Taxes and payrolls: the Italian labour market

Each labour market has some peculiarities. It may be tricky for foreigners to understand fully the payment methods, the taxes and other benefits related. In TalentUp we are starting a series of different blog articles, one for each country. This article analyses the Italian labour market.

General data about the Italian labour market

Payroll taxes in Italy

Social security contributions are made by the employer and the employee and are used for funding unemployment, pension, maternity/paternity leave, and sickness or injury.

Once contributions are paid, employees need to pay an income tax that varies depending on their gross salaries. 

Contingencies from self-employees

If starting a company in Italy for the first time, you must decide on a tax regime. You either pay the standard taxed rates (for employees) or use the regime forfettario, a flat-rate tax scheme introduced in 2015.

• Sole proprietorship (ditta individuale): designed for self-employed traders, such as plumbers, electricians, and shopkeepers, allowing you to hire employees. 
• Freelancer (libero professionista): status is exclusively available to self-employed residents who carry out intellectual activities such as consultancy, legal work, or journalism

Their tax rate is 5% for the first 5 years, and 15% after that. However, the earnings cannot exceed 85,000€.

Self-employed workers using the standard tax system can benefit from the workers relocating to Italy scheme (lavoratori impatriati). This allows workers to only pay tax on 30% of their income for the first five years of living in Italy. A lower rate of 10% is available in some regions.

Example of net salary in Italy

As a reference, we use the average salary of a software engineer. In Italy, on average, software engineers earn annually 45,200€.

The employer contributes from 13,288.8 to 14,916€ to social security and the employee 4,520€.
After paying the income tax, the employee has a net salary of 29,542€ coming from a gross salary of 42,500€.

Unemployment regulation in Italy

If the employer decides to terminate the contract, the notice period can range from 30 days to 12 months. However, if it is the employee who resigns, the length of notice required will vary from 30 days to 4 months.

Upon termination, the employee must be paid the TFR (Trattamento di fine rapporto), which the employer defers each month. The TFR is calculated according to the formula of a year’s overall salary divided by 13.5, plus 1.50% for each year of service plus compensation for inflation.

For employees with no managerial responsibilities, the probation period is three months, whereas for all other employees/managers/supervisors, etc., the probation period is six months.

Different kinds of leaves in Italy

Italians have a minimum of 8 paid vacation days a year. However, usually four weeks of vacation are granted to each worker.

Moreover, they have 12 public holidays.

In Italy, employees are entitled to paid sick leave, initially covered by the employer and later by the government. The employer pays the first three days at 100% of the salary, which reduces to 66% and then 50% for subsequent periods of sickness. Any sickness beyond the fourth period is unpaid. From the fourth day onwards, the employee receives 100% of their salary, split between the employer (50%) and the government (50%) from days 4 to 21, and then the government covers 66% with the employer contributing 34% from day 22 onward.

Paid parental leave

Paid maternity leave lasts for 5 months: 2 before the due data and three after. They receive 80% of their salary.

In addition, a new mother can take up to six months of unpaid leave after maternity leave. Alternatively, if a mother chooses not to take parental leave after maternity leave, she can work 6 hours a day until the child is one year old.

Mothers whose income was lower than 8,145 EUR prior to maternity leave will have their maternity indemnity increased by three months.

Paternity leave is paid at 100% for 10 days during the first 5 months after the birth.

There is one month of paternal leave with 80% of the salary. And unpaid paternal leave can last up to 10 months.

Other common Italian benefits

How to employ an Italian worker

To hire employees in Italy, a local company is needed. 

Some platforms (Papaya Global among them) offer the Employer of Record (EoR) service helping companies hire countries where they do not have any office.

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