Italy Payroll: Regulations, Taxes & Compliance

Italy is a fast-growing destination for digital nomads. Per a recent Forbes survey, eight of the top 20 cities to work from remotely are spread across various regions of the Mediterranean gem.

But employers looking to take advantage of the many upsides Italy has for workers need to understand the ins and outs of Italian payroll law to ensure they’re fully compliant. Additionally, employers must provide accurate payroll services to ensure lawful operations.

Employer Payroll Obligations in Italy

In order to employ workers in Italy, organisations typically need to register as employers with the Istituto Nazionale Previdenza Sociale (INPS). In addition, certain local entities may require separate registrations based on regional regulations. This involves navigating the INPS’s online portals and submitting information about the business or the individuals that represent it.

Information that needs to be presented includes but is not limited to:

• The company’s name and tax identification number
• The number of employees working at the company
• Dates when employees began working

INPS registration is critical to doing payroll in Italy as it enables tax deductions and social security contributions, in turn covering an employer’s mandatory benefits—see below for more on this.

Italy’s Minimum Wage and Salary Structure

Italy is one of only a few countries in the European Union (EU) in which there is not a minimum wage law—at least for now. A minimum wage bill is under consideration, with advocates targeting €11.50 per hour. At present, wages are governed by collective bargaining agreements, and workers expect to earn at least €7 to €9 per hour.

However, hourly gross salaries tend to be significantly higher. In 2022, the average gross salary across all industries was €18.4 per hour. There is variance across industries, with manufacturing and industrial workers making more and agriculture making less, on average.

Salaries are typically paid monthly, and it is customary to make a “13th month” extra payment, typically in December. Certain CBAs also call for a “14th month,” which is usually paid in June.

Payroll Taxes, Social Security, and Benefits

In Italy, the total social security contribution for an employee sits at around 40% of the total annual salary, of which the employee pays about 10% and the employer pays about 30%. About one-third of the employer’s share is contributed into the National Pension Scheme. The remainder is split between various social safety net benefits, including but not limited to:

• Unemployment funds
• Healthcare funds
• Parental leave funds
• Temporary unemployment funds
• Social mobility funds

Beyond these mandatory contributions, employers may also provide supplementary services to attract and retain the best talent. Common examples include additional health insurance for private providers and meal and transportation vouchers.

Miscellaneous Payroll Rules and Expectations

Beyond minimums, schedules, and taxes, there are other Italy labour laws and precedents to be aware of when it comes time to pay employees—some of which can be costly if missed.

On a relatively low-stakes level, Italian payslips tend to have a high level of detail relative to cheques and stubs in some other countries. Granular details about deductions and contributions need to be present, and some CBAs call for year-to-date figures, as well.

On a higher-stakes level, Italian employees are entitled to a form of severance indemnity known as Trattamento di Fine Rapporto (TFR). Employers must set aside about ~7% of each employee’s gross annual salary each year to be paid out in a lump sum (or split, if above a given year’s threshold) whenever the worker’s employment at the company ends.

Compliance Risks and Penalties for Non-Compliance

Italy’s payroll landscape can be challenging due to governmental mandates (i.e., mandatory contributions) and the intricate web of CBAs. However, many of the most common compliance mistakes have to do with simply missing or misrepresenting taxes because of a worker’s status. This is an easy trap to fall into for remote hiring!

As with many other EU countries, Italian authorities may consider a worker to be an employee, irrespective of their on-paper classification, if the company exerts control over how the individual completes their work. If this is the case, then the company is liable for the tax burden the individual incurs as an employee, which may trigger late or other penalties.

In particular, tax returns that are not filed incur a 120% penalty on taxes due, with minimum payments in cases of no tax liability. In addition, issues with accuracy (i.e., presenting a lower tax burden) can result in fines of 70% of the total true amount due, and late tax payments are also subject to penalties of up to 25% of the amount due. Misclassifying workers can lead to significant fees when it comes time to rectify their taxes as employees.

Simplifying Payroll Compliance in Italy

Registration, wage calculations, taxes, and other miscellaneous rules and expectations can make payroll in Italy complicated for a remote global employer. The best way to stay on top of these issues and avoid compliance penalties is to work with an Employer of Record (EOR).

Omnipresent offers EOR services for employers everywhere looking to take advantage of Italy's talent pool. We’ll handle the logistics of hiring, managing, and retaining the highest-quality staff so your company can reap the benefits of a global workforce.

Get in touch today to see how Omnipresent can help.