Hiring in Italy means taking on a set of statutory obligations that go well beyond salary. Between social security contributions, mandatory severance accrual, a 13th month payment, and income tax withholding, the true cost of employment sits roughly 29–32% above gross salary. If you’re a foreign company bringing on Italian employees, this guide covers every cost you need to plan for before anyone signs a contract.
How employer taxes work in italy
Italy’s employment tax system is built around two main bodies: INPS (Istituto Nazionale della Previdenza Sociale), which administers social security, and INAIL (Istituto Nazionale per l’Assicurazione contro gli Infortuni sul Lavoro), which covers workplace accident insurance. As the employer, you’re responsible for calculating, withholding, and remitting contributions for both, as well as withholding IRPEF income tax from your employees’ salaries each month.
One important starting point: Italy doesn’t have a statutory national minimum wage. Pay floors are instead set by sector-specific collective bargaining agreements called Contratti Collettivi Nazionali di Lavoro (CCNL). Whichever CCNL applies to your industry will determine the minimum salary bands for each role, along with additional obligations like the 14th month payment. You’ll need to identify and apply the correct CCNL from day one.
Inps social security contributions
INPS is where the bulk of your employer costs sit. Contributions are calculated as a percentage of each employee’s gross salary and cover a range of insurance programs.
What’s included
The main INPS rate for most employees is approximately 23.81%, which covers pension, disability, and survivors’ benefits. On top of that, several additional levies apply:
- Sick leave: 2.22%
- Maternity: 0.46%
- Unemployment (NASPI): 1.61%
- Family allowances (ANF): 0.68%
When you add these together, total INPS employer contributions land in the range of 28–29% of gross salary for most standard employment categories. The exact figures can vary depending on the size of your workforce and the CCNL that governs your industry.
Executive supplementary funds
If you’re hiring managerial-level employees (dirigenti), additional mandatory contributions apply on top of standard INPS. For commercial sector executives, the relevant funds are Fondo Mario Negri and FASDAC. For industrial executives, they’re PREVINDAI and FASI. These funds provide supplementary health coverage and pension benefits, and they represent a real additional cost you’ll need to model for senior hires.
Inail workplace accident insurance
INAIL covers employees in the event of workplace accidents or occupational illness. The rate you’ll pay is determined by your company’s ATECO code, which is Italy’s industry classification system, and reflects the level of risk associated with your type of work.
For most office-based and standard roles, INAIL rates typically fall between 0.40% and 1.00% of gross salary. If your operations involve higher-risk activities, the rate will be higher. You’ll register with INAIL when you set up your Italian payroll and receive a rate based on your classification. This is a relatively small cost compared to INPS, but it’s still a mandatory contribution that belongs in your budget.
Income tax withholding (irpef)
IRPEF is Italy’s personal income tax, and as the employer you’re responsible for withholding it from each employee’s gross salary and remitting it to the Italian tax authority (Agenzia delle Entrate) each month. You don’t pay IRPEF yourself; it’s the employee’s liability, but you’re the collection mechanism.
The 2026 IRPEF brackets are progressive: 23% applies to income up to €28,000; 35% applies to income between €28,001 and €50,000; and 43% applies to income above €50,000. Regional and municipal surcharges also apply on top of the national rate, with the exact amounts depending on where your employee is registered as a resident.
Your payroll process needs to apply the correct withholding rate to each employee’s monthly pay, accounting for their full-year income projection and any deductions they’re entitled to claim. Getting this right requires accurate employee data and up-to-date withholding tables.
Tfr: the mandatory severance fund
TFR (Trattamento di Fine Rapporto) is one of Italy’s most distinctive employment obligations. Every month, you accrue approximately 7.4% of each employee’s annual gross salary into a severance fund. This amount builds over the duration of employment and is paid out to the employee when they leave the company, regardless of the reason for termination. Resignation, redundancy, end of contract, and retirement all trigger the same payout.
There’s an important choice employees can make: they can direct their TFR accrual to a complementary pension fund (Fondo Pensione) instead of leaving it with the employer. For employees at companies with 50 or more employees, the default is that TFR goes to INPS’s Treasury Fund. Whatever direction the accrual takes, the obligation to calculate and account for it sits with you.
TFR isn’t just a termination cost. It’s a monthly accrual that affects your cash flow and your total employment cost from day one.
The 13th and 14th month
Italy requires a mandatory 13th month salary payment, known as the tredicesima, paid every December. It’s equal to one full month’s gross salary and is non-negotiable regardless of CCNL.
A 14th month payment, typically paid in June, is also standard across most CCNLs, though it’s technically set by the applicable agreement rather than statute. In practice, you should assume it applies unless you’ve confirmed otherwise for your specific sector. Like the 13th month, it’s equal to one full month’s gross salary.
These two payments mean your annual payroll cost is effectively 14 months of salary, not 12. Factor that into your cost modeling before you agree to any compensation package.
Payroll in Italy runs monthly, with salaries due by the last working day of each month.
Total employer cost
When you add INPS contributions, INAIL insurance, TFR accrual, and the 13th and 14th month obligations together, the total employer on-cost sits approximately 29–32% above gross salary for most roles, before accounting for the TFR and extra months. Including those, your real annual outlay is considerably higher than the headline salary figure.
Here’s a simplified illustration for an employee on €40,000 gross annual salary:
- Gross annual salary: €40,000
- 13th and 14th month: adds approximately €6,667 to the annual cost (two extra months, annualized from the monthly base)
- INPS employer contributions (~28.98%): approximately €13,523
- INAIL (~0.70%): approximately €327
- TFR accrual (~7.4%): approximately €3,457
Total estimated annual employer cost: approximately €63,000–€65,000, depending on applicable CCNL and INAIL classification. Executive hires will be higher due to supplementary fund contributions.
How an EOR simplifies italian payroll compliance
Running payroll in Italy without a local legal entity isn’t straightforward. You need a registered Italian company, a relationship with INPS and INAIL, a payroll process that handles IRPEF withholding, TFR accrual, CCNL-specific obligations, and the correct treatment of the 13th and 14th months. That’s a significant infrastructure overhead for companies hiring their first Italian employee or testing the market.
An Employer of Record (EOR) removes that barrier. The EOR acts as the legal employer in Italy, handling all payroll administration, INPS and INAIL filings, IRPEF withholding, TFR management, and CCNL compliance on your behalf. Your employee works for you day to day; the EOR handles everything that keeps you on the right side of Italian employment law.
For companies hiring senior employees, a good EOR will also manage executive fund contributions like Fondo Mario Negri and PREVINDAI, which are often overlooked in cost modeling and can create compliance gaps if not handled correctly.
When you’re evaluating EOR services, prioritise providers with direct Italian payroll infrastructure. Reseller arrangements add cost and reduce accountability.
Book a demo to see how RemotePass manages Italian payroll and compliance end to end.
