Employee vs. Contractor: How to Classify Workers in Italy (Quiz included) [2024]
If you’re looking to expand your global workforce to Italy, it’s important to understand the Italian Civil Code and how to classify full-time employees and freelancers correctly.
Misclassifying workers can be detrimental to both the employees and the company. It deprives workers of their rights to employee benefits and protections under the law and can ruin a company's reputation in the country. In 2021, Milan prosecutors and the Italian Labour Inspectorate ordered four major food delivery platforms to hire over 60,000 couriers and pay €733 million (USD 804 million) in fines for misclassifying workers. Independent contractors for Uber Eats, Glovo, Just Eat, and Deliveroo contracted from 2017 to 2020 must now be treated as continuous workers.
This guide will help you avoid the aforementioned mistakes, guiding you through worker classification according to Italian labor and employment laws.
Classifying workers in Italy
In Italy, it’s essential to correctly determine whether a worker is an employee or an independent contractor to avoid penalties and ensure smooth operations for your global team. Italy has specific rules for categorizing these workers.
What is an employee in Italy?
Per Italian law, employees are individuals who have a full-time working relationship under the direction and supervision of their employer, as stated in Article 2094 of the Italian Civil Code.
The administration of employee benefits is influenced by various factors, including the country's constitution, civil code, industry-specific collective bargaining agreements (CBA), and individual employment contracts.
In Italy, collective bargaining agreements (CBAs) are agreements between trade unions and employers’ associations. They address specific employment issues and establish general guidelines for others, such as pay raises, leave issues, parental leave, working hours, etc.
Global companies hiring employees in Italy must get familiar with CBA parameters to remain compliant, maintain a good employment relationship, and avoid penalties. All full-time employees have the right to these statutory employment benefits as part of their remuneration:
- Sick leave. Italian employees are eligible for sick pay, with the employer covering the first three days in total and the Italian Social Security Agency providing salary support for up to 180 days.
- Maternity leave. Employees who take maternity leave are eligible to receive 80% of their pay for five months. Meanwhile, those who take paternity leave are entitled to full pay for seven days.
- Paid time off. Every employee is entitled to at least four weeks of paid annual vacation. However, depending on their individual contract or CBA, they may be eligible for longer paid vacation time or unpaid leave.
- Pension contributions. The employer contributes around 30% of the employee's salary towards their pension.
- Working hours and overtime. The work week is 40 hours with 8-hour workdays. Overtime hours are paid according to the employment contract and CBAs.
- Public holidays. In Italy, workers are granted 12 paid public holidays alongside the mandatory annual paid vacation.
- Work-related insurance. The INAIL requires employers to pay regular premiums to provide insurance coverage for their employees against work-related accidents, injuries, and illnesses.
- Severance pay (trattamento di fine rapporto). All employees are entitled to receive severance pay upon the termination of their employment, regardless of the reason. This pay is calculated by dividing the employee's total salary by 13.5. It’s important to note that this severance pay represents an additional cost to the employer of approximately 7% per month.
What is a contractor in Italy?
Per Article 2222 of the Italian Civil Code, independent contractors provide services to a company on a project basis, under a service agreement. Self-employed workers are also responsible for arranging their own taxes and social security contributions. They carry out their business independently and can do the following:
- Determine their own work schedule
- Perform work for other companies
- Set their own rates
Although self-employed workers are not entitled to all benefits, they now have some protections as of June 2017. These protections include maternity leave, sick leave and limitations on the client's ability to change the contract unilaterally or end the work relationship due to needed leave. Fixed-term contracts can only be extended under certain conditions and cannot exceed 12 months in duration.
Worker classification overview: Employees vs contractors in Italy
Contracors
Employees
High level of worker control.
Contractors are generally given more autonomy to determine how to complete the work and when to do it.
More direction from the employer. Employees are generally subject to more control and direction from their employer, who will provide guidance on how to perform the work and may set specific hours of work.
Equipment and tools are owned by the contractor.
Equipment and tools are typically owned and provided by the company.
Less integrated. Contractors tend to be independent, they’re more likely to work remotely, and they use their own tools and equipment.
Highly integrated. Employees are typically more integrated into the employer's organization, often working at the employer's premises.
No entitlement to benefits. Contractors don’t receive the same benefits and protections as employees, and are responsible for filing their own taxes.
Entitled to benefits. Employees are entitled to certain employment benefits and protections, such as minimum wage, overtime pay, and vacation pay. They may also be entitled to benefits like health insurance, retirement plans, and paid sick leave.
Time-bound engagement. Contractors typically have a limited engagement (either by project or time).
Indefinite engagement. Employees are generally hired for an indefinite period of time.
Risk of loss. Contractors may assume more risk and liability for the work they perform.
No risk of loss. Employees are generally protected from liability for work-related issues.
Non-exclusive services. Contractors cannot be contractually bound to a single company; they can provide their services to more than one organization.
Exclusive services. Employees can be contractually bound to provide services to just one company.
Types of contractors in Italy
Business structures for independent contractors are similar to those in other countries. In Italy, contractors operate within these three contracting models:
- Sole proprietor/freelancer (impresa individuale/ditta individuale). In this scenario, the contractor operates a business that is not incorporated and is solely owned by them.
- General partnership (società in nome collettivo). This type of business operates similarly to a sole proprietorship but can be managed by either an individual or a partnership.
- Limited liability company (società a responsabilità limitata). A formal and legal entity exists separately from the contractor as an individual. This entity takes responsibility for all its income and losses instead of attributing them to the individual.
In Italy, independent contractors are responsible for their own taxes at progressive tax rates, including national, regional, and municipal income tax.
Penalties for misclassifying workers in Italy
It's crucial to understand local labor laws and prevent misclassification before it happens. Misclassification, whether accidental or intentional, is risky and potentially very costly. Here are some of the potential costs, fines, and penalties:
- In Italy, employers who misclassify their workers can face administrative fines. These fines can vary from EUR 100-500 for each worker who has been misclassified.
- Misclassifying workers in Italy can result in severe penalties imposed by tax authorities, including a 90% penalty for inaccurate tax returns and a 20% penalty for improper income tax withholding.
- Per the Italian criminal code, avoiding paying social security contributions is illegal. If an employer is found guilty of this crime, they may be subject to fines of up to EUR 50,000 and/or up to three years in prison.
Employers who misclassify their workers run the risk of shelling out retroactive benefits such as vacation pay and 13th-month bonuses. Workers wrongly misclassified as independent contractors can take their employers to court and claim compensation for various damages, including back wages, benefits, and even emotional distress.
Similarly, employers may also have a damaged reputation, face challenges in attracting new talent, witness a dip in employee morale, and attract heightened government scrutiny. Italy's employment laws skew toward employees' rights in most instances.
Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.
