Italian employment contracts – How they work
In Italy, every member of staff employed needs to have an employment contract (“contratto di lavoro”).
The two main kinds are a permanent employment contract (“contratto a tempo indeterminato”) and a temporary fixed term employment contract (“contratto a termine” and “contratto a tempo determinato”).
An employment contract usually describes in detail the specific aspects and expectations of the working relationship between employer and employee. Most of them also usually include job title, salary, responsibilities and duties, entitlement to sick pay and holidays, and applicable probationary and notice periods.
Both kinds of employment contract are governed by the general rules established in the Italian Civil Code.
Permanent employment contract
The permanent employment contract governs the “traditional” employment relationship in Italy. This contract has an indefinite open time period and guarantees the employee higher protection than does any other form of Italian employment contract.
Fixed term contract
Companies can hire employees on a fixed-term contract for arrangements limited by time.
Fixed-term contracts can last up to 36 months, including any extension. Quantitative limits are normally set by national collective agreements (NCAs); alternatively, the law states that the overall number of fixed-term contracts may not exceed the 20% threshold of the work force hired on a permanent basis.
Fixed-term contracts cannot be used to replace workers on strike or to replace employees temporarily laid off or involved in collective dismissals over the previous few months.
A part-time contract must be drawn up in writing and specify the working hours (e.g.
by day, week, month and year). Normally, pay and other entitlements are pro-rated to those for full timers carrying out the same job. An employer can add specific “clausole elastiche” (elastic clauses) or “clausole flessibili” (flexible clauses) to increase working time or vary working hours during the day.
National collective agreements and individual employment contracts
In Italy, there are many national collective agreements and most employers tend to use them. For this reason, an Italian employment agreement is normally just a simple hiring letter. This letter refers both to the items required by the law such as the identity of the parties, place of work, employment start date, trial period (if any), duration of the employment (in the event of fixed-term employment), employee’s duties and to the provisions contained in the relevant NCA.
An individual employment contract also mentions the employee’s “category”, as established by the Italian Civil Code.
In Italy, there are four categories of employee:
- “Dirigente” (executive);
- “Quadro” (middle manager);
- “Impiegato” (white collar employee);
- “Operaio” (blue collar employee).
For “Dirigenti”, whereas national collective agreements usually lay out the general principles that regulate their relationship with the employer, other general and also specific conditions are often negotiated through individual agreements.
“Quadri” are defined as employees who, while not top executives, are continuously carrying out tasks that make an important contribution to the growth and success of their company.
Employers are usually required to insure “quadri” against claims for civil liability brought by third parties as a result of negligence in their duties.
The employer must inform the employee of the main terms and conditions of his/her contract at the start of employment.
Under Italian law, employment contracts do not generally have to be drawn up in any particular way; however, although they can be communicated orally, most contracts are set out in writing.
Indeed, Italian law requires that some specific provisions as well as specific information concerning the employment relationship are written down (for example: trial period, non-compete clause, fixed-term, if any).
There are also some kinds of contract (i.e. part time) which do require to be made in writing.
Whereas most employment contracts can be made in any language, it is nevertheless important for both parties to be able to understand the content of all the contract’s terms and conditions.
The age of majority is 18 years old in Italy and the minimum legal age for an employment relationship is 16 years old with parental consent (15 years old for apprenticeship contracts).
Formal requirements and authorisation
At the start of any employment relationship, the employer must notify the relevant “Centro per l’Impiego” (job centre) at least 24 hours in advance.
This notification then satisfies the requirement to notify the relevant social security institutions (i.e. INPS for social security and INAIL for work accident insurance).
If provided for by law, an employer must also mention those insurance policies in place against risks and damage suffered by third parties caused by employees carrying out their employment tasks.
The statutory trial periods are 3 months for employees not assigned to management functions and 6 months for all other employees.
The probation period is usually mentioned in the applicable NCAand depends on the category to which the employee belongs.
During the trial period, either party may freely terminate the working relationship at any time, without any notice, obligation or payment of the relevant indemnity “in lieu”.
There is no statutory definition in Italian law of “wages” and “salary”.
Any compensation granted to the employee, within the scope of the employment relationship, including compensation in kind, is considered wages (this does not include a few limited exceptions, such as expenses reimbursement) for income tax and social security purposes.
Italian law does not provide for a statutory minimum wage but in the appropriate NCA minimum wages for each contractual level are normally established for each sector.
A minimum wage is being introduced for those workers not belonging to a NCA but these represent less than 3% of the total workforce.
Furthermore, Italian law does not provide for statutory bonuses but NCAs may include them such as the collective performance bonus (“premio di risultato”) or the individual performance bonus.
Statutory allowances are not provided for by law, but NCAs provide for transportation allowances or indemnities for some working arrangements such as on-call work.
According to Italian law, the pay calendar is 13 and not 12 months! The additional 13th monthly payment (“la tredicesima”) is awarded each year along with the December salary.
Indeed, there are some NCAs which provide for a 14th monthly payment, normally awarded in June.
The payment date and the calculation basis of the contractual items (e.g. notice period, compensation during illness) are also usually stipulated in the NCAs.
