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Hiring Employees in Italy: A Guide to Building Your Global Team

By December 7, 2022January 20th, 2023No Comments
Rome, Italy - The Consulta Palace, home of the Constitutional Court of the Italian Republic. In Piazza del Quirinale, Roma, Italy. Architect: Ferdinando Fuga

Italy is an attractive market for global entities looking to expand into Europe. After having one of the weakest European economies in the 1950s, the country now has the third-largest economy in the European Union and the eighth-largest GDP in the world. Additionally, one-third of Italy’s workforce is bilingual with Italian and English.

However, hiring employees in Italy is complicated and nuanced. Global employers must understand Italy’s labor laws and follow compliant employment practices. Overlooking CBA regulations and leave entitlements, or misclassifying employees can result in fees, reputational damage, and more.

In this guide, we cover local labor laws and the two methods for hiring employees in Italy.

Hiring Employees in Italy: 2 Options for Global Employers

There are two ways a foreign business can hire employees in Italy–either by establishing a legal entity in Italy or via an employer of record.

1. Set Up a Legal Entity in Italy

One route to hiring employees in Italy is to set up a local entity. This route works well for companies that plan to establish physical infrastructure in Italy and seek long-term investments in the market.

However, employers who choose this method must ensure compliance with Italian labor laws each step of the way–on their own. This means:

  • Correctly classifying employees
  • Complying with local Collective Bargaining Agreements
  • Establishing compliant contract terms

And much more.

While Italian law is clearly outlined, it can be challenging to understand. Noncompliance at any stage entails fines and reputational damages to your business. To mitigate this risk and save time, many employers rely on an employer of record in Italy when expanding into this market. An employer of record simplifies the process of compliantly hiring employees in Italy.

2. Partner With an Employer of Record in Italy

A global employer of record (EoR) is a legal entity registered in Italy that hires, pays, and manages your distributed workforce on your behalf. An EoR allows you to hire employees in Italy and be fully operational within days, without setting up a legal entity in the country. This option lets you easily test the Italian market before making long-term investments.

An EoR handles all aspects of hiring employees in Italy, like onboarding, payroll, benefits administration, and risk mitigation. This allows you to focus on overseeing your employees’ day-to-day work. An employer of record in Italy is also familiar with Italian labor laws and ensures you’re up to date with legislation changes or compliance risks.

Learn more about what an employer of record is and how it works.

Hiring via entity establishment and employer of record differ on speed, scope, scale, and compliance.

Hiring Independent Contractors in Italy

When expanding into the Italian market, some companies choose to engage independent contractors instead of hiring employees. This offers a degree of flexibility, which some employers prefer. For example, engaging independent contractors in Italy involves lower levels of commitment and allows you to hire for short projects.

However, Italy is pro-labor rights. Italian employment law provides a detailed set of conditions dictating contractor classification. In Italy, a worker who manages their schedule, work methods, and delivery is considered an independent contractor. If the employer begins supervising a contractor’s work or offers fixed monthly payments, local regulators may classify him or her as an employee.

There is a high risk of contractor misclassification for foreign entities that are unfamiliar with local labor laws. Penalties for misclassifying independent contractors in Italy include barred business activity, social contribution backpay, fines, and reputational damage.

Italy Labor Laws: What to Know Before Hiring Employees in Italy

Any foreign employer entering the Italian market must familiarize themselves with Italy’s labor laws, including Collective Bargaining Agreements (CBAs), payroll standards, tax rates, and social security contributions.

Collective Bargaining Agreements in Italy

Collective Bargaining Agreements (CBAs) in Italy are terms agreed upon between trade unions and employers’ associations. They deal with specific employment issues while setting out general guiding parameters for others.

CBAs only bind companies that are members of the relevant employers’ associations. However, employees typically expect CBAs because they are so common. Foreign businesses can adopt a CBA’s terms by referencing it in their employment contracts, which legally binds them to that CBA.

A CBA addresses matters such as:

  • Ensuring pay rises with prices, accounting for expected inflation
  • Regulating changes introduced by companies, such as new work methods
  • Regulating non-pay issues, such as holidays, hours, leave, information rights, and more

Foreign companies hiring employees in Italy must be well-versed in the CBA parameters they’re bound to. Otherwise, they run the high risk of incurring noncompliance penalties.

Fortunately, an employer of record in Italy can offer employment contracts that guarantee full compliance with all relevant CBA regulations in Italy.

Payroll in Italy

Payroll in Italy is relatively straightforward, though it differs slightly from other European countries:

  • Cycle. The cycle is monthly, with wages paid by the 27th of each month. Payroll in Italy may be on an hourly, monthly, or annual basis–depending on the type of job or position.
  • Minimum wage. Established minimum wages are typically set out in CBAs. There is no statutory minimum wage at the national or regional level.
  • 13th and 14th-month salary. Italian employees often expect to receive one or two extra months’ salary–during the summer holidays and Christmas. This is often specified in CBAs.
  • Severance pay. Employers must pay severance (“trattamento di fine rapporto”) in all cases of termination, including resignation or dismissal with a just cause. The termination payment equals the sum of each annual salary divided by 13.5.

Payroll terms vary, depending on the CBA terms that a company and its employees are subject to. Learn more about how payroll in Italy works.

Tax Rates and Social Security Contributions in Italy

Income tax rates in Italy are progressive, meaning higher income levels incur higher tax rates. Social security contributions in Italy are straightforward.

As of November 1, 2022, income tax rates in Italy follow this structure:

  • 23% for income between EUR0-15,000
  • 25% for income between EUR15,001–28,000
  • 35% for income between EUR28,001–50,000
  • 43% for income EUR50,001 and above

The basic rate for Social Security contributions in Italy is based on an employee’s gross annual earnings. As of November 1, 2022, contributions are as follows:

  • Employer: 27%-28%
  • Employee: 9.19% (with a ceiling of EUR105 for employees who began work after December 31, 1995)

Employers must report employee wage, tax, and social security contributions annually in a document called the Certificazione Unica dei Redditi (CUD).

Leave Entitlements in Italy

Annual leave in Italy is relatively generous. Any company entering this market must prepare to offer minimum annual, parental, sick, and national holiday leave to their employees.

  • Annual leave. Employees are entitled to four weeks minimum of annual paid vacation. CBAs and individual contracts may stipulate longer paid holiday entitlement and unpaid leaves.
  • Parental leave. Maternity allowance is 80% of an employee’s pay and is payable for five months. Paternity leave allows seven days’ leave at 100% of employee pay.
  • Illness and injury. CBAs and individual contract terms usually stipulate the length of paid time off for illness and injury. If no such agreement exists, statutory sick pay applies from the fourth day of absence from work.
  • National and regional holidays. Employees in Italy are entitled to 12 paid public holidays, in addition to the minimum annual paid vacation.

Find extensive information on Italy’s labor laws here.

Make Hiring Employees in Italy Simple

Navigating labor laws and hiring talent in Italy feels overwhelming for many companies. However, the right partner can make a world of difference.

Velocity Global’s industry-leading Employer of Record (EoR) solution handles onboarding, payroll, benefits administration, and ongoing HR management of your business. Lean on our team of experts to handle legislative details and compliance issues so you can focus on your business operations and workers’ day-to-day tasks.

Get in touch with Velocity Global today and learn how to compliantly hire employees in Italy.