Hire employees in Italy using an Employer of Record

Italy requires 14-month salaries, mandatory 13th and 14th month payments, and complex regional tax variations. Miss these requirements and you'll owe back payments plus penalties when employees find out about their legal entitlements.

Your lawyer just quoted €25,000 minimum for entity setup, plus 4-6 months timeline. Your perfect hire can't wait that long, and you're not even sure if this Italy expansion will work out long-term.

Here's the reality: you've got three options to hire legally in Italy, and each comes with different costs and headaches.

Option 1: Set up your own entity

• Cost: €15,000-50,000 upfront, €8,000-15,000 annual maintenance
• Timeline: 4-6 months minimum
• Complexity: Full tax registration, payroll system, legal compliance, HR infrastructure
• Makes sense when: Hiring 20+ people long-term, permanent market presence

Option 2: Hire contractors

• Cost: None upfront, but limited control
• Timeline: Immediate
• Risks: Misclassification fines (€10,000+), back taxes, legal disputes
• Makes sense when: Short projects (< 6 months), specialized skills
• Note: Hire with Columbus also handles contractor agreements and payments

Option 3: Use an employer of record (Recommended for most)

• Cost: $179/month per employee
• Timeline: 2-3 days to hire
• Complexity: None - we handle everything
• Makes sense when: 1-50 employees, testing markets, multi-country teams

If you're hiring 1-5 people, entity setup costs more than 4-5 years of EOR fees ($179/month = $2,148/year per employee). An EOR like Hire with Columbus handles employment contracts, payroll, taxes, benefits, and compliance updates while you focus on your actual business.

Ready to hire in Italy without the legal headaches? Get started with Hire with Columbus.

What employment types can you use?

You've got three ways to bring someone onboard in Italy. Here's how the costs and risks compare.

Most companies jump straight to thinking about contract types—permanent, fixed-term, part-time. But the bigger decision is how you'll legally employ someone in Italy in the first place.

How can you hire in Italy?

Here's your decision framework with real numbers:

Option 1: Set up your own entity

• Incorporation costs: €25,000-€35,000 minimum
• Timeline: 4-6 months for full setup including payroll systems
• Ongoing costs: €3,000+ monthly for accounting, legal, HR compliance
• When it makes sense: You're planning 20+ employees and a permanent Italian presence
• Reality check: You'll need Italian payroll expertise, tax registration, and ongoing legal compliance

Option 2: Hire contractors/freelancers

• Speed: Start immediately with freelance agreements
• Major risk: Italy's labor courts heavily favor reclassifying contractors as employees
• Penalties: Up to €50,000 in fines plus back taxes and social contributions
• When it works: True project work under 6 months with specialized skills
• Key limitation: You can't control their work schedule or methods like employees

Note: Hire with Columbus also handles compliant contractor agreements and payment processing if you need true freelance work.

Option 3: Use an employer of record

• Hire with Columbus becomes the legal employer in Italy
• You manage day-to-day work, performance, and career development
• Cost: $179/month per employee
• Timeline: Hire in 2-3 days instead of months
• We handle: Employment contracts, payroll, tax compliance, benefits, legal requirements
• ROI example: 5 employees costs $895/month vs €25,000+ entity setup

Employment contract types in Italy

Once you've decided on your hiring approach, here are the actual contract types you can use:

Permanent contracts (Contratto a tempo indeterminato)

This is your standard full-time employment contract with no end date. It's what most companies use for core team members.

• Most job security for employees, which means higher engagement
• Requires proper notice periods for termination (2-4 months depending on role level)
• Full benefits including severance pay (TFR) that accrues over time
• Best for: Any role you expect to last over 12 months

Fixed-term contracts (Contratto a tempo determinato)

These have a specific end date and stricter rules than most countries.

• Maximum duration: 24 months total (including renewals)
• Can only be renewed 4 times maximum
• After 24 months, automatically converts to permanent
• Requires "objective reasons" for renewal after 12 months
• Best for: Seasonal work, maternity cover, or specific project timelines

Part-time contracts

Part-time employees get the same protections as full-time workers, just prorated.

