When you are contracting internationally, you will find that some employment policies can affect your client relationships. One of the most problematic is of misclassification, where the client treats you more like an employee. In some cases, companies hire contractors to avoid employment costs, but then go ahead and control the worker like an employee. Misclassification can jeopardize your self-employment status, and result in a higher cost for you and your client.
How can extra pay affect misclassification?
The elements of self-employed vs employee status are well-defined in most countries and revolve around criteria of control. Another element that can also result in misclassification is being offered employee benefits, bonuses or a fixed salary. You will want to keep this in mind when you are setting contract rates and performance criteria. Any extra pay that is similar to an employee bonus could be a red flag.
What are the 13th and 14th-month payments in Italy?
Many countries have statutes that require employers to pay a 13th and 14th-month salary to employees each year. The purpose is to provide employees with a bonus around holiday periods, either in June or December, or both. In Italy, both 13th and 14th-month pay is offered to employees as an ‘extra’ payment, although it is derived from an annual salary.
Statutory vs Customary Payments
While in some countries additional pay is customary but not required, statutory 13th and 14th-month payments are mandatory for employers in Italy. These rules do not apply to self-employed contractors, and there are some good reasons to avoid extra pay even if your client offers it.
Why should a contractor avoid receiving 13th and 14th-month payments?
Although these payments are required in Italy and enjoyed by all employees, bonus-type payments should be avoided by contractors. Receiving holiday bonuses is a hallmark of the employee relationship, and could be a factor leading to misclassification.
What are the alternatives to 13th and 14th month payments?
For contractors, it is best to avoid any appearance of receiving bonus payments that are not in the contract. However, it would be safe to simply include those payment amounts in your overall contract rates, pro-rated each month. If you take that approach, don’t label any part of the monthly fee as a bonus or extra payment in your invoice.
How Can Contractor Taxation help with 13th and 14th-month payments?
Contractor Taxation has umbrella companies in Italy that can help you with setting up the client contract, invoicing and receiving payment. They will advise you how to avoid including any appearance of being paid employee-like bonuses or payments. The umbrella company will also withhold Italian taxes and assist with any client disputes. Please contact us with your questions about contracting in Italy.