Running payroll in Italy

Managing payroll in Italy is highly complex, posing significant challenges for foreign employers looking to establish a business or hire talent. According to the 2023 Global Payroll Complexity Index, Italy ranks as the fourth most complex country in the world for payroll processing.

This complexity arises from various factors, including the extensive use of collective bargaining agreements, which directly influence payroll procedures, as well as the diverse social security contribution requirements for employees. Additionally, income tax is applied at three levels—national, regional, and municipal—further adding to the intricacies of payroll administration.

Before processing payroll in Italy, employers must complete several registrations:​

• Registration with the Tax Agency (Agenzia delle Entrate) which will issue a tax identification number (TIN)

• Registration with the National Social Security Institute (Istituto Nazionale Previdenza Sociale, short: INPS) in order to obtain a registration number needed to issue payments

• Registration with the National Institute for Insurance against Accidents at Work (Istituto Nazionale per l’Assicurazione contro gli Infortuni sul Lavoro, short: INAIL) to obtain mandatory work accident insurance and an employer-specific INAIL code

• Registration with the Labor Office (Centro per l’Impiego) which will provide user access to the online platform used for hiring and leaving declarations

Foreign employers can hire employees in Italy without establishing a local legal entity. However, they are generally required to appoint a representative in Italy for certain legal and administrative purposes.

The most common and widely used payment method for making payments to local authorities is using the F24 form for Italian taxes and contributions, which does not necessarily require payment from an Italian bank account.

While it's technically possible to make payments from a foreign bank account, this approach can lead to complications. Payments from non-Italian accounts may not integrate smoothly with the F24 system, potentially causing delays or misallocations.

Paying without the use of the F24 form, will require a distribution of payments to each separate authority. This process can be complex and prone to errors.

Income tax in Italy (Imposta sui redditi delle persone fisiche, short: IRPEF) is levied on three different levels: national, regional, and municipal. Social security contributions are shared between employee and employer. The latter is responsible for withholding income tax, local tax and social security contributions at source.

Tax Considerations

The Italian income tax system is progressive. There are three different tax bands with tax rates ranging from 23% to 43%. Income of up to EUR 28,000 per year is taxed at the lowest rate of 23%, while the top rate is applicable to income exceeding EUR 50,000.

With some exceptions, all parts of an employee’s compensation are taxable. This includes benefits in kind, bonuses, stock options and more. However, the country operates a tax credit system including employment tax credits and family tax credits.

In addition to the national income tax, employees have to pay a state income tax which is levied by the region in which they reside. Tax rates for regional income tax range from 0.7% to 3.33%, depending on the region and income tax bracket. On top of this, employees need to pay municipal tax which is levied by each municipality at rates ranging from 0.1% to 0.9%. All three taxes are deducted from employee wages on a monthly basis.

Italian residents pay income tax on their worldwide income, while non-residents are only taxed on income sourced in Italy. To be considered as aresident for tax purposes, employees must be officially registered in Italy or spend more than 183 days in the country during the given tax year.

Tax Withholding and Reporting 

Income tax must be deducted and withheld from employee salaries and wages by the employer who is also responsible for submitting the withheld amount to the Italian Revenue Agency (Agenzia delle Entrate) on a monthly basis.

Income tax must be submitted to the tax authorities by the 16th of the following month. Payments must be accompanied by the F24 tax form which consolidates various tax and contribution payments.

A yearly tax summary (Certificazione Unica dei Redditi) must be issued to employees by the 16th of March of the following year. Additionally, employers must submit Form 770 to report the taxes withheld and paid to the Italian Tax Authority in the previous year. The due date is the 30th of September of the year following the tax year being reported.

The tax year runs from the 1st January to the 31st of December.

Social Security Contributions

Employers have to withhold and submit social security contributions on behalf of their employees and pay their own contributions. The employer share of the social security contributions typically amounts to around 30% of the employee’s salary, while employees must contribute around 10% of their gross earnings to social security funds.

Social security contributions must be paid to the National Institute of Social Security (INPS) on a monthly basis. The due date is the 16th day of the month following the payroll run. Late payments are subject to financial penalties.

Payments for the mandatory occupational accident insurance must be made separately to the Italian Revenue Agency. The insurance premium is paid in January for the entire year. The contribution level depends on the risk classification and ranges from 0.4% to 9%.

Employers must also build a severance accrual through monthly payments into a TRF fund (Trattamento di Fine Rapporto). TRF payments amount to 7.407% or 1/13.5 of the employee’s annual salary.

It is possible and common for employers to offer supplementary health and pension funds to their employees—typically directors and executives. In order to do so, employers must register with a fund that is either specifically designated for employees covered by the applicable NCLA or open to employees across various industries and sectors. Contributions to these funds are deducted and withheld as part of the monthly payroll process.

Employees in Italy are entitled to various benefits. These include:

• Annual leave and public holidays: 26 days per year (22 vacation days and 32 hours of PTO), plus 11 bank holidays

• Maternity leave: 5 months paid at a rate of 80% of normal salary/wages by the National Social Security Body

• Paternity leave: 10 days paid at a rate of 80% of normal salary/wages by the National Social Security Body

• Parental leave: up to 11 months (if shared between both parents, with the father talking no less than three months of leave) during which parents receive parental benefits equal to 30% of their last monthly net pay

• Sick leave: up to 180 days, first 3 days paid by the employer

For more information on employee benefits and other employment requirements in Italy (including severance pay and termination procedures), check out our Global Hiring Guide.

Italy does not have a statutory national minimum wage. Instead, the minimum pay which must be provided to an employee is generally regulated by the sector-specific NCLA (National Collective Labor Agreement) which determines the payable amount as well as mandatory salary increases.

It’s mandatory to provide employees with a 13th salary (Gratifica Natalizia) which is paid out in December. Employees in the commerce sector, managers, and executives are further legally entitled to a 14th salary (Quattordicesima Mensilità) which must be paid out in June. Employees in other sectors might be entitled to a 14th month salary under the provisions of an NCLA. Overtime pay is also regulated through NCLAs—or by the individual employment agreement if the latter is not the case.

Payroll in Italy is typically processed once a month—weekly, bi-weekly, or bi-monthly payroll processing is possible. If paid on a monthly basis, salary payments are most often issued on the 27th of the month. The standard currency for wage and salary payments is Euro (EUR).

Salary payments can only be done from a bank account under the employer's name. It's possible to issue payments through a foreign bank.

It is legally required to provide employees with a payslip (Busta Paga) which can be issued electronically. Employees must receive their payslip on the actual payday. There is a 5-year period during which all payroll-related records must be kept—some records might even have to be kept for up to 10 years.