Recently classified as one the world´s most complex countries to calculate payroll, Italy varies drastically from other countries in the European Union, such as Switzerland. The main sources of Italian employment law and payment processing regulation are the European Union law and Italian labor law. With these sources, a payroll team can anticipate Italy´s regulations on collective bargaining agreements, 13/14th month salary payments, tax, social security and insurance calculations.
Italian Collective Bargaining Agreements
Negotiations for collective bargaining take place at two levels. The first, and most important, being the national level, which are used to initiate national discussions between employees, employers and the government. The second, are regional or industry level negotiations which are generally intended to keep pace with rising cost of living. This level also deals with non-pay related negotiations like information rights, hours, work organization, probationary period, etc.
Nearly 80% of all Italian employees at various levels are covered by these collective agreements. In fact, once an employer chooses to include a CBA with conditions of employment, it becomes the basis for all negotiations and prevails over the law in favor of the employee. For example, there is no statutory minimum wage in Italy, but the CBA defines, on a sectoral level, what the minimum wage is as well as salary re-negotiations every three to four years when these agreements expire.
13th and 14th Salary Months in Italy
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.
Italian Tax, Social Security and Insurance Considerations
Italian income tax, or IRPEF, is collected at a progressive rate and deducted monthly from the gross salary on behalf of the employee in tandem with variable regional and municipal taxes. Residency status is relevant to the amount of income tax paid and all Italian employers are obliged to calculate and report all tax to the appropriate authorities.
In addition to tax reporting there are obligatory Italian social security contributions that must also be calculated and reported by the employer and employee. For example, all companies must register with Italy´s social security governing body Instituto Nazionale Previdenza Sociale (INPS) and the “class of activity” by the company will determine the company´s final contribution rate (26%-29%). For individuals, employment status and seniority affect social security contributions. These contributions must be paid by the 16th of every month after commencing employment.
INAIL (Labour Insurance)
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 disease. Like tax and social security contributions, INAIL is regionally variable and must also be reported to the appropriate authorities.
Italian Severance Pay/Redundancy Compensation
Legally required in Italy and payable in any case of termination, that isdismissal, voluntary resignation, disability, death, and more,all employees are entitled to receive severance pay, tarattamento di fine rapporto, or TFR. TFR is calculated by adding together the gross annual salary for each year of employment and then dividing it by 13.5. This payment is not subject to social security payments and is taxed at a special lower rate. This special lower tax rate is applied for the average length of TFR payments, which is about 7 years. In addition, there is no threshold and in most cases this cost is completely covered by the employer and regularly processed with payroll.
With industry specific collective bargaining agreements, complex tax, and social security considerations there are many things to review when processing payroll for employees in Italy. For this reason, Italy payroll processing can quickly become a complex and time-consuming process; however, companies can make doing business easier by utilizing a trusted global payroll solution backed by country specific professionals.