Italy at a Glance

Most employment rules are mandatory and cannot be amended by the parties, unless more favorable provisions are accorded to the employee.

Employers can lawfully and unilaterally change employee’s roles/job positions provided that the new roles/positions pertain to the same level and category of classification as previously assigned to the employee.

In Italy, unions are primarily organized by business sector. All workers involved in a particular industry belong to the same union regardless of the nature of their particular job or occupational qualifications.

An employment contract normally has an unlimited duration and indeed the Italian legislator encourages the hiring of permanent subordinate employees. However, there are various forms of subordinate employment contracts that allow, under certain conditions, some flexibility to employers/employees.

Employers can hire fixed term employees for a maximum duration of 12 months, provided that they do not exceed 20% of the total headcount (save for any different threshold set forth by the applicable NCLA). Such threshold does not apply to fixed term contracts entered into:

• to replace absentee employees;
• to meet seasonal needs;
• with employees over 55; or
• for start-up reasons.

Fixed-term contracts cannot go beyond 12 months:

• Further, under certain conditions, employees who worked for the employer under a fixed term contracts for more than six months has some priority right in case of new permanent hiring by the same employer for the same duties.
• It should be noted that under a fixed term contract neither the employee nor the employer can terminate the employment before the expiration of the term, unless in case of just cause.

Probationary periods (“periodo di prova”) are common in Italy and the length varies depending on the terms of the applicable Collective Bargaining Agreement. However, in all instances the maximum term of probationary periods is six months.

In principle, employees must work 40 hours per week, save for more favorable provisions to the employees of the National Collective Labor Agreements(NCLA). The duration of the weekly working time cannot exceed 48 hours a week, including overtime, to be calculated over a period not exceeding four months, unless the NCLA increases such period up to six months.

In principle, employees must work 40 hours per week, save for more favorable provisions to the employees of the National Collective Labor Agreements(NCLA). The duration of the weekly working time cannot exceed 48 hours a week, including overtime, to be calculated over a period not exceeding four months, unless the NCLA increases such period up to six months.

Italian rules on dismissal are quite complex, they are subject to frequent material changes and vary based on: i) the headcount, ii) the reason of the dismissal, iii) the classification of the employee, and iv) the date of hiring of the employee. Therefore, to assess procedure and consequences of a dismissal the following circumstances should be considered:

• date of hiring of the employee; distinguishing if the employment started before 7 March 2015 (“Old Hiring”) or after such date (“New Hiring”);
• headcount of the employer; considering “Big Employers” companies having more than
  • 15 employees in one office/branch or in more offices/branches located in the same municipality; or
  • 60 employees within the Italian territory.
• category of the employee, since the dismissal of executives follows some different rules.

Individual dismissal

The dismissal must be communicated in writing and specify the relevant grounds.

An employee can be lawfully dismissed if a just cause or a justified reason occurs, where:

• a “just cause” is an employee’s very serious misconduct which makes the continuation of the employment relationship impossible;
• a justified subjective reason is a breach of the employee’s duties but not so serious to trigger a “just cause”; and
• an objective business reason is a reason concerning the productivity, the organization of the work, or the operation of the company, e.g. the removal of the position where no other duties can be assigned to the employee.

Executive dismissal

Different rules apply to the dismissal of dirigenti (executives). The executive’s dismissal is deemed to be justified only if it is as a result of:

• objective reasons related to the employer’s economic, organizational and production-related needs; or
• subjective reasons related to performance.

In the case of particularly serious misconduct the dirigente can be dismissed for just cause. In this event, the dismissal is effective immediately and the dirigente is not entitled to any notice period. Moreover, whenever a dismissal is due to subjective reasons, a specific disciplinary procedure must be followed by the employer before serving the dismissal.

Prohibited dismissals

The following dismissals are prohibited and, as such, null, void, with the consequence that the terminated employee has the right of reinstatement (even if executive) and payment of all the salaries accrued from the dismissal date until the reinstatement:

• dismissals based on retaliation or discriminatory reasons;
• dismissals when employee is on a sick leave;
• for female workers, during the period from the announcement of her marriage until one year after its celebration;
• from the beginning of a pregnancy until one year after the birth in the case of female workers and, for those who take paternity leave, from the duration of the leave until one year after the birth.

The employee’s notice period will usually be set out in the collective labour agreement and is calculated in accordance with the employee’s length of service, position and level in the company.

