Hire in Italy with Confidence

Any business hiring in Italy should understand the important legal distinction between who classifies as an independent contractor and who can be hired as an employee. Fines or penalties may be issued to businesses hiring independent contractors under the guise of employment. 

Understanding the distinctions between employees (dipendenti) and independent contractors (indipendenti) is critical to compliantly engaging workers in Italy. It is important to work with a partner like Worksuite to ensure you put in place an engagement framework that accurately classifies freelancers as independent contractors for you and lets you know when freelance talent must be engaged as a payrolled independent contractor or employed directly. This is critical to compliantly engaging workers in Italy and thereby avoiding legal, financial, and other penalties.

Italian law differentiates between employees, who work under an employment relationship contract (dependenti), and independent contractors, who work under a self-employment relationship (indipendenti). The employment relationship is characterized by the individual being in a position of “subordination”. In Italy there is also a third type of employment contract called collaborazione coordinata e continuativa (coordinated and continued collaboration), which is characterized by “para-subordination”. Here, the individual is effectively self-employed but may be subject to so-called “protective” controls imposed by the hiring company for some aspects of the work, similar to a standard employment relationship. 

Regardless, just like in many other countries the degree of the individual’s subordination to the hiring company’s control is the key criterion when determining if the relationship is an employment relationship or a self-employment relationship.

If the real substance of the company-contractor relationship proves to effectively be an employment relationship, the hiring company may suffer legal and financial penalties (including overdue payroll taxes). It is therefore important to leverage an employment service partner like Worksuite when hiring in Italy to ensure that independent contractors fall under the correct working relationship with your business.

Who is an Independent Contractor?

An independent contractor provides services to a client under the terms of a contract that covers only those specific services. Additionally, a contractor does not work under the direct supervision of the hiring company (as above). Generally speaking, the factors that differentiate an independent contractor from an employee are largely the same as in other EU countries. In essence, individuals are generally considered to be independent contractors if they:

• Are subject to relatively little control by the hiring company, which means they are free to decide when, where, and how they complete their tasks.
• Perform the work at their own risk, meaning they may incur personal costs (time and/or financial expenses) for re-doing the work that was performed poorly.
• Do not have fixed hours of work determined by the hiring company.
• Can choose the location from which to work.
• Provide their own equipment, rather than receive it from the hiring company.
• Pay their own social security, pay their own income taxes and file their own tax returns. 
• Can be (or are expected to be) dismissed once the contracted work is complete. 
• Are not integrated into the hiring company’s organizational structure.
• Are paid for a specific project or task rather than on a recurring basis.
• Can refuse to perform a task (unless it is part of their contract).
• Can delegate tasks to someone else (i.e., a subordinate).
• Work for several clients rather than a single client.

There are three main categories under which contractors typically operate in Italy: 

• Freelance (libero professionista): The freelancer, or ‘free professional’, is a popular choice for many independent contractors, especially younger professionals and students, due to limited tax and administrative costs. Under this category, the contractor offers specific services as a ‘service provider’, while retaining total managerial autonomy. Freelancers should register with the Italian Revenue Agency (Agenzia delle Entrate) to obtain a VAT number and an 11-digit business identification number and then enroll for social security with the INPS under the Gestione Separata regime.
• Sole trader / sole proprietorship (ditta individuale): Sole traders establish themselves as a distinct legal business entity. After obtaining a VAT number and business identification number, a  sole trader must register their company with the Chamber of Commerce. Then they must register to pay for social security (including pension) with the INPS and for work insurance with the INAIL.
• Limited company: There are multiple types of limited companies that individuals can form to conduct business as an independent contractor. They typically fall into two sub-categories: companies limited by quotas, called Società a Responsabilità Limitata (S.r.l.), which includes the traditional Srl (S.r.l) and the simplified Srl (S.r.l.s);  and companies limited by shares, called Società Per Azioni (SpA). Regardless, limited companies are typically characterized by limited liability for the owners and the requirement to have at least one director and one shareholder. 

There are two main types of contracting model for working with independent contractors in Italy.

A. Direct engagement of the contractor as a freelancer, sole trader, or via their own limited company. Under this model, the hiring company engages directly with the independent contractor and establishes a contract for services. The hiring company then pays the contractor directly, following the contract terms.

B. Third party. These companies come in two forms, and both are specially designed to vet and engage freelancers compliantly as either contract employees or independent contractors on your behalf.

• Temp agency: Here, the hiring company engages with a staffing agency, which in turn supplies one of its own independent contractors to deliver the contracted services. The hiring company pays the staffing agency directly in accordance with the terms of the contract. The contract is, therefore, between the hiring company and the staffing agency, while the agency pays the independent contractor through a separate contractual arrangement. 
• Umbrella company: Independent contractors can also work through an umbrella company. This turns a ‘self-employed’ individual into a legal ‘employee’ of the umbrella company itself. The contractual relationship is between the umbrella company and the client, with the umbrella company running payroll and administration for the independent contractor. The umbrella company invoices the client directly while paying the contractor via PAYE as a standard employee. Umbrella companies levy a fee on the contractor to cover their costs.
• Hiring partner: The hiring company can also work with a hiring partner who helps them vet potential independent contractors, set up contracts, ensure the contractor is properly classified, onboard and manage contractors, and make payments to them.

Companies hiring independent contractors in Italy should avoid making payments directly through their payroll system. Beyond these guidelines, there are no specific legal requirements for paying contractors in Italy. The contract should stipulate the preferred payment method agreed upon by both parties.

The tax year runs from 1 January to 31 December. Employees are subject to income tax and social security contributions, both of which are withheld at source by the employer. Italy uses a progressive income tax regime. The main income tax is the national Personal Income Tax (PIT) (Imposta sui redditi delle persone fisiche, or IRPEF). The rate ranges from 23% (for annual incomes up to EUR 15,000) to 43% (for annual incomes of EUR 55,001 and above). There are also regional taxes (typically 1.2% to 3.3%) and municipal taxes (typically up to 0.9%). Employees must pay income tax and social security contributions which are withheld at source. Unlike employees, independent contractors file and pay their own income taxes and pay their own social security contributions. 

Contractors must pay their own taxes and file their tax returns  to  the Italian Revenue Agency using the Modello Redditi PF form. This form must be submitted by 30 November, and it can be done electronically via the RedditiOnLine Pf portal. Taxes are paid via advance payments on 30 June and 30 November (for the current tax year), with the third payment on 30 June of the following year to settle the final tax balance. Contractors who are operating as a legal business entity pay corporate income tax (Imposta sul Reddito delle Società, or IRES). Contractors operating on a self-employed basis (freelance or sole trader) are taxed on gross income under the national personal income tax regime (IREF). Depending on the nature of their work, self-employed contractors (such as some sole traders) may also need to pay tax under the corporate income tax regime. Contractors are also subject to VAT at 22% (although certain services and goods carry a reduced rate).

Social security contributions are paid to the National Social Security Authority (Instituto Nazionale Previdenza Sociale, or INPS). Employees contribute 10% of their salary while employees contribute 30%, which is deducted at source with no specific actions required by the employee. Around 33% of the total contribution goes to the National Pension Scheme, while the remainder goes towards funds that cover unemployment, work insurance – via the National Institute for Insurance against Accidents at Work (Istituto Nazionale per l’Assicurazione contro gli Infortuni sul Lavoro, or INAIL) – maternity, social mobility, and other smaller funds. Contractors, on the other hand, must handle their own social security contributions by  engaging directly with the INPS and INAIL.