Employer costs in Italy can be complex and varied due to industry-specific collective bargaining agreements, local statutes, tax and social security considerations, and additional regulations. Understanding the elements that make up employer costs and obligations in Italy is crucial for businesses employing in the country.
To grasp the total expenses associated with an employee in Italy, it is necessary to consider various elements, including salaries, insurance and social security contributions, and severance pay. The gross wages received by an employee in Italy are referred to as Retribuzione Annua Lorda (RAL), which forms the basis for calculating personnel costs.
While employee insurance and social security contributions are included in the RAL, there are additional contributions that the employer must pay. These include INPS contributions, which enable employees to receive a pension, and INAIL contributions, which provide insurance coverage for illness and workplace accidents. The total amount of social security and pension contributions payable by the employer can range between 30% and 35% and varies based on factors such as the employee's gross annual salary, company type and size, sector, and qualification.
Another important cost to consider is the severance pay, known as TFR. This compensation is deferred and calculated based on the employee's gross annual salary, with approximately one monthly salary set aside per year of employment.
Labour cost in Italy therefore typically range between 38% and 45% of an employee's salary. It is crucial for employers to consider these costs when hiring employees in Italy and consult experienced consultants to navigate the complexities.
Social Security Contributions in Italy Payroll
Social security contributions form a mandatory part of payroll in Italy. These contributions are made to the National Institute of Social Security (INPS) and are essential for providing various benefits to employees. The rates of social security contributions can vary depending on the industry and job title of the employee.
- Employer Contributions: Employer contributions to social security in Italy typically range between 29% and 32% of the employee's gross wage. The specific contribution rate depends on factors such as the company's activities, the number of employees, and the employee's position.
- Employee Contributions: Employees also make compulsory contributions to social security in Italy. The employee contribution rates usually fall between 9.19% and 10.49% of their gross wage. Like employer contributions, the exact rate depends on the type of activities performed by the company, the number of employees, and the employee's position.
These social security contributions in Italy not only cover the basic social security benefits but also include contributions towards unemployment, sickness, maternity, temporary unemployment compensation, social mobility, and other smaller funds. It is important for employers to accurately calculate and report these contributions to the appropriate authorities.
INAIL: Mandatory Contributions for Workplace Accidents
Apart from social security contributions, employers in Italy are also required to make contributions to INAIL (Istituto Nazionale Della Previdenza Sociale). INAIL provides insurance coverage for workplace accidents and occupational diseases. The contribution rates for INAIL vary based on the region and must be reported to the relevant authorities.
Italy Payroll Benefit: TFR (Trattamento di Fine Rapporto)
One significant aspect of employer costs in Italy is the TFR, also known as "severance pay." TFR refers to the amount of approximately 7.5% of the employee's gross wage that is paid to the employee when their employment ends, either due to resignation or dismissal.
The TFR is considered part of the employee's benefit and accrues during the employment period. Every month, the employee accrues a portion of the TFR, and the total accumulated amount is paid by the company at the end of the working relationship. However, employees also have the option to allocate the TFR to a pension fund. If an employee chooses to enrol in a pension fund, the employer is required to pay the accrued part of the TFR to the fund every month.
Salary Instalments and Annual Leave in Payroll in Italy
In addition to social security contributions and TFR, there are other elements to consider in the payroll of Italy, such as salary instalments and annual leave.
13th and 14th Salary Months
Unlike many other countries, Italy mandates the payment of compensation in thirteen instalments. The extra instalment, known as the 14th salary month, is typically paid in December. The specific payment schedule for the 14th salary month and the criteria for eligibility are usually defined by the collective bargaining agreement (CBA) and may vary based on factors such as industry, position, status, and seniority. In most cases, the 14th salary month is paid in June.
Annual Leave
Employees in Italy are entitled to annual leave, as well as "permit hours" (permessi orari retribuiti) that can be used for personal reasons. The number of minimum holiday days and permit hours depends on the collective bargaining agreement that applies to the employee.
For example, the trade sector agreement provides a minimum of 22 vacation days per year (Monday to Friday) and 88 permit hours per year. For new hires, the permit hours are granted at 50% (56/2 = 28 hours per year) for the first two years.
It is important to note that employees must take at least two weeks of holiday in a row per year, and any unused days cannot be paid out. This requirement ensures that employees take their entitled holidays. When an employee leaves the company, any remaining due holiday days are paid out.
Unused permit hours, on the other hand, can be paid to the employee if they are not utilized during the year. In addition to holidays and permit hours, employees are entitled to be paid for national bank holidays and certain local municipal bank holidays that fall on a Sunday. These holidays cannot be enjoyed separately, so the payout is done at the employee's daily salary rate.
Conclusion
Employer costs in Italy encompass various elements, including social security contributions, TFR, salary instalments, and annual leave. Understanding these components is essential for businesses operating in Italy and ensures compliance with the country's regulations. By considering the unique aspects of the Italian payroll system, employers can effectively manage their costs and obligations while providing the necessary benefits to their employees.