The professional talent in Italy has always been highly desirable for those hiring within Europe, especially for German companies looking to hire in Italy. Despite the global economic crisis, skills gaps are a persistent challenge for employers. In this sense, not only do Italian workers offer a highly-diversified and skilled talent pool, but they also offer lower average hourly labor costs than many other notable European Union (EU) alternatives.
To hire in Italy, however, there are certain things German companies will need to consider. Aside from compliance with Italian law, it’s important to adhere to the different rules and regulations regarding labor, payroll processing, employee benefits, taxes, and more.
In this guide, we’ll cover the details of how a German company can hire Italian skilled workers within Italy. We’ll also explore what German companies need to know if partnering with a global Employer of Record (EOR) to oversee the legalities and costs of hiring in Italy.
Can a German Company Hire in Italy?
Yes! One of the basic freedoms of the European Union is that all EU nationals are entitled to work or look for a job in other EU countries. Approximately 17 million EU citizens are currently living or working in other EU countries. As part of the European Pillar of Social Rights, the EU promotes fair employment conditions for all foreign individuals working abroad.
However, there are many legalities and local laws that must be taken into consideration to ensure you are following Italy’s employment laws. Below are some things to keep in mind when hiring in Italy, and a few ways in which German companies might go about employing Italian skilled workers.
3 Ways German Companies Can Hire in Italy
1. Hire Italy Skilled Workers as Contractors
Contract staffing or working with a contractor staffing agency in Italy might be the easiest option. But there are still certain things that German companies must take into consideration to ensure all legal working conditions are met.
Independent contractors in Italy are self-employed individuals who provide their services to the company while choosing their own working hours and schedules. As in Germany, an Italy-based contractor is treated independently from a company’s internal employees. Independently hired contractors are not paid a fixed salary or provided with work equipment by the company of hire.
This allows companies more flexibility and is more cost-effective when hiring for specialized services or one-time projects. Independent contractors may also provide their services to a company for extended periods of time.
However, German companies considering hiring independent contractors must be aware of all legal risks associated with misclassifying contractors as full-time employees. Misclassification could result in companies being liable to pay various misclassification fines.
2. Set Up a Foreign Entity in Italy
Another option for German companies to hire Italian skilled workers is to set up a foreign entity. Opening an entity in Italy allows you to create a branch or subsidiary to hire workers directly. Setting up a foreign entity allows German companies complete control when hiring local workers, managing payroll, and establishing a local branch.
Depending on the nature of the business, your company may need to obtain proper permits or licenses from local or federal authorities to operate legally within Italy.
Establishing a foreign entity is a good option if your company plans on hiring multiple workers or creating a more established long-term presence. It is, however, a costly and time-consuming process that requires knowledge of the country’s legal, corporate, and payroll laws and regulations. Consider consulting with local legal professionals or institutions if this is the path your company is considering.
3. Partner with an Employer of Record in Italy (EOR Italy)
The third, and arguably easiest option, is to engage an employer of record service (EOR) to hire, pay, and manage your Italy-based hires. A third-party organization like an EOR or professional employer organization (PEO) is invaluable for compliant hiring in Italy.
Because the EOR partner is already set up as a legal entity within Italy, it will help ensure that your company is in alignment with local labor laws and requirements.
An EOR Italy partner will act as the legal employer for your staff in Italy. Employers of record services include international payroll solutions for company employees. They also cover local payroll details like tax deductions for social security, tax payments, statutory benefits, and more.
If you are a foreign company looking into the Italian market as a long-term option, you might need to consider registering as a foreign employer to retain employees for longer periods of time. Ultimately though, an EOR Italy partner is the easiest option to help your company hire in Italy.
It will help streamline everything from employment agreements to the payroll process while protecting against any legal mishaps. This way, you can focus on day-to-day operations and employee performance management while expanding your business.
Things to Consider When You Hire Employees in Italy
Although it’s easy enough for German companies to hire in Italy, there are many legalities and government requirements that will affect both the company and the individual Italian skilled worker.
Local Employment Laws
Understanding Italy’s local laws is one of the fundamentals of hiring in Italy. For example, there is no statutory minimum wage in Italy. National collective bargaining agreements are responsible for determining minimum wages on a sector-by-sector basis.
