For those looking to hire a dynamic workforce, Italy is an ideal option for growing businesses for a number of reasons, including its economic strength, close proximity to other major European markets, and the chance to receive additional benefits or incentives.
UK companies who want to hire in Italy will need to abide by the legal requirements, such as Italian labour laws, to avoid penalties. However, this can be easier said than done when setting up shop in a country where you may not know the rules and regulations. This is where partnering with an employer of record in Italy can help.
This guide will tell you everything you need to know to legally hire employees in Italy and how an EOR in Italy can help you grow your business.
Understanding the Italian Market
Italy is an excellent option for UK companies looking to grow because of its wide consumer base and diverse economic landscape. UK companies can benefit in several ways by hiring employees in Italy. However, those engaged in international business may face a few key challenges during the expansion process.
Access to a Major European Market
Gaining access to Italy’s diverse and robust economy is one of the ways UK companies can benefit by hiring workers in Italy. Italy has the 8th largest economy in the world in terms of GDP, and the 3rd largest economy in the European Union (EU). This can help you tap into a major European market to expand your brand and grow among a notable consumer base.
The country has strengths in various important industries such as engineering, technology, manufacturing, entertainment, and more. The country’s strategic location also provides your company with the chance to build a presence in an economy surrounded by other important markets.
Innovation
In addition to a booming economy, Italy is home to a highly innovative culture. Generation after generation, Italian developers have been known for bringing important innovations to the world, such as the first espresso machine.
Italy ranked 28th on the Global Innovation Index in 2022, which was 17th among European nations. This can help give your company a competitive advantage in an increasingly globalized business culture and maintain a greater global reach.
Skilled Workforce
United Kingdom companies hiring in Italy can also benefit by recruiting from a pool of highly educated and skilled workers. Italy has the 14th-best education system in the world and one of the best in Europe.
Tapping into the Italian workforce gives your company the chance to hire skilled workers with strengths in various sectors, which can help your company grow in multiple ways. Additionally, around 42% of Italians can speak a second language, and many schools offer English classes to help bridge potential gaps.
Challenges to Hiring in Italy for UK Employers
UK companies hiring employees in Italy can experience many benefits, however, there are also various potential issues to keep in mind when looking into employment opportunities.
Cultural Differences
The United Kingdom and Italy both have a major economic presence in European markets, but there are also several cultural similarities that might make expansion somewhat difficult.
For example, even though English is one of the major second languages spoken by Italians, only around 34% of Italian citizens are able to speak English, and even fewer may be able to speak the language fluently. This means UK companies looking to expand in Italy can face some language barriers, which may make communicating with international staff in an efficient way a top priority.
High Payroll Taxes
Like many European nations, Italy has high payroll taxes compared to more Western countries. This includes the employer costs in Italy, such as tax deductions and the required social security contributions.
Aside from social security contributions, high payroll taxes can also increase the labour costs for your company to hire and retain skilled Italian workers. In addition to the high employer costs, your company may need to offer higher wages to remain competitive in the market.
Your company will also need to be aware of the income tax brackets and the country’s relatively complex tax structure. Engaging an EOR like Borderless can help ensure that your company is following all the necessary rules and regulations.
Union Presence
Italy has a strong union presence, which can be somewhat difficult for UK companies hiring workers in Italy to navigate. Certain statutory benefits and important terms of employment are determined by unions, particularly through collective bargaining agreements.
Collective bargaining agreements are written legal contracts between a union and an employer that help guarantee certain employment rights. Typically, a collective bargaining agreement will define terms of employment for workers in a certain industry or sector. These can include:
- Wages
- Hours worked
- Safety Policies
- Supplementary benefits
In fact, there are more trade unionists in Italy than in any other European Union member state.
Employment Laws and Regulations in Italy
UK companies hiring in Italy can benefit in several different ways, but businesses must also ensure that all the mandatory rules and regulations are being followed. Failure to follow the rules could result in non-compliance penalties, which could include financial sanctions and reputational damage.
Employment Contracts
Employment contracts are legally required for international companies who want to hire in Italy. Italian employment contracts should specify:
- The identity of the parties
- The place of work
- Employment start date
- Trial period (if applicable)
- Duration of the employment agreement
- Description of the job’s responsibilities
Employers also need to keep the terms of the collective bargaining agreement in mind. Employment contracts can be provided in any language, but important terms should be clearly defined in the regional language.
UK employers can use a few different kinds of contracts when hiring workers in Italy:
- Permanent employment contract (contratto a tempo indeterminato): This is the standard employment contract in Italy. It’s used to hire employees on a permanent basis and has no end date. Employees are entitled to all statutory benefits such as time off, and the employer handles all payroll taxes.
- Fixed-term contract (contratto a termine): This employment contract is used to hire employees on a temporary basis, and it has a specified end date in the agreement. Contracts of this nature can be extended up to 36 months. Temporary workers cannot make up more than 20% of a company’s full-time staff in Italy.
- Part-time contract: These contracts set an amount of hours the employee can work per week. Pay and other benefits are calculated based on the amount of hours worked. Employers can add elastic clauses, which permit an employer to increase the employee’s working hours. Or, the company can add a flexible clause that allows the employer to vary the amount of working hours per day.
Italian employees are also generally categorized under four types:
- Executives
- Middle managers
- White collar employees
- Blue collar employees
Classifying Employees
Another issue that UK companies hiring workers in Italy might face is properly classifying employees. Companies can hire workers as permanent employees or independent contractors, and employers have different responsibilities with both types of workers.
Permanent Employees in Italy: Benefits, Taxation and Social Security Contributions
An employee performs work in exchange for compensation, and the job is at the discretion of the employer. An employee works on a permanent basis and is entitled to certain employee benefits, such as time off and mandatory bonuses. The employer also handles all taxation and social security contributions.
