At Bradford Jacobs, our Employer of Records (EOR) platforms provide reliable solutions for companies wishing to establish their presence in the Italian economy. From the first steps of setting up operations to ensuring compliance with the local payroll laws and regulations, we offer dedicated Italy Payroll solutions that can be personalized to your requirements.
We aim to make business expansion easy. At Bradford Jacobs, we navigate the administration of the Italy payroll system for you, and we also make the returns and associated payments for income tax and social security contributions directly from our payroll system to the local tax authorities. We do the work, so you do not have to.
When expanding into a new country, you may encounter some challenges regarding payroll, but allow us to take the reins and answer any of your questions and concerns with our trusty guide on payroll for Italy.
What Italy Payroll Options Are Available for Companies?
Businesses in Italy have access to a variety of payroll options, depending on their needs:
- Remote payroll - In this option, businesses choose to operate under a single payroll system for all employees, by adding employees in Italy to your parent company’s payroll. However, employees in Italy operate under different regulations, and this can cause confusion and compliance risks.
- Internal payroll - Payroll is operated out of your subsidiary, especially if you are committed to growing your company’s presence in Italy. However, this requires hiring a dedicated HR staff that understands the local employment and compliance laws.
- Italy payroll processing company - If you wish to outsource your payroll, working with an Italian payroll processing company will help in your payroll process – but this does not help with the issue of compliance.
- Italy payroll outsourcing - An option that solves both payroll and compliance needs - working with a company like Bradford Jacobs. We can handle both your payroll and compliance for all your employees in Italy. We take the stress of administration off your shoulders so you can focus on what you do best.
Italy Payroll Services
In Italy, payroll regulations change frequently, and corporation may risk penalties or sanctions if they do not comply. Our payroll service involves staying up to date with these shifting demands, as well as an understanding of Italy’s employment laws, taxation regulations such as individual taxes, corporate taxes, social and labor insurance, and meeting all their associated deadlines. Our role includes:
- Registering with the Italian Tax Agency (Agenzia delle Entrate)
- Registering with the National Social Security Institute (Istituto Nazionale Previdenza Sociale)
- Registering for Insurance Against Accidents at Work (Istituto Nazionale per l'Assicurazione contro gli Infortuni sul Lavoro)
- Registering with The Employment Agency (Provincia)
- Creating employment contracts and ensuring their compliance to local employment laws
- Calculating employees’ monthly salary and sending them their pay slips
- Researching for any available tax incentives
- Corresponding with the involved parties
- Submitting employees’ or employer’s wage tax returns and national insurance forms
- Creating and submitting your company’s annual accounts, administration, and year-end statements
- Creating payment schedules for wage tax, national insurances, and net wages
- Ensuring proficient personal income tax returns for you and your employees
It is easy to see why outsourcing payroll a popular practice for many employers in Italy. It saves money, time, and guarantees that your employees are paid, tax returns are filed, and social security obligations are fulfilled in full and on time. Bradford Jacobs provides the complete service to remove the anxiety and stress from your administration.
What Is Required to Set up Italy Payroll?
The requirements for setting up payroll in Italy will depend on how you establish your presence in the country. If you would like to set up as a subsidiary, you will need to have your subsidiary established first – but this can take some time, depending on where you incorporate as well as the entity type you choose.
To start processing payroll in Italy, you will also need:
- A tax code
- An employment agency access code
- A social security agency code
- A Labor Insurance code
- Registration for VAT
- A local bank account
Registration must be done after incorporation, and before you start onboarding employees – this takes at least four weeks to get it all done.
It is mandatory for subsidiary companies to have an in-country bank account for tax and social security contributions. Employee net salaries, however, can be paid from and out-of-country bank account.
Companies with local bank accounts can benefit from reimbursements from the government or tax authorities.
What Entitlement/Termination Terms Are Needed to Set up Italy Payroll?
Employees in Italy can benefit from entitlements for both employment and termination, which are enforced by the local legislation, collective bargaining, trade councils and labor institutions:
National Minimum Wage: Italy is one of the few European countries that does not have a statutory minimum wage. The minimum wage rate is determined by collective bargaining agreements on a sector-by-sector basis, industry basis, or individual contract negotiation.
Working Hours: Italy’s normal working hours are 8 hours a day and 5 days a week. The normal working week in is 40 hours.
Overtime: Any work done in excess of 40 hours weekly is considered as overtime in Italy. The lowest statutory rates one can receive from overtime is an added 10% an hour, but this can be raised by collective agreements.
Annual Leave: Employees are entitled to a minimum of 28 days/4 weeks of paid leave per year – 2 of those weeks can be taken consecutively, at the employee’s request. There is also the option of half of this leave being taken in the given year and carrying over other half to the next year for an additional 18 months.
Sick Leave and Pay: Sick leave entitlement in Italy is usually specified by the employee’s contract. Workers typically get full pay during sick leave, which is partially paid by the employer, and partially paid by the National Social Security Institute.