• Minimum 4 hours per day or 20 hours per week typically
• Same hourly benefits, vacation days (prorated), and job protections
• Overtime rates apply for hours beyond contracted time
• Can be permanent or fixed-term
• Best for: Roles that genuinely don't require full-time hours

Apprenticeship contracts

These combine work with formal training for employees under 30.

• Duration: 6 months to 3 years depending on qualification level
• Lower social contributions (around 10% vs standard 30%+)
• Must include at least 120 hours of formal training annually
• Best for: Junior roles where you want to invest in long-term development

Which contract type should you choose?

For most international hires, permanent contracts make the most sense. Here's why:

You're hiring someone to join your team long-term, not complete a specific project. Fixed-term contracts in Italy are heavily regulated and automatically convert to permanent anyway after 24 months.

Part-time works if the role genuinely doesn't need full-time hours, but remember—part-time employees in Italy have strong rights to request schedule changes and additional hours.

When you use Hire with Columbus, we draft the appropriate contract type based on your specific situation and ensure it complies with Italian labor law. We'll also handle any contract modifications if your needs change—like converting a fixed-term contract to permanent or adjusting part-time hours.

The bottom line: Most companies hiring internationally choose permanent contracts through an EOR. It's straightforward, compliant, and gives you the flexibility to build your Italian team without the complexity of entity setup.

How does payroll and taxation work?

Your €60,000 employee actually costs €81,600 per year in Italy. That 36% bump comes from employer social contributions that many companies forget to budget for when expanding here.

Italy's payroll system runs on strict monthly cycles with some unique quirks you won't find elsewhere. Most employees expect their 13th-month salary (tredicesima) in December, and many contracts include a 14th-month bonus in summer. Yes, you're paying 14 months of salary per year.

Tax brackets and income tax

Italian income tax (IRPEF) uses a progressive system that starts gentle but ramps up quickly. Here's what your employees will pay in 2025:

Regional and municipal taxes add another 1.7% to 3.33% on top of these rates. Your Milan employee pays more than someone in rural Sicily, but the difference isn't huge.

Social security contributions breakdown

Here's where Italian payroll gets expensive. Social contributions split between employer and employee, but guess who pays the bigger chunk?

*INAIL rates depend on industry risk level. Office workers pay 0.5%, construction workers pay much more.

The employer portion hits around 27% of gross salary. There's no cap on most contributions, so even high earners cost you the full percentage.

Payment schedule and bonuses

Italian employees get paid monthly, usually between the 27th and 30th of each month. Payment delays beyond the 10th of the following month trigger automatic interest penalties.

The 13th-month salary (tredicesima) is mandatory and equals one month's gross pay, paid by December 24th. Many collective agreements also require a 14th-month bonus in June or July.

Holiday allowance (ferie) gets paid at regular salary rates when employees take vacation. You can't make them forfeit unused vacation days either.

Total employment cost example

Let's break down what a €60,000 salary actually costs you:

Annual Costs:

• Base salary (14 months): €70,000
• Employer social contributions (27%): €18,900
• Holiday pay provision: €2,400
• Severance fund (TFR): €5,100
• Total annual cost: €96,400

That's 61% more than the base salary. Factor in recruitment, equipment, and office space, and you're looking at serious money.

Payroll cycle and deadlines

Payroll taxes and contributions get filed monthly by the 16th of the following month. Miss this deadline and penalties start at €25 plus 0.4% interest per day.

Annual tax reconciliation (Modello 770) is due by September 30th. The CUD forms (Italian W-2 equivalent) must reach employees by February 28th.

INPS contributions get paid separately from income taxes. Different deadlines, different forms, different penalties if you mess up.

Common payroll mistakes

Wrong TFR calculations: Severance pay (Trattamento di Fine Rapporto) accrues at 6.91% of gross salary annually, plus inflation adjustments. Many companies forget the inflation component and face nasty surprises at termination.

Missing regional tax variations: Each region sets different IRAP rates (regional business tax). Using the wrong rate triggers automatic audits.

