Italy, along with other European countries such as France and Belgium, is classified as a country with a complex payroll system. This is due to, among others, industry specific collective bargaining agreements, local statutes, tax and social security considerations and various additional regulations. In this blog, Financial Consultant Svetlana Sonas highlights elements of the Italian payroll that make up the employer costs and obligations.
Social security in Italy is built upon compulsory contributions made to the National Institute of Social Security (INPS). Contributions vary depending on the industry and the job title of the employee. Employer contributions range between 29%- 32% and employee contributions range between 9,19%-10,49%. These
INAIL, or Istituto Nazionale Della Pevidenza Sociale, is another mandatory contribution for all Italian employees which covers employees for accidents in the workplace and occupational diseases. Like tax and social security contributions, INAIL varies per region and must also be reported to the appropriate authorities.
Every employee saves TFR (Trattamento de Fine Rapporto) in Italy. This is an amount of approximately 10% of the gross wage, which is collected when the employee resigns the job or is dismissed.
The TFR, for the employer, is one of the workforce costs, because it is a part of benefit which is paid at the termination but which accrues during the relationship. Every month the employee accrues the worth and at the termination of the working relationship the company pays the employee the total accrued amount. This TFR can also be placed in a pension fund. If the employee is enrolled at one of the pension funds available on the Italian market, the employer has to pay the accrued part to the pension fund every month. The employee has the option first to keep the TFR in the company, and after a period of time to decide to allocate it to a pension fund.
13th and 14th salary months
Though uncommon in most countries, according to Italian law, compensation is granted in thirteen installments, with the extra installment paid in December. Generally defined by the CBA and depending on the employee´s industry, position, status and seniority, the fourteenth payment installment is typically paid in June.
Employees are granted holidays and also so-called permit hours (permessi) that can be used for personal reasons. The amount of minimum holiday days and permit hour depend on the particular collective bargaining agreement. For instance, the trade sector agreement provides a minimum 22 vacation days per year (Monday to Friday) and 88 permits hours per year. For new hires the permits hours are granted at 50% (56/2= 28 hours per year) for the first 2 years. The hours are valid for 18 months. After that the employer has to pay them out to the employee. Every year new hours are added.
Employees have to take at least 2 weeks of holiday a year but the days that are left at the end of the year can’t be paid out by the employee. By this rule the employees are forced to take holidays. When someone leaves the due holiday days are paid out. The unused “permessi”, in turn, can be paid if they are not used during the year. Additionally, employees are entitled to be paid for the national bank holidays as well as certain local municipal bank holidays in case the day falls on a Sunday. This is because these days cannot be enjoyed by the employee separately. The pay-out is done at the daily salary rate.
The above description sheds light on some important aspects when considering hiring in Italy.
In our upcoming blogs we will elaborate about other aspects of employment in Italy. Topics include onboarding, terminations and other employment laws. Stay tuned!
Are you also facing difficulties with payroll in European countries? We are here to act as your strategic partner. If you want to know more about HR in Europe, please do not hesitate to contact Monique Ramondt-Sanders - VP of Human Resource Outsourcing. More information on our services can be found on our website and blogs.
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