- the tax system in Italy is more complicated than most countries with municipal and regional taxes , “previous year tax balancing”, and dependency status and much more.
- The Italian Social Security has several different sections, not just a single office, adding more complexity to the processing cycle.
- Every aspect of payroll needs to be communicated to the authorities, the Taxation Dept, INPS (Instituto Nazionale Previdenza Sociale), the relevant statutory pension/health funds, including if an employee changes address, as this effects their tax position.
- All employment contracts must be reported to the authorities by law, prior to the employee actually commencing work. There are numerous types of “Contracts” that can be offered to prospective employees- employees can be Impiegati (workers) Quadri (management) and Dirigenti (Directors or senior management).
- All contracts must be drafted in the framework of the specific Collective Bargaining Agreementthat applies for a particular industry. Each employee is under a CBA, and that CBA governs all employment and legal relationships. There are hundreds of CBA’s applied in Italy, ranging from the bigger ones regulating manufacturing or commercial industries to specific CBAs covering companies making…. pottery. Each CBA can vary at a local levels adding more complexity.
- These agreements expire every 3-4 years, and each renewal involves changes to base salaries and other dispositions. This is a challenge as you have to understand and apply them thoroughly and correctly. There is no way of ‘avoiding’ the CBA or apply it partially, and it’s always difficult explaining the statutory increase of the base salary to non -Italian clients, and telling them they have no choice about whether to apply them or not.
- 13th and 14th pay months are unheard of in most countries. These additional instalments are part of the annual salary, but they are accrued on a monthly basis. They are paid out twice per year, in June and December. The number of additional instalments, the payout date, the calculation method are once again set forth by the CBA. As the accrual is monthly, when an employee leaves, he has the right to accrued extra months of pay up to the date of dismissal.
- Perhaps the most unusual pay element is the TFR (Trattamento di Fine Rapporto): a mandatory monthly accrued amount, roughly a months salary per year of service, paid for by the company that effectively creates a savings plan. Depending on what the employee chooses, on the size of the Company, and again on the CBA, the TFR can be accrued within the company or sent to a pension fund. If the TFR is accrued in the company, at the moment of dismissal, it’s compulsory to pay this amount out. If an employee is fire the TFR is paid and then the company is still liable for severance payments.
- Dismissal/resignation regulations represent maybe the most delicate part of our job. An increasing number of employees legally oppose dismissal decisions, and the final tax treatment and the way we reflect this on the payslips is fundamental to avoid further legal actions. The protection of the rights of the employees is a very important issue in Italy, and just to give you an idea, one of the hottest battles of the former government concerned the possibility of loosening the procedures of dismissal of the employees. Needless to say things didn’t go as they wanted.
I find the Italian payroll quite different to the payrolls I have previously processed; to become a payroll specialist in Italy requires years of study and I respect and admire my co-workers who are proficient in their role as “Consulenti del Lavoro” as this role does not come easily!
The Company I work for has a fantastic team, with a friendly disposition, they are able to deal with the most difficult of queries with absolute professionalism and answer the everyday, run-of-the-mill questions in a positive and productive manner, whether it be direct with the Italian Authorities or with any of their international clients in the UK, America and around Europe. It will take many years for me to fully understand the Italian Payroll procedures.
- A track record of providing services to international clients
- Experienced staff, who speak decent English – not always easy to find in Italy
- Staff who are friendly and able to communicate with employees and all the authorities when required.
- A company that is able to assist in the HR, accounting and employment contracts field as well as “pure” payroll processing.
- Seek the best: administrative sanctions and fines are so high in Italy that it isn’t worth cutting corners.