In order to compensate employees correctly and remain compliant, it is essential to have a comprehensive understanding of the country’s taxation and payroll laws.

Taxation rules in Italy

Income tax in Italy is progressive, meaning the higher the income, the higher the rate of tax payable. Social security contributions vary based on the industry sector and management level.

  • Up to EUR 28,000: 23%
  • Over EUR 28,000 to EUR 50,000: 33%
  • Over EUR 50,000: 43%
  • Regional and municipal IRPEF surcharges: Vary by location

While there are different rates for social security contributions based on industry sector and management level, The mandatory social security contribution is 39–40% of gross salary. The employer pays approximately 30%, and the employee pays 9–10%.

One of the most challenging parts of setting up payroll in Italy is following the country’s complex taxation laws. As an employer, you’ll be responsible for deducting the correct taxes from every employee’s paycheck and submitting them to the proper tax authorities each month. You must also account for local taxes based on where your employees live.

Italy payroll options for companies

Every company differs in size, function, and activity level. You can choose from 3 Italy payroll options to find the best fit for your company. These include:

  • Internal payroll: If you operate a larger company, internal payroll at your Italy subsidiary is a viable option. You will need to hire the necessary staff and learn all the country’s employment laws.
  • Italy payroll outsourcing: You can also outsource with a local payroll processing company in Italy. Although this company will pay your employees, you’ll remain liable for any mistakes.
  • Working with an EOR like G-P: We take payroll one step further. With our agentic Global Employment Platform, companies can automate, customize, and manage every HR function such as payroll, currencies, in-country benefits, PTO, expenses, and more.​

How to set up a payroll in Italy

Once you choose the best Italy payroll option for your company, you or your EOR will have to set everything up. First, your company or a legal representative will need to register with the Labor Office, Social Security Institute, and Insurance Institute. If you fail to register by the respective deadlines, you will face a variety of penalties.

You’ll then need to get a company identification number and fiscal code by signing documents in front of a notary public. Your employees cannot begin work until you receive the fiscal code.

Entitlement/termination terms

National Collective Bargaining Agreements (NCBAs) are prevalent throughout Italy and may provide specific termination and entitlement terms. For open-ended employment contracts, the maximum probationary period for middle managers (quadri) and executives (dirigenti) is 6 months. The applicable collective agreement or individual contract may set a shorter period.

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