Holiday Leave: There are 12 holidays that Italy follows:
- New Year’s Day – January 1st
- Epiphany – January 6th
- Easter Monday
- Liberation Day – April 25th
- Labor Day – May 1st
- Day of the Founding of the Republic – June 2nd
- Assumption Day – August 15th
- All Saints’ Day – November 1st
- Feast of the Immaculate Conception – December 8th
- Christmas Day – December 25th
- St. Stephen’s Day – December 26th
- Each locality also has an additional holiday to honor its patron saint.
Employees that work during any of these 12 holidays are entitled to overtime pay. Employees may also receive an additional day’s pay if a public holiday falls on a Sunday or another day that isn’t normally a workday.
Maternity Leave: Pregnant workers in Italy are entitled to 5 months’ maternity leave, which can either be taken as two months before delivery and three months after. Due to an amendment in 2019, however, a pregnant employee may also choose to start her maternity leave after childbirth.
Pregnant employees may continue to work until the ninth month of pregnancy, on the condition of prior authorization from their gynecologist.
During this time, the employee must not be given tasks that may endanger her health. They also have the right to request to transfer to a different job with no pay reduction, if necessary, to protect their health and the health of their child
Maternity Leave Pay is 80% of the employee's regular salary, which will be received from the National Social Security Institute.
Paternity Leave: Paternity Leave in Italy consists of 5 days. This leave may be taken in the first five months following the child’s birth. The employee may also be able to benefit from an extra leave day, which can be transferred from their partner’s maternity leave (but can only be done with prior approval from the mother).
Parental Leave: Parents in Italy are entitled to a parental leave of up to six months per parent (but with a limit of 10 in all, for both parents), during the child’s first 12 years. Compensation for parental leave is 30 percent of their average daily pay.
During parental leave, parents may also make requests for flexible working arrangements. This, however, should be given priority to mothers during the first three years after the end of maternity leave, and both parents in case of a child affected by disability.
Termination/Severance: A contract of employment in Italy can be terminated in the following ways:
- Dismissal by the employer
- Expiry of a fixed term
- Mutual agreement
During employment termination, a written notice is given to the employee for all types of termination, except in cases of dismissal due to serious disciplinary reasons.
Notice periods are included in collective agreements, and payment is given for unused holiday leave. Severance pay is also given in all cases of termination. An employee’s severance payment is equal to the sum of each annual salary, divided by 13.5.
There are no laws in Italy regarding employee bonuses. However, employers commonly provide a 13th-month bonus to their employees, which is normally given in December.
Additionally, depending on the conditions of the applicable collective bargaining agreements, some companies also provide employees with a 14th-month bonus. However, this bonus is usually dependent on performance reviews.
What Taxation Rules Exist for Payroll?
An important feature of payroll in Italy is knowing about the country’s tax regulations.
Italy’s tax year follows the calendar year. There are no laws which dictate how frequently employees should be paid, but regulations by trade unions and the corresponding collective agreements generally require employers to make a monthly payment.
Regarding payroll administration, employees must be provided with a monthly pay slip, either manually or electronically. Payroll reports must also be kept for at least 5 years.
However, besides payroll information, employers in Italy also have to keep these following tax payments in mind:
- Income Tax – Income Tax in Italy is progressive, depending on how much the individual/employee earns. Employers need to withhold income tax payments monthly and pass the deductions to the Tax Office before the 16th of the following month.
Income tax returns are normally be filed by the 30th of September of the following year, via electronic filing. However, this depends on the type of tax return the individual is filing.
The employer is also obliged to issue an annual employment certification, or Model CU, within or before the 31st of March of the following year. This confirms the amount of the employee’s taxable income, as well as the tax amounts that were withheld during the fiscal year.
- EUR 0 – 15,000: 23%
- EUR 15,001 – 28,000: 27%
- EUR 28,001 – 55,000: 38%
- EUR 55,001 – 75,000: 41%
- EUR 75,001 +: 43%
- Social Taxes – Statutory social security contributions in Italy must be withheld from the employee’s salary, and employers are also obliged to make their own contributions:
Employer’s Social Security Contributions
- Social Security: 29-32%
- Injuries at Work Insurance (INAIL): 0.4%
Employee’s Social Security Contributions
- Social Security: 10%
- Corporate Tax – Companies in Italy are obliged to make a corporate income tax (IRES) rate of 24%. Corporate tax returns must be filed by the end of the 11th month of the following tax year. Advance payments must be made in two installments.
- Regional Tax – Businesses in Italy are also subject to paying a regional production tax rate of 3.9%.
- Municipal Tax – Both individuals and businesses may also be obliged to pay a municipal tax, with the amount depending on the municipality.
For more information on taxes, you can check out our Italy Tax page, or Italy’s tax portal.
Stress-free Global Expansion
If you are looking to expand into Italy and need your employees’ payroll managed with extensive management in compliance, contact us today to see what our International Payroll services can do for you.