As international companies grow their footprint and tap into new markets, understanding local hiring laws and employment structures becomes vital to building sustainable operations. In this 17-part series, we guide foreign businesses through the legal and strategic aspects of employment in key global jurisdictions.
This installment brings us to Italy—a G7 economy with a highly educated workforce, strong legal protections for employees, and a sophisticated regulatory environment. While direct employment remains the most straightforward path for many foreign businesses, Italy also offers alternative hiring models such as engaging independent contractors, secondment arrangements, or working through temporary agencies. Each option carries distinct legal, tax, and operational implications, especially around issues like permanent establishment, social security, and worker classification. Choosing the right hiring structure is critical for ensuring compliance and long-term success in the Italian market.
Authored by Elisa Noto
Aliant Legal Grounds Italy
1. Are there alternatives to direct employment?
Common approaches include direct employment, engaging self-employed workers, and secondment, each with its own legal and practical considerations. However, legal compliance and business needs must be carefully analysed before choosing a hiring model different from the direct employment.
- Direct Employment: it might be the safer (if not the only legally compliant) choice in cases where the company’s organisation requires a full control over the workforce. Also, it ensures better alignment with company culture, and offers long-term stability.
- Self-Employed Workers: in case the business model allows it, the company may choose to work with self-employed individuals (freelancers or independent contractors). This option offers flexibility, cost savings on employment-related expenses, and less administrative burden. This type of contract might be an option, for instance, in case where the foreign company intends to explore the market before finally deciding to set up a company. However, it is crucial to properly structure the relationship to avoid misclassification risks, which could lead to burdensome legal and financial consequences if authorities determine that the worker should be classified as an employee.
- Secondment: Another option is seconding employees from a parent company or an affiliated entity. This involves temporarily assigning an employee from one company (the home entity) to work in another (the host entity), without terminating their original employment contract. Secondment agreements define the employee’s duties, duration, and cost allocation between entities. While this model can be useful for knowledge transfer and maintaining corporate oversight, it requires careful structuring to comply with tax, social security, and labor laws in both jurisdictions. With reference to social security issues, different rules apply depending on the fact that the sending company is established in a EU country (as per EU Regulation 883/2004) or in a non-EU country with or without a bilateral social security agreement with Italy. Additionally, visa or work permit requirements may apply for cross-border secondments.
It is worthwhile mentioning the possibility to contracting a (duly authorised) temporary employment agency. However, hiring personnel through a temporary agency is subject to a number of requisites, such as a strict numerical proportion between the direct employees of the user and the temporary employees (commonly 30%), which makes it not applicable when the setting up of the foreign business is still in its early stage.
With respect to immigration and visa issues, it is to mention a recent amendment to the Italian Immigration Law facilitating “digital nomads and remote workers” to enter and work in the country. Digital nomads and remote workers are defined as third-country nationals who perform highly skilled labour activity through the use of technological tools that allow them to work remotely, on a self-employment basis or for an employer also not resident in the Italian territory. For such individuals, in case they carry out the activity in Italy, a work authorization and residence permit is not required, subject to the acquisition of an entry visa which is issued for a period not exceeding one year, provided that the holder has the availability of health insurance, covering all risks in the national territory, and that the tax and social security contribution provisions in force in Italy are complied with.
2. Is it necessary to set up a local entity to hire an employee?
No, at least not for labor laws purposes. When a foreign employer does not have an entity in Italy, an employee can be hired to work in the Italian territory but the foreign company needs to appoint a “social security representative”. The latter shall act before the competent Italian social security and insurance Institutions in order to represent the foreign employer, open the relevant positions and pay social security and insurance contributions on its behalf.
However, tax risks on the foreign company must be carefully analysed. Depending on the activities to be performed by the employee in Italy on behalf of a foreign employer, the Italian tax authority may identify the existence of a permanent establishment of the foreign company and request the payment of the relevant tax on the income deemed to have been generated in Italy. In this respect, for instance, it is important to limit the employee’s duties to be carried out in Italy to those which cannot be considered included in the core business of the company, but rather preparatory or ancillary.
Similarly, only preparatory or ancillary duties could be assigned to an employee hired by a Representative Office set up in the country, which does not have any autonomy in organization and decision-making with respect to the foreign parent company, is not subject to taxation in Italy and is usually prodromal to the establishment of a branch or subsidiary.
It is to highlight that while a social security representative is not needed in case the foreign company hires a self-employed worker, risks of permanent establishment under a tax perspective are not lower than those arising in case of direct employment and must be equally analysed.
3. Direct employment vs. independent contractor: what about costs?
An over simplified analysis would lead to the simplified conclusion that, in terms of costs, the independent contractor model is to be preferred.
In fact, direct employment involves several costs for the employer, besides the minimum pay set forth by the collective bargaining agreement applicable, such as social security contributions (approximately 33% of the salary, 9.20% of which for the account of the employee), allocation of a severance pay (“Trattamento di Fine Rapporto – TFR”), amounting to 7.41% of the employee’s gross annual salary, which accumulates over the duration of employment and is paid to the employee upon termination of the contract. Other costs to be taken into consideration are those for administrative requirements and those possibly consequent to the termination of the contract, including notice period and compensation if the termination is considered unfair.
However, the analysis should be also made on a case-by-case basis, since Italian legislation provides for certain possibility to take advantage of important social security reliefs on employment contracts (for example: apprentices, young people under 30, people over 50, disadvantaged women, unemployed individuals, companies established in South Italy).
On the other hand, the cost structure of independent contractors is significantly different: independent contractors are responsible for their own social security contributions (i.e. approximately 26%, of which 4% only can be reversed to the principal), they must manage their own tax filings and payments, no severance payments must be allocated and paid. This can make contracting work more cost-effective, especially for short-term or specialized tasks, provided that the company does not need to constantly control the work.
Under a tax standpoint, both employees and independent contractors are subject to progressive tax rates (i.e. from 23 to 43%). However, under certain conditions, self-employed individuals may apply a flat tax of 15% on an amount up to 85,000 Euro (reduced to 5% in the first five tax periods of independent activity) of self-employment income.
Conclusions
The choice between employing someone directly or contracting them under different hiring models cannot be made solely based on costs. Employers must also consider factors such as control over the work, continuity, and compliance with labor laws. Misclassifying a worker can lead to legal consequences and penalties under Italian labor law, particularly when a worker is, in fact, a subordinate employee but is treated as an independent contractor. Legal advice on any specific case is essential to ensure that the chosen approach aligns with local labor regulations and minimizes risks.
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