How to Stay Compliant When You're Employing in Italy with Carlo Majer of Littler Italia

Failing to adhere to safety standards or neglecting employee benefits can result in even higher fines. And the financial impact may also include costs related to payments or compensation claims, potentially increasing the overall burden on the company.

You're listening to the Global Workforce podcast with me, George Britton.

Each week, we interview an industry expert to dive deeper into the world of managing a global workforce and discuss the big strategic challenges that you're going to encounter along the way. This episode is brought to you by Omnipresent, the global employment platform that allows you to employ anyone, anywhere without having to set up an entity.

Designed, built, and supported by global employment experts, Omnipresent takes care of your international employees and contractors, so you don't have to worry about payroll, HR, or compliance issues, making it easier, faster, and safer to expand internationally.

I'm delighted to be joined today by an expert on national and international employment law, Carlo Major.

Carlo's expertise includes industrial relations, restructuring, reorganisations of workforce, and transfer of business, as well as representing employers in a wide range of employment-related litigation in all courts, including the Italian Supreme Court and before several administrative agencies. Carlo frequently speaks on a range of employment law topics, both nationally and internationally.

He's been internationally recognised in the Chambers and the Legal 500, and in Italy in top legal and legal community.

Carlo was also a professor and taught at AGI's School of Higher Education. Carlo, welcome to the Global Workforce podcast.

Thank you very much, George, for the warm introduction. I'm truly honoured to be a part of the Global Workforce podcast and to contribute to the discussion on employment law. I'm sure we'll have a stimulating and insightful conversation. Thank you for having me.

Absolutely. It's a delight to have you here, Carlo.

Now, Carlo, you are very much an expert in many countries, but in Italy in particular. So, I'm curious to get your take. Can you talk a little bit about what it's like to employ in Italy? What's the kind of expansion potential for businesses looking to potentially hire in Italy?

Sure. Well, employing in Italy presents a rich mix of opportunities and challenges that reflect the country's distinctive economic and regulatory landscape.

Italy's employment framework is characterised by safeguarding the interests of both employees and employers.

Key aspects of employment in Italy include detailed regulations concerning employment contracts, working hours, service periods, holidays, paternity leave, sick leave, termination procedures, and anti-discrimination law. These regulations are governed by both national laws and collective agreements negotiated between employers and labour unions.

For businesses considering expansion into Italy, understanding the specificities of the Italian labour market and how it compares to other countries is crucial.

By way of example, the process of hiring in Italy involves several mandatory steps, such as establishing a company presence, obtaining the necessary tax identification number, and complying with various legal and regulatory requirements.

Despite these challenges, Italy offers substantial potential for business expansion. The regulatory environment, though complex, ensures balanced protection of employees' rights and employer needs, fostering a stable and productive workplace.

Additionally, Italy's robust sectors known for high-quality production in areas such as automotive, fashion, and machinery offer ample opportunities for partnerships.

And compared to other countries, Italy's business environment can be both challenging and rewarding. However, these challenges are counterbalanced by Italy's strategic advantages.

The country's skilled workforce and high-quality manufacturing capabilities make it an attractive destination for businesses.

While navigating local labour laws and business practices requires careful planning, the potential rewards in terms of market access and business opportunities are significant.

In conclusion, employing in Italy involves managing a complex legal framework, but the country's strategic benefits and supportive investment climate offer substantial potential for business expansion.

By leveraging Italy's strengths and effectively navigating its regulatory landscape, companies can achieve successful growth in this dynamic market.

That's super interesting. Thank you, Carlo. That's a really helpful summary. I was actually watching *Ford vs. Ferrari* on Netflix the other day, so it was a helpful reminder of some of the exciting brands that have come out of the Italian market.

I'm curious to hear your take, though. What are the common misconceptions about Italy? Let's say, for instance, an American company starts to think about hiring people in Italy. What are the things that they most commonly overlook, in your mind?

Well, working at both national and international levels, I have observed that when it comes to employing in Italy as a European country, American businesses often have several misconceptions due to differences in regulatory frameworks and labour practices between the US and Europe.

Many US companies tend to underestimate the complexity of European labour laws, mistakenly assuming a uniform regulatory framework throughout the EU.

However, while the EU sets broad guidelines, each member state, including Italy, has its own specific labour laws and regulations.