Garden leave as such, does not exist under Italian law. Indeed, an employee has a right to maintain work, even during the notice period. Therefore, to continue paying salary to the employee during the notice period without him/her working is only permitted with the consent of the employee.

According to the principle of free movement of persons, goods, services and capital, EU (European Union) and EEA (European Economic Area) and Swiss nationals may be employed in Italy without any authorization by the Italian authorities.

However, if their stay in Italy is for a period in excess of 3 months, they should apply for a permanent residency card, which is issued by the local State Police office. This permit is renewable.

Foreign workers must apply for their residence permit (Permesso di Soggiorno) within eight days of arrival in Italy. The admission of non-EU foreign workers is subject to a mechanism of quantitative selectivity based on quotas for new entries on a yearly basis. They are meant to regulate the admission of third country nationals and their access to Italian labour market by quantitative selectivity.

The determination of annual quotas of new inflows is established by the government, which sets the quota. The implementation process of the quota system is basically made up of three main steps:

• Authorization requests presented by employers to the Immigration Single Desk (ISD);
• VISA request by prospective migrants in their country of origin;
• Request and delivery of the residence permit for working purposes.

Employers have to request authorization to hire a foreign worker through the Immigration Single Desk. Once all the checks have been made by the Labour authority and by the local State Police office the authorization (“nulla osta”), may be delivered to the applicant employer. The whole procedure may take up to 40 days from the application.

Once the authorization is delivered to the employer, they send it on to the individual foreign worker to be recruited who must present him/herself at the Italian diplomatic representation in his/her country of origin and requests a visa for working purposes. The authorization has a 6-month validity and during this period the visa should be issued.

Once the employee has entered Italy with a work visa, they have eight days to apply for a residence permit. The work visa should be presented along with additional supporting documents. The Foreign Department (Ufficio Stranieri) of the local Italian Police Headquarters will issue the Italian residence permit, allowing the employee to both live and work in Italy.

Requirements of setting up a Subsidiary (SRL):

• At least one shareholder, which can be either an individual or a legal person, is required to form a subsidiary.
• The minimum share capital for a subsidiary is legally set to 1 euro, making it a low-barrier option for those looking to enter the Italian market.

At least one director is required for a subsidiary. The director does not need to be an EU citizen or resident, offering flexibility for foreign investors.

• There are no specific shareholder requirements for a branch, as it is an extension of the parent company.
• As there is no separate legal personality for a branch, no minimum share capital is required.
• A branch does not require its own separate directors as it operates under the parent company’s governance.

Corporate taxes in Italy are filed annually, but advance payments are required in June and November. The standard corporate tax rate is 24% for IRES (Corporate Income Tax) and 3.9% for IRAP (Regional Business Tax). Companies should ensure they meet these payment deadlines to avoid penalties.

Italy imposes a Value Added Tax (VAT), commonly referred to as IVA, on most goods and services. The general VAT rate is 22%, with reduced rates of 10%, 5%, and 4% applying to specific items and services.

The deadline for filing annual tax returns in Italy is the end of the 9th month following the close of the tax year. Companies should plan accordingly to ensure timely submission and avoid any late filing penalties.

The fiscal year in Italy can be set to any 12-month period. Businesses are required to adhere to their selected fiscal cycle for reporting and tax filing purposes.

For subsidiaries, profits can be repatriated to the parent company. However, this process involves several legal and procedural requirements. Guidance and assistance are available to ensure that these steps are taken correctly and efficiently, in compliance with Italian law.

Italian legislation does not prescribe a specific hierarchy for transfer pricing (TP) methodologies. In practice, however, businesses tend to favor the Comparable Uncontrolled Price method or traditional transaction methods. We can assist in reviewing your internal intercompany agreement templates to ensure local compliance or help draft a new agreement that meets all regulatory requirements.

Electronic invoicing (e-invoicing) is mandatory in Italy for Business-to-Business (B2B) and Business-to-Government (B2G) transactions. These regulations are governed by the Ministry of Economy and Finance and the Italian Revenue Agency (Ministero dell’Economia e delle Finanze). Companies must ensure their invoicing practices align with these rules.

Foreign companies operating in Italy are required to appoint a tax representative for tax purposes. This representative acts as a liaison between the foreign company and Italian tax authorities, ensuring compliance with local tax obligations.