It’s important to understand that Italy’s collective bargaining system is not regulated by law. Meaning there has been ongoing debate in Italy as to whether a national statutory minimum wage should be introduced. It also means that employment contracts dictate a lot of the details in employment relationships. Plus, having murky guidelines results in possible compliance challenges and compliance risks.
That said, some things are standard practice as per the Italian labor code. Working hours are typically eight hours per day, 40 hours per week. Work that exceeds 40 hours per week is considered overtime. Overtime should not exceed eight hours per week, though different overtime limits can be set by collective agreements. Overtime that exceeds eight hours per week requires specific authorization by the Department of Labor.
It is standard practice for employers to pay employees who work overtime. As a rule of thumb, overtime pay should be 150% of their hourly rate for overtime work between 40 and 48 hours; 200% of the hourly rate for overtime work exceeding 48 hours; 130% of the hourly rate for overtime work on public holidays or Sundays; and 150% of their hourly rate for overtime work at night (10:00 pm to 6:00 am).
Additional Italian Work Bonuses
German companies should be aware that Italy generally observes additional salary payments called the Tredicesima. Collective agreements typically determine whether these additional bonuses will be paid. Many collective bargaining agreements require one or both of the 13th and 14th-month wages to be paid to the employee.
This is another way to divide salary payments, as the 13th month's salary is paid around the middle of December, and the 14th month's salary is paid around the middle of June. There is no standardized way of calculating this cost as it is also determined by collective agreements.
A popular method is to calculate the additional pay at one-twelfth of an employee’s yearly salary without overtime or bonuses.
As of 2022, Italy also introduced a cost of living bonus to help workers deal with the challenges of inflation in Italy.
Italian Government Fees and Taxes
Italy follows a progressive taxation method that ranges from 23% (from 0-15,000€) to 43% (over 50,001€).
Employees are also responsible for paying additional lower-rate municipal and regional income taxes. Certain sectors, such as finance, are subject to additional taxes on other forms of compensation including bonuses and stock option benefits.
Social Security Contributions and Employer Costs
Hiring employees in Italy will pose financial implications for German companies. Both domestic and international companies are responsible for multiple government contributions.
For one, German companies will be responsible for contributing 32% in payroll taxes to social security. These rates can vary based on an employee’s role and the size of the company.
The majority of this amount is allocated to National Pension Scheme payments, with the remainder going toward social security funds such as unemployment, illness, maternity leave, and more.
Employee Probation Periods
When hiring In Italy, German companies should be aware that there is a mandatory probationary period of 45-60 days for employees in non-managerial positions, and six months for all other employees.
The probation period should be outlined in the employer's collective bargaining agreement and the written employment agreement.
Notice Period and Termination Process
Notice periods are decided upon and enforced by the employer's collective bargaining agreement. Companies may provide any number of reasons for deciding to terminate an employee so long as the reason for termination is justifiable.
Possible reasons to terminate an employment contract may include: dismissal of an employee with just cause such as serious misconduct, violations of the employment terms, and dismissal due to organizational or economy-related issues.
Severance Pay
Severance pay or Trattamento di fine Rapporto (TFR) must be paid by the employer, even if an employee resigns or is let go with just cause. TFR is calculated by dividing one year of the employee’s total salary by 13.5, plus an additional 1.5% for each year of service, as well as inflation compensation.
If an employee is terminated without having used all of their holidays before the end of their contract, they are also entitled to receive payment for any unused holiday allowance.
If the employee has been receiving additional monthly payments as outlined in their contract, they are entitled to the appropriate amount of payment as severance up until their final day.
Common Employee Benefits in Italy
Your company should also ensure that all employees based in Italy are given appropriate paid time off and benefits as required by Italian law.
Paid Time Off (PTO)
There are 12 official paid public holidays that are observed across Italy. It’s important to note that certain regions in Italy have their own holidays which employees who reside in those regions might also be entitled to.
- January 1: New Year’s Day
- January 6: La Befana
- April 9: Easter
- April 10: Easter Monday
- April 25: Italy Liberation Day
- May 1: Labor Day
- June 1: Anniversary of the Founding of the Italian Republic
- August 15: Assumption (Ferragosto)
- November 1: All Saints’ Day
- December 8: Feast of the Immaculate Conception
- December 25: Christmas Day
- December 26: St. Stephen’s Day (Boxing Day)
Personal Leave Entitlements
Italy offers some of the most generous employee leave entitlements, not only in Europe, but in the world.