Incorrect collective agreement application: Most industries have mandatory collective bargaining agreements (CCNL) that override employment contracts. Ignore these and you'll underpay employees, creating legal liability.

Late contribution payments: INPS penalties compound daily. A €1,000 late payment becomes €1,200+ within months.

Setting up payroll in Italy yourself:

• Local accounting firm: €800-1,500/month
• Payroll software: €200-400/month
• Compliance risk: Fines up to €50,000 for errors
• HR expertise needed: €55,000+ salary

With Hire with Columbus: $179/month per employee (USD), fully compliant, zero risk.

We handle all the INPS filings, calculate TFR correctly, apply the right collective agreements, and never miss a deadline. Your Italian employees get paid on time while you focus on growing your business instead of decoding tax codes.

What benefits and leave are required?

You'll pay salary 14 times a year in Italy, not 12. The 13th month (tredicesima) comes in December, and the 14th month (quattordicesima) arrives in summer. That's just the start of Italy's benefit requirements.

Beyond the extra salary payments, three benefits are mandatory: health insurance contributions, pension contributions, and unemployment insurance. Here's what you owe and what your employees get.

Annual vacation

Italian employees get 20 days minimum annual leave, but most collective agreements bump this to 22-26 days. Vacation accrues monthly - employees earn about 1.67 days per month worked.

Here's the catch: unused vacation must be paid out when employees leave. You can't force a "use it or lose it" policy. Employees can carry over unused days, though you can require they take vacation within 18 months of earning it.

Vacation pay is calculated at normal salary rates. If someone earns €3,000 monthly, each vacation day costs you €136 (based on 22 working days per month).

Sick leave

Employees can take up to 3 days sick leave without a doctor's certificate. After that, they need medical documentation from a public health service doctor or authorized private physician.

You pay 100% of salary for the first 3 days. After that, Italy's social security (INPS) covers 50% of daily salary from days 4-20, then 66.66% from day 21 onward. The annual limit is 180 days of paid sick leave.

INPS pays the employee directly, so you don't advance the money. But you're still responsible for the first 3 days at full pay - budget about €400-500 per sick leave episode for average salaries.

Parental leave

Maternity leave is 5 months at 80% pay - typically 2 months before birth and 3 months after (though mothers can work until birth and take all 5 months afterward). INPS pays this benefit directly.

Fathers get 10 days mandatory paternity leave at 100% pay, also covered by INPS. They must take this within 5 months of the child's birth.

Both parents can share an additional 6 months of parental leave at 30% pay until the child turns 12. This is optional but increasingly popular.

Public holidays 2025

Italy has 12 national public holidays in 2025. Employees who work these days get double pay.

Many cities also have local patron saint holidays. Milan celebrates Sant'Ambrogio (December 7), Rome has Saints Peter and Paul (June 29). Check your specific location for additional required days off.

Mandatory benefits breakdown

Here's who pays what for Italy's required social contributions:

*Work injury rates depend on job risk level. Office workers pay 0.5%, construction workers pay up to 16%.

These contributions apply to all salary payments, including the 13th and 14th month bonuses. For a €50,000 annual salary, you'll pay about €16,565 in social contributions.

Optional competitive benefits

Most Italian companies offer these extras to attract talent:

• Meal vouchers (buoni pasto): €4-8 per working day, tax-free for employees
• Private health insurance: Supplements public healthcare, costs €800-1,500 annually
• Company car: Popular for sales roles, includes fuel and insurance
• Flexible benefits: €258.23 annual tax-free allowance for gym, transport, or childcare
• Supplementary pension: Additional retirement savings beyond INPS

Remote work benefits became standard post-COVID. Expect requests for home office equipment allowances (€200-500 annually) and coworking space memberships.

Common benefit mistakes

Forgetting the 14th month payment: Many companies budget for 13 months but miss the summer bonus. This costs you 8.33% more than expected salary costs.

Miscalculating social contributions: The rates above apply to gross salary including bonuses. Miss this on a €60,000 salary and you'll owe an extra €2,000 in contributions.