The annual gross salary is payable through 13 or 14 monthly installments depending on the NCLA the employee is under. The 13th month is paid in December and the 14th month is paid in June.

In Italy, employees are entitled to an additional payment in December, commonly known as the “Tredicesima” or Christmas bonus. This bonus generally equals one month’s salary. Depending on the sector or collective bargaining agreements, employees may also receive an extra payment during the summer, in addition to the standard salary.

Italian law mandates that employees receive severance indemnity, also known as TFR (Trattamento di Fine Rapporto). This is accrued annually and is equal to 1/13.5 of the employee’s gross annual salary. This severance pay is an important financial consideration for employers when calculating the cost of employment.

In any case of termination, the employer shall pay to the employee a mandatory severance indemnity (Trattamento di Fine Rapporto, or “TFR”). The TFR roughly corresponds, for each year of service, to 1/13 of the annual gross global salary granted to the employee. During the employment, the TFR accruals are registered in the financial statements or, upon employee’s choice, can be paid directly to a complementary pension fund, in which case, there is no TFR payment due at the termination date.

The gross salary is the amount paid to an employee before any deductions are made. This figure depends on various factors, including the employee’s role, skills, experience, and industry. Employers must ensure that their salary offerings comply with Italian labor laws and any applicable collective bargaining agreements.

Salary is paid at the end of the working month, as established in the company policies or by the NCBA. Italian law also provides for an annual 13th payment, paid for the Christmas holidays that corresponds to one month’s remuneration. In addition, certain NCBAs or individual contracts may provide for the payment of a 14th payment, usually in July.

Italian Law requires that the net salary paid to employees must be stated in a pay slip specifying the period of service which the salary refers to, the amount and the value of any overtime, together with all the elements that constitute the amount paid as well as all withholdings made in accordance with Italian law.

In 2019, the European Court of Justice stated that companies must set up a system to record the working time of their employees. Thus, employers are obliged to implement an objective, reliable and accessible system that allows recording of the daily workday performed by each employee.

All employees are entitled to a minimum of four weeks’ (20 days) paid annual holiday. Collective bargaining agreements (CBAs) and individual contracts can provide for a longer period of holiday entitlement. Minimum annual leave cannot be replaced by a payment in lieu, except where the employment contract is terminated.

Carry Over Rules: Holiday can be rolled over into the next holiday year by the employee and there is no cap on the number of days, that can be accrued.

Employers are obligated to provide paid vacation days and public holidays to their employees. The cost of these leave days is an additional factor that must be considered when estimating the overall cost of employment. Work on public holidays is remunerated at a higher rate.

In Italy, every employee must undergo an initial medical examination before starting work.

In the event of employee illness or injury, CBAs or individual contracts generally provide for a period of paid time off, during which the employee is entitled to keep their job and to receive their salary in the proportion and for the period set out in any applicable CBA or the individual employment contract. After this period, the employer can dismiss the employee by giving notice. This period is generally between six and 12 months and applies in cases of both a single period of sick leave and multiple periods.

Statutory sick pay starts on the 4th day of sickness, the first 3 days are “waiting days” and are typically paid in full by the employer. Statutory sick pay is paid for a maximum of 180 days per calendar year. Between the 4th and 20th day of illness, the statutory sick pay amount is, generally, equal to 50% of average daily pay, moving to 66% between the 21st and 180th day. During the sickness period, the employment continues to have legal effect. Consequently, all employee rights (such as seniority, holidays, permits) continue to be accrued by the employee.

Female employees must not work for two months before, and three months after, childbirth. This compulsory period of maternity leave can be shifted to up to five months used all after childbirth, if a medical certificate is produced.

A female employee can request to go on early maternity leave in certain circumstances, for example, if her duties involve lifting or moving heavy objects. In this case, a medical certificate is required, together with an authorization from the Employment Office. However, the employer’s consent is not needed.

During the entire pregnancy, and for a period after childbirth, the employee must not be allocated tasks that may endanger her health.

During maternity leave, employees receive an allowance from the National Social Security Body equal to 80% of their salary.

In case of voluntary or therapeutic termination of pregnancy after 180 days from the beginning of the pregnancy, or in case of the death of the child at birth or during maternity leave, female employees can return to work at any time with at least ten days’ notice to the employer (subject to specific medical approval).

After maternity leave, employees are entitled to return to the same job in which they were employed before taking leave. Employers cannot dismiss female employees during pregnancy and until the child is one year old, except in certain circumstances.