Annual Statutory Leave
Employees in Italy are entitled to 26 days of paid leave each year. There is no limit on how many days can be carried over from one year to the next, so long as they are used by the end of June of the following year.
Each 18-month period of work must include at least two consecutive weeks of vacation. Employees also have the right to yearly suppressed holidays, which are 32 hours of leave in place of bank holidays.
Maternity Leave
According to Italian law, female workers have special protection in the case of pregnancy and maternity.
From the beginning of pregnancy to one year after the child’s birth, the employee cannot be dismissed (except for just cause). During this period, any female employee who chooses to resign is entitled to the same rights for dismissal provided notice is given.
Maternity leave is required for female workers in Italy from two months before until three months after childbirth. Pre-childbirth leave can start even earlier if the employee’s work is deemed unsafe for the worker or the unborn child’s health. It is also possible to postpone pre-childbirth leave in order to increase the length of post-childbirth leave.
In more recent years, parental leave is inching toward more inclusive policies. Also, some degree of paternity leave has been worked into the law in Italy, provided certain conditions are met. Many alternative choices have now been made available to both parents.
Sick Leave
In case of sickness, the period of job suspension of the employee’s contract with protection is determined by collective agreements, and according to the employee’s seniority.
The average period of allowed sick leave is around one year. During this time, the employee is entitled to full payment by the employer or Social Security. Any employee absence beyond this period is usually allowed (under collective agreements) as a period of unpaid leave.
Educational Leave
Student workers in Italy have the right to paid days off for exams.
Workers with a minimum of five years of employment can request a maximum of 11 months of unpaid leave to attend school, university, or other educational training.
Under national collective agreements, workers are entitled to a number of paid hours off work (from 150 to a maximum of 250) to attend courses related or unrelated to their profession.
Cassa Integrazione Guadagni
The Cassa Integrazione Guadagni is a state fund that operates within the National Social Security Institute. Its objective is to protect the workers’ earnings in the event the company faces any difficulties.
While it initially only covered industrial companies, it has since been expanded to also include smaller companies.
The Cassa Integrazione Guadagni operates primarily in cases of suspension or temporary reduction of activity due to external causes or market fluctuations. Workers whose contracts have been suspended are eligible to receive 80% (sometimes up to 100%) of their earnings for up to 13 weeks, with the possibility of renewal for up to 12 months.
Common Risks for German Companies Hiring in Italy
While employing remote workers in Italy offers many benefits to German companies, there are also potential challenges. It’s essential to understand employment regulations, Italian tax laws, and the risks involved if the rules are not observed. In this section, we will briefly discuss the most common risks for German companies when hiring Italian skilled workers.
Misclassification of Employees
It is essential to ensure that employees are classified correctly when hiring in Italy. If a full-time employee is misclassified as a contractor, they are eligible to claim entitlement to employee benefits. Meaning, your company may face fines, legal issues, and employee entitlement back pay obligations.
Such fines can include administrative fines of EUR 100-500 per misclassified worker; a 90% penalty for inaccurate tax returns and a 20% penalty for improper income tax withholding imposed by tax authorities; and possible fines of up to EUR 50,000 and/or up to three years in prison if the employer is found guilty of not paying social security contributions.
Inaccurate Payroll Contributions
As mentioned before, Italy offers generous employee benefits and protections. However, this also means that Italy’s employer contributions vary from other countries. If miscalculated, companies could face serious fines.
Employer contributions include 32% for Social Security, 4% for IRAP Regional Tax and Bank Holidays, 1.5% for INAIL (Injuries Insurance) and 7.407% for TRF (Severance).
Potential Immigration Requirements
You'll need to ensure that both skilled and unskilled workers that you employ have the right paperwork in the region of employment. If you're hiring foreign nationals who reside in Italy, make sure they hold a foreign equivalent degree and labor certification. Your HR department will need to keep these things in mind and more as you onboard your global team.
As an established EOR, Borderless can help you hire in 170+ countries. Borderless is highly knowledgeable and experienced in assisting German employers looking to hire in Italy. Book a demo today to see how Borderless can help you hire quickly and efficiently.
Disclaimer
Borderless does not provide legal services or legal advice to anyone. This includes customers, contractors, employees, partners, and the general public. We are not lawyers or paralegals. Please read our full disclaimer here.