Ignoring collective agreements: 80% of Italian employees fall under sector-specific contracts (CCNL) that set higher minimums than national law. IT workers might get 26 vacation days instead of 20.

Late contribution payments: INPS charges 0.4% monthly penalties on overdue payments. A €5,000 late payment costs an extra €200 after one month.

Administering these benefits correctly requires local HR expertise (€50,000+ annual salary), payroll software (€300+ monthly), and legal review (€5,000+ yearly). Factor in the risk of penalty errors, and you're looking at €60,000+ annually in administrative costs.

Hire with Columbus handles all Italian benefit administration, from INPS contributions to vacation tracking, for $179/month per employee. We ensure compliance with both national law and applicable collective agreements, so you avoid penalties while your employees get everything they're entitled to.

What are the compliance requirements?

Written contracts are mandatory in Italy within 30 days of the employee's start date. Skip this deadline and you're looking at fines starting from €1,500 per employee, plus the contract gets deemed indefinite-term automatically.

Employment contract requirements

Every employment contract must be in Italian and include specific mandatory clauses. You can't just translate your standard US contract and call it done.

Required elements include the exact job description, workplace location, salary breakdown, working hours, probation period length, and applicable collective bargaining agreement (CCNL). Most sectors in Italy fall under a CCNL, which sets minimum wages and working conditions you can't negotiate below.

The contract must specify whether it's permanent, fixed-term, or part-time. Fixed-term contracts can only be renewed twice before automatically converting to permanent status. Miss this rule and you'll owe back pay as if the employee was permanent from day one.

Probation periods

Probation periods in Italy max out at six months for managers and three months for other employees. The exact length depends on your applicable collective bargaining agreement, so you can't just pick whatever sounds reasonable.

During probation, either party can terminate with minimal notice (usually 2-15 days). After probation ends, full employment protections kick in, including lengthy notice periods and just-cause requirements for dismissal.

You must specify the probation period in the written contract. Forget to include it? You can't claim probation rights later.

Working time regulations

The standard work week is 40 hours across five days. Employees can work maximum 48 hours per week including overtime, averaged over four months.

Overtime rates are typically 10-15% above regular pay for the first eight hours weekly, then 20% for additional hours. Weekend and holiday work commands 30-50% premiums depending on your CCNL.

Mandatory breaks include 10 minutes for every six hours worked, plus a lunch break of at least 30 minutes for shifts over six hours. You must maintain detailed time records for labor inspections.

Notice periods

Notice periods vary by tenure and job level. Here's what you're looking at:

These are minimums. Your collective bargaining agreement might require longer periods. During notice, employees can take paid time off to job search.

Termination process

You can't fire someone in Italy without documented just cause or economic justification. Personal conduct issues require progressive discipline with written warnings. Economic dismissals need proof of genuine business difficulties.

For companies with over 15 employees, individual dismissals require consultation with trade unions if the employee is represented. Collective redundancies (5+ people within 120 days) trigger formal consultation procedures with unions and government notification.

Discriminatory dismissals or procedural violations can result in reinstatement orders plus 12-24 months of back pay. Even valid dismissals require proper documentation and notice periods.

Severance pay

Italy requires TFR (severance) payments for all employees. The formula is complex but generally equals one month's salary per year of service, plus interest.

TFR accrues monthly and compounds at 1.5% plus 75% of inflation annually. You must set aside these funds throughout employment, not just pay at termination.

Data protection compliance

Italy follows GDPR strictly, with additional local privacy requirements for employee data. You need explicit consent for processing personal information beyond basic employment needs.

Employee monitoring requires prior notification to unions and sometimes individual consent. Installing cameras or tracking software without proper procedures can result in fines up to €20 million or 4% of global revenue.

Background checks are heavily restricted. You can only request criminal records for specific roles (security, finance, childcare) and must inform candidates in advance.

Common compliance mistakes

Invalid employment contracts top the list. Missing mandatory clauses, wrong probation periods, or skipping CCNL references can void the entire agreement. You'll owe back payments and face contract renegotiation.

Improper termination procedures cost companies €15,000-50,000 per case in legal fees and settlements. Firing someone without just cause or proper notice triggers automatic severance payments plus potential reinstatement.

