How to pay remote employees in Italy: payroll and compliance explained

Remote work has reshaped the way companies hire and manage their teams. Italy, known for its talented workforce and strategic location, has become an attractive destination for businesses looking to hire remotely.

However, paying employees in Italy, particularly without a local entity, introduces several legal, tax, and compliance challenges that companies must understand and manage carefully.

In this guide, I’ll walk you through the complexities of paying remote employees in Italy and introduce an effective solution: partnering with an Employer of Record (EOR). Whether you’re a startup testing the waters or a global company expanding your remote workforce, this article will give you the clarity you need.

What counts as a remote employee in Italy?

Under Italian labour law, remote employees are those who perform their duties outside of the employer’s premises, typically from home. Italy has specific regulations covering remote work , which formalise employee rights to remote working conditions.

It’s important to distinguish between employees and independent contractors. Employees, even if remote, must have a formal employment contract that guarantees minimum wages, benefits, and social security coverage. Contractors, on the other hand, operate independently and are not entitled to employee benefits.

Additionally, some foreign workers, digital nomads, for instance, may reside in Italy temporarily without formal employment contracts. However, if a worker is employed long-term and resides in Italy, they fall under Italian tax and labour laws.

Payroll and tax obligations for remote employees in Italy

When employing remote workers in Italy, businesses must comply with local payroll and tax obligations. Even if your company doesn’t have a legal entity in Italy, your employees’ tax residence is determined by their physical presence, not by where your company is based.

Here’s what you need to know:

• Income Tax (IRPEF): Employers must withhold income tax from employees’ salaries and remit it to the Agenzia delle Entrate (Italian Tax Authority).
• Social Security contributions: Contributions to Italy’s social security system (INPS) are mandatory. Both employer and employee contributions are required and can be quite substantial compared to other countries.
• Mandatory benefits: Remote employees are entitled to statutory benefits, including the TFR (Trattamento di Fine Rapporto, or severance pay), 13th-month salary bonuses, paid holidays, sick leave, and parental leave.
• Double taxation agreements: Italy has tax treaties with many countries to prevent double taxation. Still, companies must ensure proper tax handling to avoid creating a permanent establishment – a situation where Italian authorities may consider the foreign company as having a taxable presence in Italy.

Ignoring these obligations can result in heavy fines, back payments, and damage to your company’s reputation.

How to set up compliant payroll for remote workers in Italy

If you’re thinking of simply paying your Italian employees from your headquarters, think again. Italy requires employers to register with local authorities, submit monthly tax and social security filings, and comply with local employment law.

Without a registered Italian entity, running payroll directly is nearly impossible. You would need to:

• Register as a foreign employer with the Italian Tax Authority and INPS
• Set up systems to manage tax withholdings and social contributions
• Ensure payroll software meets Italian requirements for payslips and reporting

For many international businesses, this level of administrative burden and compliance risk is a barrier to hiring in Italy, particularly if you’re only looking to hire one or two remote workers.

Risks of non-compliance when paying remote workers

Payroll mistakes are not uncommon when dealing with cross-border employees. In Italy, some of the most common issues include:

• Misclassification: Treating an employee as an independent contractor can lead to reclassification, requiring the company to pay back taxes and social contributions.
• Incorrect deductions: Failing to withhold the correct income taxes or social security contributions exposes the company to fines and back payments.
• Late filings: Payroll and tax reports must be submitted on strict schedules. Missing deadlines can trigger penalties and inspections.

Italian labour law is protective of employees, and authorities take non-compliance seriously. Even unintentional mistakes can lead to legal disputes, financial penalties, and reputational damage.

That’s why it’s vital to ensure your remote hiring practices meet local standards — no matter where your company is based.

How an Employer of Record helps manage remote payroll in Italy

An Employer of Record offers a way to hire remote employees in Italy without setting up a legal entity. The EOR becomes the local, legal employer on your behalf, managing all the necessary compliance steps while you retain control over the employee’s day-to-day activities.

Here’s how it works:

• The EOR drafts compliant employment contracts according to Italian law.
• They manage monthly payroll calculations, ensuring income tax and social contributions are deducted and submitted correctly.
• They handle the provision of benefits, such as paid holidays, sick leave, maternity/paternity leave, and TFR.
• The EOR ensures all filings, payments, and reporting are done accurately and on time.

For businesses without a local entity, an EOR simplifies the entire employment process. It allows you to focus on managing your team, while the EOR handles contracts, compliance, and payroll complexities.

For example, take the case of a US-based tech company that needed to hire a customer success manager in Milan. They didn’t want the cost or complexity of setting up an Italian branch for a single hire. Instead, they partnered with an Italian EOR, who managed the employment contract, payroll deductions, and social security contributions.

The new hire was onboarded quickly, the company remained compliant with Italian labour laws, and both parties enjoyed a smooth, risk-free working relationship.

EORs are especially useful for:

• Hiring one or two employees in Italy
• Testing the market before committing to a subsidiary
• Scaling your international workforce quickly and compliantly

Best practices for managing remote payroll in Italy

While an EOR is often the most efficient solution, it’s still important to follow remote payroll best practices: Choose the right employment model. If you want to avoid misclassification risks, employees should be properly hired under an Italian employment contract, not as contractors. Work with local experts, even with the best payroll software, local HR and legal support are critical to understanding updates to tax or employment law.

Make sure to keep thorough records, such as payslips, contracts, tax filings, and social security records must be accurate and accessible. Also, communicate clearly: ensure remote employees understand their taxes, benefits, and employment terms to avoid misunderstandings.

Hire remote employees

Paying remote employees in Italy isn’t as simple as wiring a salary each month. It requires careful compliance with tax, labour, and social security laws — even if you don’t have a local office.

For companies that want a fast, compliant solution without the administrative burden, partnering with an Employer of Record in Italy is often the smartest move. It provides all the legal security you need, allowing you to focus on growing your team and reaching your business goals.

Looking to hire remote talent in Italy without setting up a local entity? Speak to us today to find out how our Italian Employer of Record solution can simplify your hiring and payroll processes.