Looking to build an international presence? Hire in Italy. Italy has a major presence in the European Union (EU). It is home to a booming economy, a skilled workforce, and a rich history of innovation. This makes the country an attractive option for companies who want to expand overseas.
Hiring in Italy isn’t always easy. There are many major local laws your company will need to understand to remain compliant when recruiting skilled Italian workers.
This guide will tell you what you need to know when hiring in Italy, how to remain compliant at every step, and how an Employer of Record (EOR) service can help.
Why Hire in Italy?
US companies who want to hire in Italy can experience serious growth potential. The country has a rapidly growing market presence and a relatively business-friendly environment that can support your expansion plans. Hiring in Italy can be advantageous for many reasons.
Diverse Economy
Hiring in Italy should be particularly attractive for companies in the United States. It can allow your organization to access one of the world’s strongest economies. Italy has the tenth-largest economy in the world in terms of GDP. It is also the third-largest economy in the EU.
The Italian economy is known for having strengths in industries such as tourism, fashion, agriculture, trade, engineering, and manufacturing materials. Additionally, the economy has experienced steady economic growth since the COVID-19 pandemic.
Access to Other EU Markets
The country’s strategic location and close proximity to other major European markets can benefit companies hiring in Italy. As a powerful member of the EU, companies can potentially expand their network to facilitate other expansion plans in nearby countries.
The country’s extensive connections and agreements with other EU countries can act as an employment relationship. This gives your organization the chance to access additional funding or investment opportunities as well. Its proximity to the Mediterranean can also allow companies to access markets in Africa and southeastern Europe, among others.
Innovative Workforce
Hiring in Italy can also allow your company to recruit a wide range of skilled and innovative workers. In 2022, Italy ranked 11th in global gross research and development expenditure and third in the European Union.
Italy has a thriving technology sector with over 100,000 companies and one of the fastest-growing life science sectors in Europe. The government also made significant investments to drive innovation in the pharmaceutical industry.
Challenges for Hiring in Italy
US companies who want to hire in Italy can also face some major barriers. These might make the expansion process more complicated.
Employee Expectations
The United States and Italy have significantly different business cultures, which can impact what an employee may expect from an employer. Italian workers may have a different attitude towards work and employment standards.
Italy has robust labor laws that provide Italian employees with certain benefits, such as a generous amount of time off. This helps promote a better work-life balance and can increase employee satisfaction.
American companies hiring in Italy must ensure they are providing the necessary benefits. This helps companies abide by Italian employment culture to remain competitive when hiring skilled workers. Other factors that may not be common in the American business environment include additional payments like statutory bonuses.
Language Barrier
The differences in national language can pose several significant challenges for American employers who want to recruit skilled Italian workers. While many Italians speak a second language, only around 34% of the population can speak English. English is, however, the second-most spoken language.
This can contribute to less efficient communication with your international team members. Many legal and administrative regulations will be carried out in Italian, making it difficult for American companies to remain compliant with the laws.
A Professional Employer Organization (PEO) or an Employer of Record (EOR) such as Borderless can help you navigate cultural differences.
Financial Responsibilities to Hire in Italy
Italy has a rich history of innovation, a workforce with specialized knowledge, and a major presence in various industries. Employers who want to recruit the best Italian talent to their teams will be responsible for covering certain costs for each employee.
Compensation
In contrast to the United States, Italian workers have no mandated minimum wage. Instead of wages being determined by federal or state legislation, wages in Italy are determined by collective bargaining agreements. This can vary depending on the industry.
Wage rates are generally adjusted yearly for inflation. Terms can be renegotiated every few years. US employers in Italy must stay up to date with CBA terms per sector.
Overtime
Like the US, a workday in Italy typically lasts for eight hours, and a standard workweek is 40 hours.