Independent Contractors: Employee Benefits, Tools and Payroll Taxes
An independent contractor provides services per project or for a duration of time and owns all the necessary tools needed to do the job themselves. Contractors aren’t entitled to benefits and must handle all payroll taxes themselves.
Companies that don’t classify employees properly are liable for damages, which can be an unforeseen employer cost in Italy. An employer of record can help ensure that all your employees receive the necessary benefits.
Costs of Hiring in Italy
Recruiting from Italy can allow UK companies to thrive in a major European market with a strategic location. Businesses should note the associated employer costs in Italy, which range from wages to severance payments.
Compensation
There is no statutory minimum wage requirement that employers need to abide by in Italy. However, UK companies hiring in Italy should know that wages are determined by collective bargaining agreements, which can vary from sector to sector.
Independent research estimates the average minimum wage cost to be around €8.25 to €9.65 per hour, though skilled workers will likely require higher wages for your company to remain competitive when hiring.
The wages that you pay employees are generally adjusted annually based on inflation. Your employee's salary should be discussed annually, if not bi-annually, to ensure that all parties are satisfied. This discussion can also provide you with an opportunity to discuss areas that require improvement and growth opportunities.
Overtime
An Italian workday typically lasts for eight hours, and a typical workweek lasts for 40 hours Monday through Friday.
In contrast to the UK, Italian employers are legally required to pay overtime premiums to employees who work beyond 40 hours a week. Workers are not allowed to work more than 250 hours of overtime in a year. The overtime premiums in Italy are:
- 150% of the employee’s hourly rate for the first eight hours
- 200% of the employee’s hourly rate for the following hours
- 150% of the employee’s hourly rate for overtime night work
- 130% of the employee’s hourly rate for work on holidays or Sundays
Termination, Severance, Notice Period, and Probation
UK companies hiring in Italy will also need to understand the rules regarding terminating an employee.
An employee can be dismissed in certain cases. Companies can terminate a worker if they have just cause, which can include:
- Misconduct
- Breach of contract
- Negligence
Employers can also end an employment agreement for a justified reason, such as poor performance or redundancy due to economic conditions.
Italy has no statutory notice period before ending an employment agreement, but the required amount is usually determined by collective bargaining agreements. Employers may also provide payment instead of notice. Dismissals by just cause or mutual agreement do not require any notice period.
When an employment agreement is ended by the employer, the employee is entitled to severance pay called a ‘trattamento di fine rapporto’ in all cases, even with just cause. The amount an employer must pay depends on the worker’s wages, and it can be calculated by dividing the employee’s yearly earnings by 13.5 plus 1.5% for every year of the worker’s tenure. Inflation must also be compensated for, which is another employer cost in Italy.
The probationary period depends on the status of the employee. Probationary periods usually start at 45 days for regular employees and can last up to three months. For executives, the probation period can last up to six months.
Payroll
UK companies hiring in Italy will also need to set up a proper payroll system. It’s important to understand some of the required employer costs in Italy. Additionally, paychecks should be sent out on a monthly cycle.
Employer taxes are typically around 27% or 28%. The mandatory employer costs and deductions for each employee include:
- 32% towards social security
- 4% towards IRAP regional tax and bank holidays
- 1.5% towards injuries insurance
- 7.407% towards severance
UK companies hiring in Italy must also understand the differences in bonuses. Bonuses are typically determined by the terms of the industry’s collective bargaining agreement, and many employers are required to pay a 13th-month or 14th-month bonus to each employee.
Companies are also responsible for handling all income tax deductions for workers. The tax brackets in Italy are:
- 23%: €15,000 and under
- 25%: €15,001–28,000
- 35%: €28,001–50,000
- 43%: €50,001 and over
Vacation and Time Off
Companies hiring in Italy should also understand the various types of leave entitlements. Full-time employees can take up to four weeks of paid vacation per year, though the specific terms can vary depending on the collective bargaining agreement. An employer cannot provide payment instead of time off.
Italian employees are also entitled to up to 180 days of paid sick leave.
All pregnant employees are entitled to five months of paid maternity leave, and the leave can begin up to two months before the expected due date. Both the mother and father can also take up to 11 months of parental leave during the first eight years of the child’s life. New fathers are entitled to 10 days of paid paternity leave.
Italy also has 12 public holidays, but different provinces and CBA terms may have additional holidays to consider.
Employer of Record: How Can Borderless Help?
UK companies who want to hire in Italy may be wondering what the legal requirements and local laws are. Companies have a few different options when it comes to recruiting skilled Italian workers. Your organization can either set up your own local entity or partner with an Employer of Record (EOR) in Italy to remain compliant at each stage.
Setting up your own local entity can be time-consuming and expensive, though it can benefit your company if you wish to hire a wide range of Italian workers for long-term expansion. In this case, it is your responsibility to make sure your business is following all of Italy’s complex local labour laws and CBA regulations.
Alternatively, your company can choose to engage an employer of record to handle your international expansion. An employer of record in Italy acts as the legal employer in the country and can streamline the hiring process for your business. Your employer of record handles all the complicated issues when it comes to hiring global staff, such as payroll, benefits administration, income tax, payroll management, and more important considerations to help ensure that you are fully compliant in all global employment endeavours.
With your EOR’s expertise in legal requirements and legal compliance, your company can remain compliant when hiring employees in Italy and avoid financial or reputational damage.
Contact Borderless for Employer of Record Services
Looking to hire international staff but don’t know how to navigate the important local laws? Book a demo with Borderless to see how we can help you quickly and efficiently hire top talent from over 170 different countries around the world.
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.
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.