Additionally, the resignations and mutual termination agreements entered into with mothers during pregnancy or with parents of children under the age of three must always be validated and confirmed by such mothers or fathers through a special procedure. Failure to do so renders the resignation/mutual termination agreement ineffective.

If the mother does not take maternity leave (due to death, infirmity or the father having exclusive custody), the father is entitled to the entire or residual period of maternity leave. This right does not apply in any other circumstances.

Employees on paternity leave are entitled to the same allowance, have the same rights to return to their job after paternity leave and have the same protections against dismissal as employees on maternity leave.

Additionally, since 1 January 2020, fathers must take ten days of paid paternity leave within five months of the child being born and can take a further day, within the same timeframe, in the place of the mothers.

During the first 12 years of the child’s life, the parents are entitled to have a period of absence to take care of their children. Parental leave can be taken by the mother and by the father for a maximum period of six months, or by one parent only for a maximum period of 10 months.

Employees who have adopted children are entitled to take a three-month period of maternity or paternity leave during the first three months that the child is in the family. They are entitled to the same financial benefits as parents of natural children. They can also take parental leave, for the first three years that the child is in the family, for the same periods and with the same financial benefits as parents of natural children.

During the first eight years of a child’s life, the parents are entitled to be absent from work when their child is ill.

The Carers’ Rights law provides for several kinds of paid ordinary or extraordinary leave entitlements for subordinate employees who are:

• Parents or relatives of disabled children.
• Married to, or have relatives who are, adult dependents, whose disability is of a serious nature and has been assessed by a state medical panel.

Employees are entitled to request up to two years’ extraordinary leave, during which the employee receives a monthly amount equal to the normal monthly salary, up to a fixed gross annual threshold set up each year by the Ministry of Labour.

Additionally, all employees have a right to three days paid leave per year in the case of death or documented serious illness of the spouse, a relative within the second degree or the stable cohabitant.

Each parent has the right to unpaid leave to take care of a sick child under three years old, but they cannot both take this period of leave at the same time. Each parent has the right to up to five days unpaid leave per year to take care of a sick child between three and eight years old, but they cannot both take this period of leave at the same time.

There are 12 public holidays, which are not included in the minimum holiday entitlement. However, any holidays falling on a weekend are not moved to a weekday. Major cities may also observe a regional holiday on the festival day of their patron saint.

The Italian social security system is funded by contributions paid by employed workers, employers, independent workers and self-employed workers, as well as through general taxation. The benefits provide include:

• Health services;
• Sickness compensation;
• Maternity and paternity pay;
• Incapacity and disability benefit;
• Old age pensions;
• Survivors’ pensions;
• Benefits in case of accidents at work or occupational disease;
• Family benefits;
• Unemployment benefit;
• Social inclusion and income support measures;
• Civil incapacity and long-term care benefits.

The National Health Service (SSN) is funded by all residents of Italy through taxes, as well as through co-payment of the cost of medicines and health services through and managed by the individual regions through the Local Health Authorities (LHA).

If you belong to any of the categories of workers indicated below, you are insured by the National Institute for Social Security (INPS):

• Employees of the private sector signed up to the employed workers pension fund (FLPD);
• Employees in the public sector;
• Independent workers registered with the relevant special schemes;
• Self-employed workers registered with a separate scheme.

The INPS also manages certain special social security schemes and funds for certain categories of workers such as: clergy, civil aviation flight staff, and miners. Other Bodies under private law manage your obligatory social security and support if you belong to a certain category of professionals, such as lawyers, doctors, engineers, architects, notaries, etc. registered with the specific pension Scheme or Fund.

The National Institute for Insurance against Accidents at Work (INAIL) manages the insurance system, funded through contributions paid by employers, which protects workers in case of:

• Accidents;
• Death In The Workplace;
• Occupational Disease.

The INAIL provides:

• Temporary Benefits;
• Annuities In The Event Of Permanent Disability;
• Compensation in the event of death.

The only way to offer supplemental benefits is via taxable allowance.

Employers may provide additional benefits to employees, such as performance-based bonuses, meal allowances, transportation allowances, or other perks. These benefits vary depending on the company’s policies and industry norms.

Depending on the specific sector or the terms of a collective bargaining agreement, companies may face further costs associated with other benefits or legal obligations. These can include allowances for meals or transportation, private insurance, training allowances, and more.