Italian employees who work more than 40 hours per week are entitled to overtime pay. Companies hiring in Italy should know that Italian workers cannot work over 250 overtime hours per year. Employees must receive at least 11 consecutive hours of rest every day. The specific overtime premiums depend on CBA terms, but overtime pay in Italy is generally:
- 150% of an employee’s regular rate for the first eight hours
- 200% of their wages for any following hours
Employees are also entitled to 150% of their hourly rate for overnight work between 10 p.m. and 6 a.m. and 130% of their hourly rate for working on holidays or Sundays.
Managerial roles are not eligible for overtime pay.
Termination and Severance
US companies hiring in Italy need to know that the country doesn’t have at-will termination like America. This means the rules regarding terminating an employee are much more strict, especially when abiding by fixed-term contracts. Employers must give an employee the required notice before the employment agreement ends. In Italy, an employer can terminate an employment contract for a few different reasons:
- Just cause (misconduct like theft or fraud)
- Justified subjective reasons (material breach of contractual obligations, less severe negligence)
- Objective justified reasons (redundancy, business closure, other economic reasons)
Companies who fail to obey the rules can face potential legal action for unlawful dismissal. Punishments can include a reinstatement indemnification. This requires an employer to pay the employee their wages for a certain number of months depending on the employee’s length of service, reasons for dismissal, and employee damages.
After a company dismisses an Italian employee, the worker is entitled to severance pay called a trattamento di fine rapporto. This applies to every type of employee and after every termination, even with just cause. Companies can calculate the required severance pay by dividing a worker’s yearly salary by 13.5 plus 1.5% for every year of the employee’s tenure. They must also make adjustments for inflation. Employees receive payment with their final paycheck.
Notice Period and Probation
In Italy, there is no statutory minimum for notice periods. The sector’s collective bargaining agreement usually determines the required amount of time.
Additionally, US businesses hiring in Italy should know that the local employment laws have a defined structure for probationary periods. Regular employees have a probationary period that can last anywhere from 45 to 60 days. This can be up to six months for employees in executive-level roles. During this time, employees can be terminated without penalty or notice.
Payroll
Companies must set up a proper payroll system to pay workers accurately and within the country’s payroll cycle. Otherwise, they can engage an EOR to administer payroll and withhold taxes. Your Italian employees will get paid once per month, usually around the 27th.
Businesses operating in Italy will be subject to Italian corporation taxes, which are generally around 24%. Though, tax depends on your company’s net income. Employers will also need to withhold each Italian employee's required deductions and contributions. These include:
- 32% towards social security programs (employment insurance, pension)
- 4% towards IRAP regional tax and bank holidays
- 1.5% towards injuries insurance
- 7.407% as a TRF severance payment
Employees are also required to contribute a percentage of each paycheck to social security programs.
Companies must also handle all the necessary tax withholdings for each Italian employee. Workers are taxed on a progressive scale based on their yearly income. The tax brackets in Italy are:
- 23%: incomes up to €15,000
- 25%: incomes up to €28,000
- 35%: incomes up to €50,000
- 43%: incomes over €50,001
Bonuses
US companies hiring in Italy will also need to understand the necessary bonus payments for Italian workers.
In Italy, most employees receive a 13th-month bonus, called a tredicesima. This is usually paid in December. Certain collective bargaining agreements can also mandate an additional 14th-month bonus. Employees can also get a cost of living bonus to help them with essential household bills as of 2022.
Annual Time Off
American companies will also need to provide employees an adequate amount of annual leave to hire in Italy legally. Unlike the United States, Italian labor laws mandate that workers get ample vacation time. Each employee is entitled to 20 days of paid leave per year. Two of the four weeks must be used within a year of employment, and rolled-over vacation must be used within 18 months. CBA terms may also require additional time off.
