How to run international payroll for employees in Italy (Updated 2024)
When running payroll for remote employees in Italy for the first time, you'll want to follow specific steps to ensure your employees are paid without issue and receive their benefits. It's crucial to follow Italian labor laws, the tax system, Italian Civil Code and collective bargaining agreements to onboard and pay candidates compliantly. However, following an unfamiliar set of laws for the first time can be challenging.
This guide provides a step-by-step process for paying employees in Italy, so you can feel confident navigating these complexities.
Step #1: Decide whether or not to create your own entity in Italy or use an Employer of Record (EOR)
To hire and compensate employees in Italy, it’s necessary to have a business entity established in the country. This can be achieved by establishing your own local entity or opting for an Employer of Record (EOR) to oversee hiring and payroll processing.
When, why, and how do companies use an EOR?
Companies expanding worldwide to countries like Italy use EORs for benefits administration, payroll, and compliance.
An EOR is a third party service that allows foreign companies to hire and pay employees. EORs handle tax rate calculations, withholdings, and payments to the appropriate authorities, as well as benefits like parental leave, severance pay, and more. They are a popular option for smaller companies expanding into new countries because they’re quick to set up and require less administrative load.
Many employers lack the time or resources to set up their own entity, so they turn to an EOR to get up and running in a new country more quickly.
When, why, and how do companies create their own entity?
A legal entity in Italy requires a lengthy setup process with local authorities, which can be difficult without full knowledge of the language and cultural nuances.
In certain situations, it may be more cost-effective for companies to establish their own local entities rather than continuing to rely on the services of an EOR.
For foreign-owned companies looking to establish a presence in Italy, obtaining a VAT number and bank account can be faster than in many other European jurisdictions. The company incorporation steps include the following:
- Arrange articles of association and memorandum of association.
- Execute articles of association before a public notary.
- Obtain an Italian tax code.
- Open a local bank account.
- Register for VAT.
- File with the Registrar of Companies.
Step #2: Pick a global payroll software solution
Global payroll software can streamline the process of paying employees all over the world. There are two primary types:
- Global payroll processors process your payroll, transmit funds, and calculate and file taxes in every country through their own software. They allow you to pay your international employees just as easily as your local employees: together in a single pay run.
- Global payroll aggregators aggregate local payroll providers in different countries and manually transmit your payroll files to them.
Step #3: Determine your workers’ employment status
If you plan to bring new employees on board in Italy, it’s important to ensure they are classified as employees under Italian labor laws. Failure to do so can result in legal and financial penalties.
Per Italian law, employees are individuals who have a full-time working relationship under the direction and supervision of their employer, as stated in Article 2094 of the Italian Civil Code. All full-time employees have the right to statutory employment benefits such as remuneration.
According to Article 2222 of the Italian Civil Code, independent contractors provide services to a company on a project basis under a service agreement. Self-employed workers are responsible for arranging their own taxes and social security contributions, and they carry out their business independently, determining their own work schedule.
- In Italy, employers can face administrative fines ranging from EUR 100-500 for each misclassified worker.
- Misclassifying workers in Italy can lead to harsh penalties from tax authorities, such as a 90% penalty for incorrect tax returns and a 20% penalty for improper income tax withholding.
Working with an EOR, such as Rippling, reduces the risk of misclassifying your employees and contractors.
Step #4: Capture your new hires’ Italian payroll information
Before processing payroll, you will need to collect certain information from your employees. Most of this can be managed during the employment contract and onboarding procedure. Here’s the information you need:
- Name (matching the account where you’ll deposit their pay)
- Date of birth and date of hire
- Contact information, including their mailing address in Italy
- 16-digit codice fiscale
- The terms and duration of the contract, if applicable
- Agreed working hours and working days
- The employee's salary or wage, plus how and when payments will be made
- Amount to be paid in EUR (including any bonuses)
Step #5: Choose to pay in your local currency or in euros (EUR)
You have to pay Italian employees in euros unless you've specifically obtained their written permission to pay them in another currency.
Foreign employers outside the European Union may face complications when paying employees in euros. Fluctuations in exchange rates between their local currency and the euro can lead to higher costs for workers' wages. Additionally, exchange rate fluctuations must be accounted for when calculating financial statements.
Step #6: Run payroll
You have an entity (either your own or via an EOR), you’ve set up your global payroll system, and you’ve ensured your employees are correctly classified under Italian law.
Time to run payroll! Here’s a preview of how Rippling’s global payroll system works:
Step #7: File your taxes in Italy annually
Once you’ve begun running payroll for Italian employees, Italian corporate entities are subject to a corporate income tax by the tax system, known as IRES, and to a regional production tax, known as IRAP.
The standard rates are as follows:
- 24% for IRES
- 3.9% for IRAP
- 22% for VAT
For the tax period expiring May 2, 2024, IRES and IRAP returns must be filed by the end of the 11th month following the tax year-end, and the ordinary taxable period is equal to 12 months. After this date, IRES and IRAP returns need to be filed by the end of the ninth month for the tax year-end.
