Italy is one of Europe’s largest economies, with a skilled workforce and a strong presence across manufacturing, technology, fashion, and professional services. For foreign companies hiring in Italy, payroll is anything but straightforward. The system layers national legislation, sector-level collective agreements, and multiple tax and social security obligations on top of each other. Getting it right from day one matters because mistakes are costly to unwind, and Italian labour authorities take compliance seriously.
How payroll works in italy
Running payroll in Italy means operating within two overlapping frameworks: national law and sector-level collective bargaining. National law sets the baseline rules for tax withholding, social security contributions, and mandatory benefits. Sector rules, set out in collective bargaining agreements known as CCNLs (Contratti Collettivi Nazionali di Lavoro), determine pay floors, leave entitlements, notice periods, probation lengths, and more.
Before you can run a first payroll, you’ll need to register the employment relationship with the Italian labour authority using the eSPE / UniLAV system. This registration must happen before the employee starts work, not after. Payslips are known locally as the busta paga or cedolino, and they’re legally required for every pay period.
Contract requirements
Employment contracts must be written in Italian. Bilingual contracts are acceptable, but Italian must be included. Probation periods are set by the applicable CCNL: up to six months for executives, and up to three months for other employees. You can’t simply pick a probation length that suits you; the CCNL for the employee’s sector governs it.
Pay frequency and deadlines
Italian payroll runs monthly. Salaries must be paid by the last working day of the month. There’s no legal flexibility here: late payment exposes the employer to penalties and can trigger claims for damages.
Italy doesn’t have a statutory national minimum wage. Pay floors are set by the CCNL covering the employee’s industry. This means the minimum you can pay a given employee depends on their job category and sector, not a single national figure. You’re required to apply the correct CCNL for each employee’s role.
Collective bargaining agreements (ccnl)
The CCNL framework is one of the most important things to understand when running payroll in Italy. There are hundreds of CCNLs covering industries from metalworking and retail to technology and financial services. Each one sets out minimum pay grades (livelli), extra-month payments, overtime rules, notice periods, and other entitlements that override any less favourable contract terms.
Applying the wrong CCNL, or no CCNL at all, is a compliance failure. Italian courts and labour inspectors will apply the correct agreement regardless of what the employment contract says. When you’re setting up payroll for a new hire, identifying the right CCNL for their sector and role category is one of the first decisions you’ll make, and it shapes nearly every other payroll calculation that follows.
Mandatory contributions and deductions
Italian payroll involves contributions from both employer and employee, all calculated on gross salary.
Employer social security (INPS): Employers contribute approximately 23.81% of gross salary to the national social security institute (INPS), plus smaller additional levies depending on the sector and company size. Total employer social security costs typically land between 29% and 32% of gross salary.
Employee social security (INPS): Employees contribute 9.19% of gross salary, withheld at source by the employer and paid over to INPS on their behalf.
Income tax (IRPEF) withholding: Italy uses a progressive income tax system called IRPEF, and employers are responsible for withholding it at source. The rates for 2026 are:
- 23% on income up to €28,000
- 35% on income from €28,001 to €50,000
- 43% on income above €50,000
On top of these national rates, employers also withhold regional and municipal income tax surcharges, which vary depending on where the employee is based.
TFR (trattamento di fine rapporto): The TFR is Italy’s statutory severance fund. Employers accrue approximately 7.4% of the employee’s annual gross salary each month. This amount doesn’t leave the business as a regular payroll cost; it accumulates and is paid to the employee when the employment relationship ends. Employees can choose to redirect their TFR accruals to a supplementary pension fund instead of leaving them with the employer, and you’re required to facilitate that election if they make it.
The 13th and 14th month
Italy mandates a 13th-month salary payment, known as the tredicesima, paid in December. It’s equivalent to one month’s salary and is non-negotiable under Italian law.
A 14th-month payment, the quattordicesima, is standard under most CCNLs and is typically paid in June. Whether it’s mandatory for your employees depends on their applicable CCNL, but for the majority of sectors it’s an expected and contractually required payment. You should confirm the 14th-month obligation when you identify the correct CCNL for each role.
Both payments are subject to the same INPS contributions and IRPEF withholding as regular monthly salary. They need to be factored into your total cost-of-employment calculations from the outset.
Payroll records and annual filings
Every payslip you issue must show gross salary, all deductions (social security and tax), and net pay. This is a legal requirement, not a best practice.
Beyond monthly payroll, there are two annual filings to manage:
CU (Certificazione Unica): By March 16 each year, you must issue every employee a CU, which is an income and tax certificate summarising their total gross pay and taxes withheld during the previous year. Employees use this to file their personal tax returns.
770 declaration: The 770 is an annual employer declaration filed with the Agenzia delle Entrate (Italian tax authority). It reports the total withholding taxes and social security contributions paid across all employees during the year. Missing this deadline or filing incorrectly results in penalties.
How an EOR handles italian payroll
For a foreign company without an Italian legal entity, running compliant payroll in Italy requires either setting up a local subsidiary or working with an Employer of Record (EOR). An EOR becomes the legal employer in Italy, handling payroll processing, INPS contributions, IRPEF withholding, TFR accrual, 13th and 14th-month payments, CU issuance, and the annual 770 filing.
This matters because Italian payroll has a high volume of moving parts: CCNL identification, monthly contribution calculations, multiple tax bands, and sequential annual deadlines. A single compliance gap, such as applying the wrong CCNL or missing the UniLAV registration, can result in retroactive corrections and fines. EOR services absorb that compliance burden, letting you focus on the work your Italian hire is there to do.
Get started with RemotePass
Italian payroll rewards companies that invest in understanding it before their first hire starts work. The CCNL framework, the TFR obligation, the 13th and 14th month, and the multi-step annual filing cycle all require careful planning, not reactive fixes.
RemotePass makes it straightforward to hire and pay employees in Italy without setting up a local entity. You get compliant payroll, properly applied collective agreements, and all mandatory filings handled in one platform. Book a demo to see how it works.
