As remote working becomes more common, it opens up a global talent pool to companies that may have never thought of hiring workers abroad. However, there are often advantages to looking outside your borders, as some countries have workers with specialized skill sets depending on the business culture and educational emphasis.
One option is to hire a remote worker as an employee, and there are ways to do this such as using an employer of record. But there is still the expense and commitment of employment, as well as compliance concerns when you have to learn a whole new set of regulations.
An alternative is to hire an overseas worker as an independent contractor, especially if you are unsure about how much work you can offer initially. This can be ideal for startups or companies that have multiple short-term projects.
Here are some of the benefits of hiring contractors:
- No long term financial/HR commitment by the company
- Cost-effective when compared to paying employee benefits and entitlements
- Contracting is a B2B relationship, outside of typical labour laws
- A good way to give a recruit a ‘probationary’ period before hiring
- Can hire for short projects or on a repeat basis
- Ease of flexibility to scale up or down
How to hire and pay a remote contractor in Italy
If you have found one or more qualified remote workers in Italy, you may be wondering how to hire and pay them as a contractor. One important point to remember is that whether the contractor is an Italian or an expat resident, they will be subject to Italian laws and regulations. This could affect how you structure the relationship, especially to guarantee the performance of the contract.
Hire and pay them as a freelancer (Ditta individuale)
Many contractors work as self-employed freelancers, drafting their contracts and invoices, setting project milestones with the client, and arranging a payment method. Those with experience may have their system and preference for doing this, but you have to make sure that it meets your company’s needs as well.
Freelancers will often work with multiple clients as a way to offset the uncertainty of contracting. If one client cuts back, they can make up the difference with other projects. What this means for you is that you may not have the same consistency or reliability as you would with an employee, which is one of the drawbacks of hiring contractors. Nonetheless, you can always try out a freelancer and see how the relationship develops.
Pay them through their limited company (Societa a responsabilita limitata)
Another business structure used in Italy by contractors is a limited company. This can be done by either Italians or expats who have immigration permissions in place. It is somewhat more reliable than a freelancer, as there is a required minimum investment of EUR 10,000 by the shareholder. This does signify a deeper commitment to their business and accountability due to registration requirements.
Your company would contract directly with the limited company as you would any business, and the limited company essentially leases out the contractor to fulfil project terms. The limited company handles all of its business compliance in Italy, and you only have to work out suitable payment arrangements.
Work with an umbrella company in Italy
Newer contractors or those looking to minimize the risk of cross-border contracting may use an umbrella company as a third party to the contract. The umbrella company is an intermediary, facilitating both payment and performance so that your company does not have to worry about paying for incomplete or low-quality work.
The umbrella company will confirm completion of projects or milestones, invoice your company and then issue payment to the contractor, with all taxes withheld. This virtually eliminates the risk of cross-border contracting for both parties.
Tax obligations when paying a contractor in Italy
Your company has no obvious tax obligations when paying a contractor in Italy, as they are responsible for their income taxes and social contributions. However, if you hire freelancers and they are generating revenue for you (such as finalizing frequent sales contracts), you might trigger permanent establishment (PE).
PE results in corporate taxation of local revenues for your company and is something to be aware of when you hire foreign workers in their own country. PE is unlikely for common remote roles such as IT support, customer service, and marketing unless there is some direct revenue effect.
Paying 13th and 14th-month salaries
For some industries in Italy, employees are entitled to 13th and 14th-month pay, as holiday bonuses. Even where not required by statute, it is customary. But this requirement would not extend to independent contractors who are not covered by labour and employment benefits.
Still, if you were to hire a long-term contractor who performs well, a holiday bonus is one way to show appreciation. The downside to doing so is that it starts to colour the working relationship as ‘disguised employment’ which can result in misclassification and compliance risk.
Compliance risks when hiring contractors in Italy
Misclassification is the key compliance risk when hiring remote workers in Italy. Each country sets its criteria for the employee vs contractor relationship, and that is the case in Italy. Generally, a worker is a contractor if they control their work schedule, methods and delivery. Any control or supervision by the company, and fixed monthly payments, starts to look like formal employment.
All criteria aside, Italy is a country that is very pro-labour rights and disfavors any incidents of misclassification that might interfere with statutory entitlements. As the client of a contractor, you avoid paying 20-30% for employer social contributions. yet self-employed workers are still entitled to many government benefits such as maternity leave. If a contractor were to claim that they are an employee, your company would likely have to show why they are not.
The outcomes, if the worker is reclassified, are payment of past-due social contributions, fines, and damages. You would also have to set up a formal employment relationship with a local payroll to retain the worker.
As a foreign company you might not be compelled to pay, but could be barred from future business activity in the country. This is one advantage to using an umbrella company or contracting with a limited company, as in each case the corporate entity is the ‘employer’ of the worker and can minimize the risk.
How Contractor Taxation helps you hire remote workers in Italy
Contractor Taxation has a global network of umbrella companies, including in Italy, who are ready to hire the contractor and administer all the tasks related to taxes, payments, and contributions. As a company looking to hire remote workers in Italy, you can recommend that an umbrella company assists with the relationship to the new hire.
Most contractors will be open to this, as it reduces the risk of non-payment with a new client, and relieves them of the administrative burden of self-employment.
Please contact us if you are interested in hiring an Italian or expat worker for your company as a contractor.