For example, Italy's labour market is governed by a combination of national laws, regional regulations, and collective agreements, which can be challenging for foreign companies to navigate and adhere to. For example, concerning the termination of employment, there is a common misconception that firing an employee in Italy is similar to the process in the US.

In reality, it is far more regulated and intricate.

Italian labour law offers strong protections against unjust dismissal.

Employers are required to follow precise procedures and may face legal and financial repercussions if they fail to meet these requirements.

Severance pay and labour disputes in Italy are also more structured and defined compared to the US.

Another misconception is the lack of awareness about the role of trade unions and collective bargaining in Italy. US businesses might not recognise the strong presence and influence of unions in Italian workplaces.

In Italy, trade unions and collective bargaining play a significant role in the labour landscape, contributing to the negotiation of labour conditions, workers' rights, and the overall functioning of the labour market.

Trade unions are prominent and influential in Italy, representing the interests of workers across various industries and sectors.

There are several major trade union confederations in the country, including the Italian General Confederation of Labour, the Italian Confederation of Workers' Trade Unions, and the Italian Labour Union. These confederations are further divided into individual unions representing specific professions or industries.

Understanding the union landscape is crucial for compliance and effective employee relations.

In conclusion, US businesses looking to operate in Italy should invest time and resources into understanding the local labour laws and regulations.

Engaging with local legal experts and consultants can help navigate these complexities and ensure compliance, thereby avoiding potential legal issues and fostering positive employment relationships.

Yeah. I think that's super interesting. And I think that's quite a common misconception with US businesses because many US businesses think about termination being termination at will, which it is for most of the domestic market over there. But then as soon as they go outside of the States, it's a really different ballgame. And so, when you come to somewhere like Italy, where you have complex severance regulations and, as you mentioned, the trade unions, then it becomes a completely different world altogether.

I guess, like any country, if you don't comply with these laws, there can be, as you mentioned, financial penalties but also reputational risks as well. How significant are the penalties, and what are the key risks in your mind for businesses going through those situations?

Oh, failure to comply with Italian labour laws can result in significant financial penalties and, of course, reputational risks for companies.

The penalties vary based on the specific violation and can be quite severe.

For instance, breaches of employment laws can lead to various financial penalties. Administrative fines may be imposed for issues such as inadequate documentation or failure to meet specific procedural requirements. More serious violations, like failing to adhere to safety standards or neglecting employee benefits, can result in even higher fines.

And the financial impact may also include costs related to payments or compensation claims, potentially increasing the overall burden on the company.

Also, please consider that persistent non-compliance can attract increased scrutiny from regulatory authorities.

Companies with a track record of labour law violations may face more frequent inspections and audits, which can uncover additional issues and result in further penalties.

The added scrutiny can create ongoing challenges for maintaining regulatory compliance.

And to mitigate these risks, businesses should focus on understanding and adhering to Italian employment laws.

This involves regularly reviewing employment practices, engaging legal experts to navigate complex regulations, and ensuring thorough documentation of employment agreements and compliance measures.

Proactive management in these areas helps avoid potential pitfalls and supports positive operational standing in Italy.

On the other hand, reputational risks are also significant. Companies failing to meet legal requirements may suffer negative publicity that can damage their brand image and erode public trust.

This adverse attention can affect customer perceptions and lead to reduced business opportunities.

Of course, effective management of employment practices and regularly reviewing compliance measures are essential to mitigating risks and safeguarding a company's reputation while ensuring smooth operations internally.

Yeah.

I think you've touched on some really interesting points there. I think as an employer of record, we've certainly seen Italy being one of the most popular markets that we've seen people looking to hire in. And I think part of that is because navigating all of this complexity themselves can be a real challenge, and people really want to have an expert by their side.

Does this solve a lot of the compliance issues in the Italian context?

The spread of the employer of record (EOR) solution has significantly increased in recent times, driven by the growing trend towards remote work, the globalisation of businesses, and the need for companies to hire talent internationally without having to set up an entity. The term employer of record refers to an organisation or entity that is legally responsible for hiring an individual on behalf of another company. This includes handling all legal employment requirements, such as payroll, taxes, benefits administration, and compliance with local and national labour laws. This practice is also known as human resources outsourcing.

The use of EORs in Italy has grown partly because foreign companies may feel overwhelmed by the complex regulatory landscape of Italian labour law and the challenges of potentially opening an Italian branch.

