Global Payroll — 17 min
Considering Italy is one of the most culturally and economically advanced countries in the world, it's little wonder why foreign companies love hiring remote workers from the country.
And of course, having highly educated and skilled employees is a top priority for every business. However, Italy has some strict requirements for employers wanting to hire Italian remote workers.
If you're interested in building an international team, you may first want to explore the Italian labor laws, tax codes, and other regulations you'll be obliged to meet. Keeping track of these will help you decide whether talents from Italy are the best choice for you. It will also aid you in staying compliant in all your business operations, so you can grow steadily and worry-free.
To support your recruitment journey, we composed a comprehensive guide on Italian labor laws, taxes, policies, and much more. In it, you'll learn everything you need to know about how to hire and pay remote workers in Italy.
The answer to the question of how to hire and pay remote workers in Italy is not quite simple. It all depends on the employment status. If a foreign company hires a full-time employee, it will need a legal entity in Italy or the help of an employer of record to process payments. In certain cases, businesses may hire workers as contractors instead.
Let's take a closer look at these three options:
When you hire Italian workers as full-time employees, you need to have a legal entity in the country to manage the workforce. You can do so by opening a branch of your company, but this option is costly, time consuming, and only makes sense if you are a larger organization with plans to open a permanent office in the country.
If the first option doesn't work for you, you can look for an employer of record with an already established entity in the country. An EOR acts as the legal employer on paper, hiring and paying employees on your behalf in the country. In this case, the fees are lower than opening your own entity, the payment management process becomes seamless, and you don't have to worry about the taxes.
For fixed-term or occasional projects, you can also hire independent contractors instead of full-time employees. As long as your workers are legally classified as contractors, you don't need an entity in Italy. Businesses are free to use fund transfer systems like PayPal or Remote’s Contractor Management tool to transfer funds to independent contractors.
Since Italy is part of the EU, workers expect to be paid in euros. Contractors may be paid in multiple currencies, if they choose, but most will prefer the euro. Full-time employees are required to receive their pay in euros.
When you’re paying employees in Italy, it’s crucial to understand how taxes function in the country. The tax brackets in Italy will affect the salary workers expect to receive, as well as what you’ll be required to withhold on their behalf. For more information about taxes for remote employees, you can check out this guide.
In Italy, there is no “exempt” tax bracket. Anyone who makes money in the country is expected to pay taxes. The brackets are as follows:
It's essential to keep in mind the tax brackets in Italy are progressive. For example, someone who earns €25,000 a year will be taxed 23% on the first €15,000 and 27% on the next €10,000. In this case, the total tax sum would be €6,150.
Since Italy doesn’t have an exempt tax bracket, the entirety of the salary is taxable. However, there are “income tax credits” that can defray some of those costs.
Here’s how Italy taxes salaries and other compensations:
In Italy, the entirety of a person’s monetary compensation is taxable. Employer contributions and allowances for rent, cars, and tuition are also considered part of the salary and taxable at the same rate. Furthermore, bonuses and other variable compensations are also taxed at a flat 10%.
Although Italy doesn’t offer standard tax exemptions, some deductions and expenses can reduce tax burdens. These include:
The country also offers tax credits that cover a certain amount of someone’s tax burden. People who make less than €55,000 will receive a tax credit covering part of their annual income tax. There are also tax credits for families, students, and people with mortgages.
Per diem payments are allowances companies grant their employees to cover expenses, typically for business travel. These allowances can be used as an additional form of compensation, letting employees choose how to acquire the resources they need to do their jobs.
In Italy, these payments typically aren’t taxable. However, the company needs to list these payments as expenses and not compensation on its financial records. It is also obliged to demonstrate the per diem was used for work-related expenses.
Yes, in Italy, there is a difference between reimbursements and allowances. The former is not considered part of the worker's compensation. A reimbursement is permitted for business-related costs such as buying a new computer or purchasing office supplies. Refunds are not regarded as taxable in Italy.
