Is your company expanding into Italy? There are a few things your business ought to know before hiring. Here is our guide to payroll in Italy.
Ease of Doing Business in Italy: An Overview
Doing business in Italy can be challenging. In the United States, employers have two choices when hiring. They either hire as independent contractors or bring workers in as employees on their payroll. But in Italy, there are 20 kinds of work contracts.
Additionally, taxes are high and complicated. The Global Payroll Association noted that Italy has “one of the most complicated payroll algorithms in the world.” Because of this, European payroll experts strongly encourage those doing business in Italy to hire a Professional Employment Outsourcing (PEO) agency or a Global Employer Organization (GEO) before doing business in Italy. That being said, Italy does possess the third-largest economy in Europe. Foreign businesses are likely to benefit by expanding into Italy.
Recent Developments in Italy Payroll Laws
There has been an ongoing struggle between the power of national and regional governments. Most recently, regional law has regained more weight. As the pulsating shift of power from centralization to decentralization continues, it could have year-to-year effects on payroll and corporate tax laws.
Basic Facts about Payroll in Italy
Even though there are 20 work contracts, there are two basic categories: indefinite (long-term) or fixed-term contracts (temporary). Payroll taxes include income taxes (on the national, regional, and city levels), public accident insurance, and public pension. Any companies wishing to do business in Italy must register their business with the government. As such, foreign companies operating within Italian borders are responsible for all payroll, tax, and labor laws.
Italy does not charge a payroll tax, but they do require a flat corporate tax rate of 27.5%. Employee income taxes range from 23% to 43%. Employees may also be subject to a withholding tax on royalties or dividends.
Rates and Thresholds
Any employees earning 15,000 Euro (16,500 USD) or less pay 23% in taxes. Employees earning more than 75,000 Euro (82,600 USD) are subject to the 43% tax rate. For specific tax rates on various earned income, refer to the table below.
How Withholding Works
As a general rule, employers are required to withhold 26% from every employee paycheck. On dividends and royalties, tax withheld could be up to 75% of the dividend or royalty amount. However, taxes withheld varies based on whether or not there are exemptions, as well as whether or not the employee is a resident. To make matters even more complicated, these numbers change drastically if the employee is a non-resident of Italy from a nation with which Italy has a formal treaty.
Returns and Remittance
Though the taxable year runs January 1 to December 31 as expected, employees may file their return anytime the following year up to October 31 and remit any taxes owed by June 30 the following year. That means that employees filing their taxes for 2019 may file any time before October 31, 2020 and then pay any remaining taxes by June 30, 2021.
Residents and non-residents may qualify for a certain amount of exemptions, so long as they comply with tax laws.
Employee Stock/Share Plans
Employers in Italy most frequently offer stock options to employees. However, the government provides public pensions for retired employees, so long as they meet requirements set by the Italian National Social Security Institute. The pension is funded in much the same way that employees in the U.S. pay social security taxes out of their paycheck.
Remaining compliant with payroll can be difficult in Italy. Failing to remain compliant can result in penalties. These penalties may be reduced if the company submits and follows directives set by government auditors. Naturally, falsifying tax documents result in felony charges. Employees failing to file or pay their taxes on time also face late fees and interest rates.
Tax Rate Chart
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*The chart above does not take into account public pension, public accident insurance, regional taxes, and city taxes. Because these rates vary on minutiae, it is best that companies doing business in Italy work closely with a payroll consultant, GEO, or PEO.
Compensation and Benefits
Most wage and benefit stipulations are outlined in a work contract. All employees are granted substantial paid leave, per Italy’s labor laws.
There is technically no minimum wage in Italy. However, most work contracts spell out the wages clearly, and regions and cities may have minimum wage laws of their own. Employees are allowed to unionize, and this typically results in default minimum wages in some industries.
Employees working more than 40 hours a week may not work more than 48 hours in a given week. Employers also may not allow employees to work beyond 250 hours in a year. There is no extra overtime pay unless an employee’s contract stipulates otherwise.
Hours of Work
Work hours in Italy are a bit unique. Employees typically report to work at 8am local time and work until 1pm. They take a two-hour lunch, returning to work at 3pm and completing their work day at 7pm.
Holiday & Sick Leave
Employees are entitled to a minimum 4 weeks of paid vacation each year. Beyond that, they are allotted 3 sick days a year, plus 5 months’ maternity leave. Italy observes the following holidays wherein employees usually are given the day off:
- New Year’s Day
- Epiphany (January 6)
- Easter Monday
- Liberation Day (April 25)
- Labour Day (May 1)
- Republic Day (June 2)
- Assumption Day (August 15)
- All Saints Day (November 1)
- Immaculate Conception Day (December 8)
- St. Stephen’s Day (December 26)
Employees are also entitled to a variety of other paid leave options, to include family/child emergencies, adoption, jury duty, and more.
How Employees File Taxes at the End of the Year
As noted above, employees are responsible for filing their own taxes by October 31 of the following year. If they owe any taxes, they must pay those taxes no later than June 30 the year after.
Because Italy is a member of the European Union and the Schengen Treaty, employees from other member countries are not required to secure a worker’s permit. For those foreigners originating from non-member countries, they must secure the necessary permits and work visas before they are legally allowed to work for an employer in Italy..
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