Therefore, the option of using an EOR to immediately provide one or more workers, formally employed

by the EOR but directed by the foreign company, is indeed an attractive solution.

The benefits of using an EOR include time and resource savings. The client company does not need to allocate internal resources for workforce management, as this is handled by the EOR; legal compliance, as the EOR assumes responsibility for legal compliance related to hiring and managing employees; and flexibility, as using an EOR allows the client company to quickly hire employees and enter new markets without dealing with the legal and tax complexities of staff hiring.

However, particular attention must be paid to this practice in Italy to avoid illegal labour intermediation.

In Italy, this practice is only permitted if certain requirements are met, such as if the activities are conducted by entities authorised by the Ministry of Labour and Social Policies and adhere to specific characteristics, including financial solvency and employee protection.

Therefore, it is important for those wishing to do business in Italy to be aware of the national legal limits for providing employees to other companies and to recognise the risk of using unauthorised operators or legal schemes that do not comply with Italian law.

Therefore, while the EOR solution offers significant benefits and can address many compliance issues in the Italian context, ensuring compliance with local labour laws and proper management practices remains essential to avoid potentially serious complications.

Yeah. That's really interesting. And I think you've touched on something there, which I think I would love to go a bit deeper into. You've talked about having the right authorisation.

Now in Italy, there's a crucial difference, I think, between recruitment licences and labour leasing licences.

Could you explain that difference as it relates to EOR? Because I guess there's differing levels of compliance and different use cases for those different types of licences.

Absolutely.

From a general point of view, a recruitment licence in Italy refers to companies that engage in the business of recruiting and selecting candidates for employment with third-party companies.

Recruitment agencies with this licence source, screen, and present candidates to client companies.

Recruitment agencies with this licence do not directly employ the candidates. Rather, they act as intermediaries with the primary focus on matching candidates with employers.

This type of licence does not cover the ongoing management or employment relationship between the employee and the client.

According to Italian law, employees' services must generally be utilised by the company with which they have a direct employment contract.

However, an exception to this rule exists for staff leasing arrangements. This practice allows companies (the "user") to engage an individual who is officially employed by a third party (the "staff leasing agency").

Staff leasing involves two distinct contractual relationships. One is between the staff leasing agency and the user company, which outlines the terms and conditions of the staff leasing arrangement, and another is between the staff leasing agency and the employee.

The interaction between the user company and the employee is effectively governed by the contract between the staff leasing agency and the user company.

Staff leasing is regulated by Legislative Decree 81/2015, which sets out requirements for the staff leasing agency, conditions under which staff leasing can be used, and the essential criteria for lawful staff leasing.

Staff leasing services are regulated, and these agencies can only lease employees to third parties if they hold specific authorisation from the Ministry of Labour and Social Policies.

An employer of record effectively acts as a labour leasing agency in that it hires, manages, and is responsible for employees on behalf of the client.

This includes ensuring payroll, compliance with employment laws, and other administrative tasks.

Since EOR services involve directly employing the employees and managing their employment relationship, the EOR must operate under a labour leasing licence to ensure full compliance with Italian labour regulations.

Got it. So if one type of licence is compliant but the other one is kind of designed for a different level of service, why might some employer of record providers be using the recruitment licence in Italy?

Well, in Italy, as I said, while the labour leasing licence is typically required for full employer of record services due to its comprehensive coverage of employment relationships, some EOR providers might choose to use a recruitment licence instead. This can occur for several reasons. For instance, obtaining a recruitment licence may be less administratively burdensome compared to acquiring a labour leasing licence.

Or the costs associated with obtaining and maintaining a labour leasing licence may be higher than those for a recruitment licence.

Also, some EOR providers do not even have a licence and operate as a service provider under the scheme of a service agreement in which, instead of providing a genuine service, they make some employees available to others.

However, it's important to note that using a recruitment licence instead of a labour leasing licence or even not having a licence can introduce very serious risks.

Got it. So what happens if you use one of the EOR providers that are not operating under the labour leasing licence? Are they using the recruitment licence or no licence? What are the penalties that are likely to occur there?

Well, labour leasing is strictly regulated and is reserved for agencies that are authorised by the Ministry of Labour and listed in an official register.

