If you have never worked or dealt with Italian payroll you might be surprised by its particularities, one of which is the so-called quattordicesima mensilità which translates as the 14th…
Tax and Payroll in Italy: Your guide to running business
The Italian Payroll and tax system is different from those in most European countries and newcomers to the Italian market may find local payroll and HR requirements complex and confusing.
To encourage foreign investments in Italy, authorities allow non-resident companies to operate and hire without setting up a permanent establishment in Italy. This special status is called Foreign Non-Resident Employer (FNRE). FNRE companies are simple employment structures and as such are not liable for corporate tax and have no accounting obligations in Italy.
FNREs are liable for payroll taxes and contributions only, therefore all Italian FNREs must be registered with the National Institute for Social Security (Istituto Nazionale della Previdenza Sociale – INPS) and the National Institute on Statutory Workers’ Insurance (Istituto Nazionale per l’Assicurazione contro gli Infortuni sul Lavoro – INAIL).
Employees hired under a FNRE structure enjoy the same rights as regular Italian employees.
Italian payroll and HR administration at a glance
Italy is notorious for its National Collective Labor Agreements (NCLA) locally known as Contrattto Collettivo Nazionale del Lavoro (CCNL). The NCLAs define the general rules of employment and individual employment contracts cannot deviate from these rules. Deviation from NCLAs is allowed only when the conditions of the individual employment contract are superior to those described in the NCLA (for example an employer may decide to offer more vacation days than set out in the applicable NCLA).
General employment and payroll rules in Italy:
All Italian employees, even those hired on fixed term contract, must be registered with INPS which covers services like health, unemployment, education and retirement. INPS contributions are paid both by employer and employee. INPS rates vary depending on a number of factors such as industry, total number of employees on payroll and location of the company but is generally estimated to be 30% of the employee’s gross salary. Depending on company’s profile and industry the affiliations with additional supplementary funds may be required.
Termination of employment in Italy
Italian labor law requires that any termination of employment is justified. An employment contract may be terminated under for the following reasons:
- – Objective justified reasons (giustificato motivo oggettivo)
- – Subjective justified reasons (giustificato motivo soggettivo)
- – Just cause (giusta causa)
Any dismissal of 5 or more employees at the same time is considered a collective dismissal. Collective dismissals of 15 or more employees must follow a specific procedure and employers are required to notify in written the employment office, employees’ staff representatives and the Trade Unions about the decision to proceed with the collective dismissal.
All terminated employees are entitled to receive the following payments from their employers:
- – Trattamento di Fine Rapporto (TFR) – is used Italian payroll to describe the indemnification paid to terminated employees, regardless of the reason for dismissal. The employee is entitled to receive a compensation of approximately one monthly salary for each year worked in the company.
- – payment of unused vacation days, and
- – proportional supplementary payment of the 13th or 14th (the 14th salary is applicable only for the commerce and the insurance sector) salary if these are applicable.
Disabled and pregnant employees enjoy extensive rights when it comes to dismissals. A pregnant employee cannot be terminated until the child is one year old. Other categories of employees which are protected against dismissals are recently married employees and representatives of works councils.
Italian payroll requires that all employment wages, tax and social security contributions are reported in a final yearly document called the Certificazione unica dei redditi di lavoro dipendente (CUD). By the middle of March of each year, employers must provide all employees with two originals of the CUD for the previous reporting year. Every year a new model of the CUD is released by the Ministry of Finance, due to the introduction of new tax provisions.
Italian business made simple
Starting a business in Italy and making sure that you are compliant with local payroll and HR rules can be quite a challenge. That is why smart companies choose to work with Adm In ME, your trusted business partner in Italy. Our team of experts can handle all initial registrations on your behalf, prepare employment contracts compliant with the NCLAs, advise on how to legally layoff your staff and act as your Social Security representative on all matters. Contact us today to talk to an expert and receive your customized offer for HR & payroll services in Italy.
Contact us to get a free evaluation of your HR and payroll requirements in Italy or to request the price for our services
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