy shall not be possible.
Please, furthermore consider that fines apply in case of late or omitted of the above registrations or reporting. Should the fulfilments at issue be omitted, a substantial fine for undeclared work applies in case of assessment by labour authorities (so called “maxi sanzione”).
As far as period fulfilments are concerned, please find below the main reports that the employer shall draft and submit to Italian authorities:
- monthly social security report (“Uniemens flow”), to INPS;
- individual tax statement (“Certificazione unica” or “CU form”);
- annual tax statement (“770 form”);
- work insurance report (“Autoliquidazione”), to INAIL.
Finally, under certain conditions, the employment of employees in Italy may involve a risk of assessment of a permanent establishment from a corporate tax standpoint. To this purpose, referring to a corporate tax expert is recommendable.
Employment regulation: law and NCLA provisions
Employment and NCLA
Employment contracts constitute the agreement between the employer and the employee on the employment relationship established. They may be open-ended or fixed-term, full-time or part-time. Remote working agreements may be stipulated under specific conditions set by current legislation. In specific cases, moreover, some reliefs for companies that hire employees on open-ended basis are provided.
In addition to the employment contract, employment relationships are ruled by law and the applicable NCLA. This latter has the function of establishing a set of common rules for companies operating in the same industry, e.g. trade, credit, metal industry, chemical industry, etc.
Employment categories and levels of enrolment
In general, by virtue of law and NCLA provisions, each employee is enrolled to a specific contractual level, depending on the duties carried out and the grade of expertise, and entitled to a minimum gross salary, paid vacations and leaves, bank holidays, overtime payments, etc. To this purpose, please consider that employees are divided into four categories: executives (“dirigenti”), managers (“quadri”), white collars (“impiegati”) and blue collars (“operai”), and employment rules may vary depending on the category of belonging of each employee.
Gross salary and corporate welfare
As far as the employment salary is concerned, general Italian tax law provides that it is subject to ordinary taxation and social contribution. Under some specific conditions, though, employer and employee may benefit from a favorable tax regime: this is the case of corporate welfare, a system which is encouraged by current regulation to allow the employer to grant the employees with services and goods subject to advantageous tax regulation.
Employment conditions and “protected” events
General employment regulation furthermore provides for a disciplinary code to be observed by the employees and for (i) a trial period at the employment beginning and (ii) a notice period in case of employment termination.
In addition to the above, Italian regulation provides for some “protected” periods during which the work activity is suspended due to reasons such as sickness, accident at work, study, marriage, maternity, paternity, etc. In this respect, specific leaves are provided for by both general law and NCLA provisions, and the relevant indemnities due to the employees are quantified accordingly. In most cases, INPS provides the employee with a leave indemnity, to which the employer contributes in a certain percentage, depending on the case.
Social security and labour cost
As far as social contribution is concerned, by being hired under an Italian company or employed in Italy by a foreign employer the employee is currently entitled of a 33% pension contribution rate: in particular, about 1/3 of such percentage is charged on the employee and directly withheld by the employer through the monthly payslip, whereas the remaining 2/3 is charged on the employer.
As a rule, the 33% rate for pension applies either to the global compensation earned by the employee over the year or within an annual threshold (slightly higher than EUR 100.00,00). This latter is generally increased yearly by Italian authorities and applies only to employees who have not accrued any employment or self-employment social contribution before January 1, 1996 in EU or countries that have signed with Italy an international agreement on social security; otherwise, the mentioned rate is applied on the full global compensation earned by the employee.
Furthermore, it has to be considered that both the employee and the employer might be subject to higher social contribution rates than 33%, depending on the industry of belonging of the employer (e.g. additional contributions related to maternity coverage, illness indemnity, unemployment allowance, layoff funds, etc.).
The above being stated, along with contribution costs, the employer must consider further contributions to be paid and an additional allowance provided for by Italian law. In details:
- work accidents insurance costs are borne exclusively by the employer and depend on the employee’s salary, the kind of activity carried out by the latter and the related potential risks;
- the applicable NCLA may provide for the payment of contributions due to complementary healthcare funds or private pension scheme;
- the employee, at the end of the employment relationship, is entitled to a severance indemnity payment (“trattamento di fine rapporto” or “TFR”, in Italian parlance), whose amount roughly results from adding up, for each year of service of the employee, the overall remuneration paid her/him, divided by 13,5;
- other minor termination indemnities may be due to the employee, such as the indemnity in lieu of vacation not enjoyed and prorated additional monthly instalments.
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