This means that only these licensed agencies are legally permitted to provide labour leasing services. If an EOR provider is operating without the necessary authorisation, they are engaging in unauthorised intermediary activities. As mentioned, in such cases, fines can be imposed based on the number of workers involved and the duration of their employment under the unauthorised arrangement.

These fines can be very significant and, in more severe cases, may escalate to criminal penalties leading to legal action against those responsible.

Furthermore, workers who are part of these unauthorised arrangements have the right to request a direct employment relationship with the user company. This means that they could potentially claim to be directly employed by the company from the start of their assignment, which can lead to additional legal and financial implications for both the EOR provider and the client.

From a fiscal perspective, if the user company is not a resident entity in Italy, using an EOR with only a recruitment licence or even without a licence could also cause the risk of creating a permanent establishment in the country. This would result in additional tax liabilities and reporting obligations for the foreign company, complicating its tax situation and compliance requirements.

So in summary, utilising an EOR provider with a recruitment licence instead of the required labour leasing licence, or even without a licence, can lead to significant legal and financial consequences.

Ensuring that your EOR provider is properly authorised is crucial to avoid penalties and aspects of tax complications related to establishing a permanent presence in the country.

Understood. So let's take a worst-case scenario. Let's assume that there's a company employing an employee through an EOR, and they only have a recruitment licence and not the labour leasing licence. I guess things can get complicated quite quickly. What are some of the worst-case scenarios in that setup?

Well, the termination of an employee, for instance, which is of course one of the main issues that can happen, and doing it through an EOR provider that operates under a recruitment licence rather than a labour leasing licence or even without the licence can result in a series of complex and challenging issues. First of all, the only entity that can terminate the employment relationship is the agency and not the company that uses the employee.

Moreover, the grounds used to justify the termination usually stand with the company that uses the employee, but such grounds cannot be used by the EOR, with the consequence that reaching a mutual termination agreement remains in such cases the only or almost the only feasible option, with additional and unpredictable costs related to the negotiation with the employee.

Having said that, a possible problem remains that employees engaged through such unauthorised arrangements could claim a direct employment relationship with the user company. This means that employees might assert the right to be considered directly employed by the company from the outset of their assignment.

This situation can lead to substantial legal and financial ramifications for both the EOR provider and the client company, and it could involve retroactive claims for employment benefits and compensation, further complicating the termination process.

Right. So it sounds like it could get really complicated quite quickly.

So how, if you were a user of an EOR service, would you identify which one is licensed, which one is unlicensed, and what's the best way to do that in your mind?

That's an easy one. To identify if your employer of record provider is using the correct licence model and can ensure their compliance, the simplest solution is to check if the company is registered with the list of authorised employment agencies maintained by the Ministry of Labour and Social Policies. This list is directly accessible on the Ministry's website, allowing you to quickly confirm the provider's credentials.

Super. Well, that sounds really nice and simple, Carlo. I've learned a huge amount today, and I really appreciate all of your insights.

It sounds like, you know, if I summarise some of my thoughts, Italy is a really exciting market. There's a great population there that could be employed. You have access to lots of other countries within the eurozone, so there are some huge benefits to employing in Italy, but also a fair degree of complication, and you need to really—my key takeaway is you need to really work with the right experts if you're going to employ in Italy.

Are there any final thoughts that you'd like to share with the listeners today?

Yes, of course. To conclude, I'd like to share a wish for the future of the Italian labour market. As we witness significant transformations driven by technological advancements and shifting work patterns, including the integration of artificial intelligence and the growing fluidity between work locations and company headquarters, it's crucial for our legislators to take action.

These developments highlight the need for regulatory reforms that address the evolving dynamics of the labour market.

The focus should be on establishing a more flexible legal framework that can adapt to the varying and changing demands of businesses.

This includes modernising labour laws to better support remote work, technological innovations, and the rise of digital nomads.

By creating a regulatory environment that encourages flexibility and innovation, I'm sure Italy can boost its appeal as a business hub and stay aligned with current employment trends.

Couldn't agree more, Carlo. That's fantastic. Thank you so

much for being a guest on the podcast today. I really found this conversation insightful. I think it's really good to dig into the nitty-gritty and get your expert insight into this interesting market. Thank you so much.

Thank you, George, for having me on the Global Workforce podcast. It has been a true pleasure discussing these critical aspects of employment.

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