Failure to file a tax return results in a penalty ranging from 120% to 240% of the taxes due. Minimum penalties—ranging from EUR 250 to EUR 1,000—may be applicable if no tax liability emerges in the return.
The payroll cycle in Italy is generally monthly and is paid on the 27th of each month. Other required payments include:
- Social security contributions, which include unemployment benefits and family allowances
- Government pension contributions
- Occupational accident and illness insurance
Frequently asked questions about running payroll in Italy
What are the employer costs for full-time employees in Italy?
Employers are responsible for deducting the following from their full-time employees’ paychecks, along with income taxes as shown on their payslips. Find the details below:
Social security contributions
29.00% – 32.00%
Work Insurance (INAIL)
0.40%-1%
What employee benefits must the employer offer by law?
Make sure to comply with local statutory entitlements for employee benefits including:
- Maternity leave
- Sick leave
- Public holidays
- Paternity leave
- Annual leave including paid time off
- Pension fund
- Social security contributions
- Severance pay or trattamento di fine rapporto (TFR)
What is the average salary for employees in Italy?
Statista reports that as of 2024, the average annual wage in Italy was €31,500.
What are the minimum wages in Italy?
Italy has no national mandatory minimum wage, but depending on your industry, you may find guidance set through collective bargaining agreements.
What information is needed from employees to run payroll in Italy?
Here’s the information you need from salaried employees to process their payroll:
- Name (matching the account where you’ll deposit their pay)
- Date of birth and date of hire
- Contact information, including their mailing address in Italy
- 16-digit codice fiscale
- Bank account information
- Amount to be paid in EUR (including any bonuses)
How much does it cost to run payroll in Italy?
Most payroll software is priced on a per-employee basis or per pay run. Payroll service pricing varies according to:
- Payroll frequency
- The number of employees on your payroll
- The number of regions and provinces where you employ Italian workers
- How often you add and remove payees
- Any additional services you need, such as year-end processing
Can I manually run payroll for workers in Italy?
Some small companies choose to run payroll themselves, using a payroll calculator and making a direct deposit to employee accounts, in an effort to cut costs. But running payroll on your own can be a time-consuming process, especially as your business grows. If you go this route, there are potential risks to keep in mind:
- Compliance: Running payroll manually in Italy puts you at risk of manual errors. Rippling handles your compliance work for you—enforcing Italian minimum wages and overtime rules, which can save you from heavy fines.
- Security: Manual payroll processing also poses potential security risks, especially if there are spreadsheets or paper records involved. This increases the risk of sensitive employee information being exposed or misused.
Rippling syncs all your business’ HR data with payroll so you never have to use a calculator or manually enter data, like hours and payroll deductions. Rippling also handles your tax and compliance work, plus we’re an authorized payroll provider by the Italian Revenue Agency (Agenzia delle Entrate).
What are payroll taxes in Italy?
Employers are responsible for deducting income taxes, social security contributions, and any additional benefits their full-time employees choose from their paychecks—see more in our employer cost tables.
Rippling can automatically sync tax deductions to payroll, and handle your tax and compliance work for you.
What are the late tax filing penalties in Italy?
- Failure to file penalty: Failure to file a tax return results in a penalty ranging from 120% to 240% of the taxes due. Minimum penalties (ranging from EUR 250 to EUR 1,000) are applicable if no tax liability emerges in the return.
- Late VAT filing: If a value-added tax (VAT) return is filed after the due date, a penalty of 120% to 240% of the VAT due may be applied, depending on how late the filing is. A general penalty of 30% of the VAT is due for late payment.
- Delayed social security contributions. If an employer fails to pay social security contributions due to misclassifications, they may face criminal charges. The employer could be fined EUR 1,032 and imprisoned for three years for unpaid contributions exceeding EUR 10,000. For up to EUR 10,000 worth of unpaid social security contributions, the fine can be up to EUR 50,000.
It’s important to note that Italy's late tax filing penalties can be severe. Employers who fail to file their taxes on time should seek professional advice to avoid the maximum penalties.
How do you pay contractors in Italy?
To pay independent contractors in Italy:
- Use our free Worker Classification Analyzer to confirm that contractors are accurately classified.
- Agree on payment terms such as hourly or project rate, pay frequency, currency, and payment method. Make sure to document these terms in a written agreement.
- Use your preferred global payroll solution to pay the contractor in euros or another currency per their contractor agreement. With Rippling, you can pay contractors in Italy in their local currency through a single pay run without any delays in transfers or conversions.
- Italian independent contractors are in charge of managing their own income taxes and social security contributions. In addition to the Italian Civil Code, no specific employment laws regulate the hiring of independent contractors.
Rippling and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any related activities or transactions.
