Understanding Italy Payroll: Employer Costs and Obligations

Italy, along with other European countries such as France and Belgium, is classified as a country with a complex payroll system. This is due to, among others, industry-specific collective bargaining agreements, local statutes, tax and social security considerations and various additional regulations.

In this blog, Financial Consultant Svetlana Sonas highlights elements of the Italy payroll that make up employer costs and obligations.

Social Security Contributions in Italy Payroll

Social security in Italy is built upon compulsory contributions made to the National Institute of Social Security (INPS). Contributions may vary depending on the industry and the employee's job title but are a mandatory element of payroll in Italy.

Employer contributions range between 29%-32%, and employee contributions range between 9,19%-10,49%. The rate depends on the type of activities performed by the company, the number of employees and the position of the employee. These contributions also cover other funds like:

• unemployment,
• sickness,
• maternity,
• temporary unemployment compensation,
• social mobility, and
• other smaller funds.

INAIL, or Istituto Nazionale Della Pevidenza Sociale, is another mandatory contribution for all Italian employees which covers employees for accidents in the workplace and occupational diseases. Like tax and social security contributions, INAIL varies per region and must also be reported to the appropriate authorities.

Italy Payroll Benefit: TFR (Trattamento de Fine Rapporto)

Every employee saves TFR (Trattamento de Fine Rapporto) in Italy, more commonly known as “severance pay”. This is an amount of approximately 10% of the gross wage, which is collected when the employee resigns from the job or is dismissed.

The TFR, for the employer, is one of the workforce costs included in payroll in Italy. It is a part of the benefit which is paid at the termination but which accrues during the relationship. Every month the employee accrues the worth, and at the termination of the working relationship, the company pays the employee the total accrued amount.

This TFR can also be placed in a pension fund. If the employee is enrolled at one of the pension funds available on the Italian market, the employer has to pay the accrued part to the pension fund every month. The employee has the option first to keep the TFR in the company and, after a period of time, to decide to allocate it to a pension fund.

Salary Installments and Annual Leave in Payroll in Italy

Additional elements of payroll in Italy are also salary installments and annual leave.

13th and 14th salary months

Though uncommon in most countries, according to Italian law, compensation is granted in thirteen installments, with the extra installment paid in December. Generally defined by the CBA and depending on the employee´s industry, position, status and seniority, the fourteenth payment installment is typically paid in June.

Annual leave

Employees are granted holidays and also so-called permit hours (permessi) that can be used for personal reasons. The amount of minimum holiday days and permit hour depend on the particular collective bargaining agreement.

For instance, the trade sector agreement provides a minimum of 22 vacation days per year (Monday to Friday) and 88 permit hours per year. For new hires, the permit hours are granted at 50% (56/2= 28 hours per year) for the first 2 years. The hours are valid for 18 months. After that, the employer has to pay them out to the employee. Every year new hours are added.

Employees have to take at least 2 weeks of holiday a year but the days that are left at the end of the year can’t be paid out by the employee. By this rule the employees are forced to take holidays. When someone leaves the due holiday days are paid out.

The unused “permessi”, in turn, can be paid if they are not used during the year. Additionally, employees are entitled to be paid for the national bank holidays as well as certain local municipal bank holidays in case the day falls on a Sunday. This is because these days cannot be enjoyed by the employee separately. The payout is done at the daily salary rate.

More information about Italy's payroll

The above description sheds light on some important aspects when considering hiring in Italy. Stay tuned to our upcoming blogs, where we will elaborate on other aspects of employment in Italy, including onboarding, terminations and other employment laws.

If you are also facing difficulties with payroll in Italy or other European countries, we are here to act as your strategic partner. Please do not hesitate to contact Monique Ramondt-Sanders – VP of HRO, to learn more about our HR Outsourcing services in Europe.