Fringe benefits are often awarded to some employees such as a company car and mobile phone for senior/middle management and sales positions; other benefits include luncheon vouchers and internal or external training and education.
It is important to remember that employers are required to fund severance payments for all employees (“Trattamento di Fine Rapporto – TFR”), amounting to 1/13.5 of the annual overall compensation, payable on termination of employment for any reason. After serving for a significant number of years in the same company, the accumulated TFR paid out to the departing employee can represent an important financial cushion at the end of a working career or before finding further employment. In certain circumstances, the employee can request an advance payment of his/her accrued TFR (e.g. for health reasons or to buy a house). From 1 January 2007, every Italian employee, within six months of starting his employment, must inform the employer whether he/she intends to maintain TFR as a cash reserve fund within the company or whether it should instead be paid into an individual supplementary pension fund.
Some NCAs provide for a working week of less than 40 hours. Employees have the right to at least one weekly rest day (usually Sunday).
Exceptional and temporary business activities may require employees to work on weekly rest days or legal holidays.
Overtime work refers to the hours worked beyond 40 hours per week with a maximum of 8 hours on a weekly basis and 250 hours on an annual basis. NCAs stipulate specific additional rates for overtime work and additional rest days can be granted instead of extra pay.
Executives are not subject to the rules governing working hours for other employees.
Holidays and vacations
According to Italian law, statutory annual vacations amount to 4 weeks. The law states that at least two weeks must be taken in the same year whereas up to two weeks of unused vacation can be postponed but it must then be taken within 18 months following the accrual year.
In addition to the statutory minimum, NCAs usually provide for an additional period of vacation which increases together with seniority and length of service.
On termination of employment, an employee has the right to claim pay for unused vacation.
In Italy, a local saint’s day every year (each city has a different tradition) also counts as a public holiday for example “San Pietro e San Paolo” in Rome on 29 June and “Sant’Ambrogio” in Milan on 7 December.
If a public holiday falls on the weekend, an employee is entitled to his normal pay.
It is usually at the discretion of the employer to decide when a worker can take vacation according to the interests of the company while taking into consideration, when possible, the needs of the employee.
Each employee has the right to 3 days of sick leave which is paid for by the employer. INPS provides pay benefit replacements from the fourth day of illness until the 180th day. Some particularly generous NCAs require employers to supplement social security payment benefits up to a full 100% of salary. While a worker is ill, his/her contract is considered suspended and the employee’s seniority is guaranteed. Furthermore, an employer cannot dismiss one of his employees before the end of a minimum period established by the specific collective agreement.
A pregnant female employee has the right to 5 months maternity leave, from the second month before the due date until the third month after birth. The last 3 months can be lengthened to 7 months in specific cases while any work considered harmful to the woman is forbidden during pregnancy. INPS provides for pay replacement benefits and during maternity leave employment is suspended and seniority guaranteed.
The Italian civil code allows for non-compete covenants in contracts to the extent that sufficient compensation is granted to the employee and the duration of the agreement does not last more than 3 years for normal employees and 5 years for executives. The covenant must also be circumscribed from a business and territorial standpoint.
Italian law does not quantify specifically the extent of compensation neither does it specify the scope of business or territorial activity; in the event of dispute, Italian courts make a ruling on a case by case basis.
An employer may use the “Cassa Integrazione Guadagni – CIG” or wage support fund in the event of a temporary economic crisis. If eligible, blue and/or white collar employees are able to receive up to 80% of their normal wages by drawing on this special fund held by INPS.
Employment of EU and EEA workers
According to the principle of free movement of persons, goods, services and capital, EU (European Union) and EEA (European Economic Area) nationals can be employed in Italy without any authorization by the Italian authorities. This situation may change following the Brexit negotiations currently under way between the UK government and the EU Commission to determine EU and British citizen rights following the UK’s exit from the EU in 2019.
As things currently stand, should an EU national choose to work in Italy for a period of more than 3 months, he/she should apply for a “Carta di Soggiorno” (stay permit), which is normally issued by the local State Police office (“Questura”) following a simple request and is renewable.
Swiss citizens have the same right of entry, residence and access to work applicable as EU countries nationals.
Employment of non EU/EEA Nationals / The “Quota” system
The admission of non-EU foreign workers is subject to a mechanism of quantitative selectivity based on quotas for new entries on a yearly basis. These quotas are meant to regulate the admission of third country nationals and their access to Italian labour market, by combining purely quantitative criteria with some elements of qualitative criteria.
Italian Social Security
INPS, the Italian social security system, provides retirement, survivor and disability pensions, as well as healthcare, unemployment benefits and family allowances.
The benefit amount is generally based on accrued social security contributions and length of service.
All employees and wage earners, including executives, project-work and self-employed workers are obliged to take part in the Italian social security scheme.
Social security contributions are paid to INPS, whereas some employees can join professional pension funds (provided by NCAs) to increase their social security benefits.
The national work accident insurance institute (INAIL) covers almost all employees for accidents at the workplace and for occupational diseases.
For further information on INPS see the article “INPS demystified” published in the “Retiring in Italy” section of this Blog.
Finally, if you are interested in finding out how we can help with your overall financial planning needs in Italy please feel free to contact us on the following link: https://www.britishinitaly.com/contact-us/