On the other hand, an allowance is considered something on top of the regular salary. If a company offers an allowance to the employee for anything not directly related to job performance, it is considered taxable compensation. This includes education and transportation allowances.
In Italy, like many countries, employers are responsible for deducting funds directly from their employees’ paychecks. These funds include income taxes and social security payments, as well as local and municipal taxes. If there is a mandatory complementary pension scheme, a company may also deduct those funds.
Insurance is not typically deducted from workers’ paychecks in Italy unless a company offers specific private insurance. Italy offers public healthcare through general and income taxation, so insurance is not a mandatory benefit, and companies are not required to deduct this expense.
There is no nationwide minimum wage in Italy. Instead, the country relies on collective bargaining agreements (CBAs) in each industry to determine the minimum wage for that sector. To understand the minimum amount you’ll need to pay, you should find the CBA for your enterprise.
Keep in mind, however, that updates are in order. The Italian government is considering a bill to implement a new minimum wage nationwide, though the exact rate has not yet been determined.
Italian overtime pay is typically determined by the sector’s CBA. The rate cannot be less than 110% of an employee’s regular hourly compensation, but many CBAs require overtime to be at least 130% of regular pay. Similarly, night shifts and work on Sundays and holidays must be paid at a higher rate.
Italy’s labor laws are influenced by collective bargaining agreements. However, some basic rules must be followed within every industry, and CBAs can make them even more restrictive.
If you want to hire remote employees in Italy, you need to keep in mind the following:
Furthermore, most CBAs require a minimum of four weeks of paid time off per year in addition to holidays. They also hold employers accountable for up to a year of sick leave for employees.
If the Italian labor laws sound a little intimidating, you can choose to hire independent contractors instead of employees. Managing independent contractors is much easier, and you can use Remote’s Contractor Management tool to handle everything from currency conversions to paycheck delivery.
However, hiring independent contractors in Italy does have its risks. Italy and the unions in charge of CBAs are strict about maintaining proper employee classification. If you’re classifying someone as a contractor who should be an employee, you could be held liable for back taxes, fines, and withheld benefits. Contractor misclassification can even lead you to lose your intellectual property.
If you’ve already hired contractors or are worried about converting contractors into employees, Remote can help. Learn more about how and when to convert contractors to employees in this comprehensive guide.
Earlier, we covered the two solutions for paying remote employees in Italy. One is to create a legal business entity in Italy, and the other is to work with an employer of record.
Opening your own entity may be the right choice if you have long-term plans to employ a large number of workers in the country. However, opening your own entity means you are responsible for the entirety of your Italian business, including compliance with labor laws, processing of payroll, and benefits administration.
The alternative is to work with a global employment partner that represents your employer of record in Italy. An employer of record (EOR) is a company that has already established a legal entity in Italy. As such, your EOR can hire employees on your behalf, handling their pay, benefits, and taxes. Meanwhile, you only need to pay the EOR’s management fee (which, if you are working with the right EOR, should be a flat rate with no additional fees or percentages) and your workers’ salaries.
An EOR can provide you with the safest, easiest, and most scalable way to hire employees abroad. Whether you want to hire one or two workers or build a large workforce, a trusted EOR will help you hire and pay the talent you need. Learn more about how to evaluate EOR partners in our guide.
Hiring remote workers in Italy is an excellent choice for any business looking for highly skilled and educated professionals, but doing so comes with a set of challenges. You need to monitor labor laws, track CBAs, and make sure to comply with the country’s tax code.
Remote can make all these tasks a breeze. We handle everything from payment to custom-made contracts to simplify the hiring process for you. With Remote, you can find the best global talent for your needs and focus on what matters the most – your business and your people.
If you have any other questions on how to hire and pay remote workers in Italy, contact our expert team. We are here to provide professional guidance and help you take your business to the next level. On the other hand, if you're all set up and ready to employ workers in Italy right away, sign up for Remote within a few clicks!
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