Misclassifying employees as contractors is expensive. Italian authorities presume employment relationships exist and require you to prove otherwise. Failed contractor relationships mean back taxes, social contributions, and employee benefits.

Working time violations result in fines of €25-150 per employee per violation, plus overtime back pay. Labor inspectors can shut down operations until you fix record-keeping issues.

Penalties for violations

Common compliance failures in Italy carry steep costs:

• Invalid employment contract: €1,500-6,000 fine plus contract deemed indefinite-term
• Wrong termination process: €15,000-50,000 in legal costs plus potential reinstatement order
• Missing mandatory time records: €25-150 per employee per day until corrected
• Improper contractor classification: Back taxes plus 200% penalties on unpaid contributions
• GDPR violations: €20 million or 4% of global revenue for serious breaches

Hire with Columbus ensures every contract follows Italian law exactly, with built-in CCNL compliance and proper termination procedures. Our legal team handles the documentation so you avoid these costly mistakes entirely.

What has changed recently?

Italy's labor market saw some major shifts in 2025 that directly impact how you hire and manage employees. The biggest change? The government extended the "Decreto Dignità" reforms with new restrictions on fixed-term contracts that make temporary hiring much trickier than before.

New fixed-term contract restrictions

Starting January 2025, you can only renew a fixed-term contract once (down from the previous two renewals). After that single renewal, the contract automatically converts to permanent employment. This catches a lot of international companies off guard because many other EU countries allow more flexibility here.

The maximum duration for fixed-term contracts also dropped to 24 months total, including renewals. So if you hire someone on a 12-month contract and renew for another 12 months, that's it. No more extensions possible.

Minimum wage developments

Italy still doesn't have a statutory minimum wage (unlike most of its neighbors), but the government introduced new guidelines in March 2025. All employers now need to demonstrate compliance with collective bargaining agreement minimums. You can't just wing it on salary levels anymore.

The labor ministry now conducts spot checks on companies with international employees to verify they're meeting sector-specific wage floors. Penalties start at €1,500 per violation, and they're not shy about using them.

Remote work regulations tightened

The "smart working" rules got an overhaul in February 2025. You now need written agreements for any remote work arrangement, even if it's just one day per week. The agreement must specify work hours, break periods, and the right to disconnect outside those hours.

International companies hiring Italian employees for remote positions face additional reporting requirements. You'll need to register the remote work arrangement with local labor authorities within 30 days of the employee's start date.

Digital nomad visa launched

Italy finally joined the digital nomad trend with a new visa category launched in April 2025. The visa allows non-EU remote workers to live in Italy for up to two years while working for foreign companies. The minimum income requirement is €31,000 annually, and you'll need full health insurance coverage.

This creates new opportunities for hiring international talent who want to work from Italy. But it also means dealing with different tax implications depending on where your company is based.

Updated parental leave benefits

Parental leave got more generous in 2025. Fathers now get 15 days of mandatory paternal leave (up from 10 days). Both parents can take up to 10 months of optional parental leave with 30% salary coverage from INPS.

The catch? These benefits apply immediately to all employees, including those you hire through an EOR. Make sure your budget accounts for these costs, especially if you're hiring employees who might start families soon.

Severance calculation changes

The TFR (Trattamento di Fine Rapporto) calculation method changed slightly in 2025. The annual contribution rate remains 6.91% of gross salary. But the indexation formula now includes a new inflation adjustment that kicks in when annual inflation exceeds 3%.

With Italy's inflation running around 4.2% in 2025, this means severance payments are growing faster than many companies anticipated. For a mid-level employee earning €50,000, this translates to roughly €400-500 more in annual TFR accrual.

New compliance reporting requirements

Starting July 2025, companies with 15+ employees in Italy must file quarterly diversity and inclusion reports with the Ministry of Labor. This includes data on gender pay gaps, promotion rates, and demographic breakdowns of your workforce.

The reporting requirement applies whether you have a local entity or use an EOR. Miss a filing deadline, and you're looking at fines starting at €2,000 per quarter.