Certain jurisdictions or provinces in Italy may have regional holidays to consider. Overall, Italy has 12 recognized public holidays:
- January 1: New Year’s Day
- January 6: Epiphany
- Easter Sunday
- Easter Monday
- April 25 (Liberation Day)
- May 1 (Labour Day)
- June 2: Republic Day
- August 15: Assumption Day
- November 1: All Saints’ Day
- December 8: Feast of the Immaculate Conception
- December 25: Christmas Day
- December 26: St. Stephen’s Day
Employees are also entitled to up to five months of paid maternity leave. Typically, the leave starts two months before childbirth and ends three months after. However, some employers may allow for more flexibility. US employers hiring in Italy will also be required to provide new fathers with up to ten days of paid paternity leave. Additionally, both parents can take paternity leave for up to 11 months at reduced wages.
Employees in Italy are entitled to paid sick leave and can receive up to 180 days of leave per year. Italian employees can also apply for paid permits, which can grant up to 32 or 68 hours per year for additional time off like bereavement or illness.
Additional Benefits
Companies hiring in Italy must know the statutory benefits employees are entitled to. Employees are entitled to additional benefits such as:
- Retirement contributions
- Worker’s compensation
Employers can also offer supplementary benefits such as additional healthcare coverage to remain competitive when hiring employees. Other benefits can include a work-from-home allowance, flexible working arrangements for skilled workers, and more.
Understanding Local Employment Laws
Companies hiring in Italy must understand the country’s labor laws to remain compliant with all regulations. There are important laws that your company will need to know in addition to other important rules, such as the notice period in Italy.
Classifying Employees
Companies that want to hire Italian workers can either hire an employee or an independent contractor. An employee is a worker who’s hired permanently and is entitled to statutory benefits and all applicable tax withholdings.
An independent contractor is typically hired for individual projects, is not entitled to benefits, and must handle all taxes themselves.
Right to Disconnect Laws
As of 2017, Italy is one of the countries in Europe with a recognized policy for the right to disconnect. This rule specifies that remote workers in Italy are not required to answer work-related messages, emails, or calls outside of regular working hours.
Additionally, employers will need to ensure a healthy and safe working environment for all remote employees.
Employment Contracts
International companies who hire Italian workers will also need to offer them a valid contract of employment. Companies can offer employment contracts in English, but any key components regarding the work arrangement must be defined in Italian. Employers must specify the identities of both parties, the start date, the job’s responsibilities, their role in the company's day to day operations, and more.
Employers can generally hire employees permanently, for a fixed term, on a part-time basis, or as an apprentice.
Italian employees also may have different classifications that can impact certain terms of employment:
- Executive-level workers
- Middle managers
- White collar workers
- Blue collar workers
How Can You Hire in Italy?
Companies who want to hire in Italy generally have two main options: set up a local entity or engage an employer of record. Both options have certain benefits that might appeal to your company.
Set Up a Local Entity
Companies who want to hire in Italy can legally do so by setting up their own legal entity. By setting up your own subsidiary in the country, you will be responsible for all aspects of the hiring process. This includes administering payroll deductions, enrolling your employees in benefits programs, and providing the necessary time off.
Failure to do so could result in noncompliance penalties. This is an attractive option for companies who have long-term expansion plans or who want to set up physical infrastructure in the country. However,it can also be relatively expensive and time-consuming. You will also need to stay up-to-date with the current employment laws.
Engage a Legal Employer of Record
Alternatively, companies can partner with a Global Employer of Record (EOR). Your EOR in Italy can provide expert guidance and handle daily business operations, manage business hires, and oversee other aspects associated with employing international employees.
Your EOR will stay up-to-date with all relevant employment laws and regulations, so you can spend more time building effective strategies to grow your business. With an EOR, you will not need to worry about compliance laws when hiring internationally.
What’s Borderless?
Borderless is an employer of record that can help you legally hire and oversee employees hired in Italy. We offer a range of services to ensure you obey all the rules and regulations from where you want to hire. Book a demo with us today to see how we can expand your talent pool and hire workers from over 170 countries.
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.
