With regard to the two categories of contracts, permanent and temporary (expat, temporary employment, consultant, agency), there is a relationship between contractual flexibility and the economical aspects. Typically the first evaluation of a contract refers to the economical aspects that have been proposed, but economical aspects are related to the kind of contract that is going to be signed.

In Italy a social discussion about the flexibility of labor market is ongoing. The ‘classic’ contract (permanent employment) is considered quite rigid from the employer’s standpoint. So, economical proposals reflect the contractual constraints. Even the level of the social contribution charged to the employer (in Italy the cost of labour is very high) influences the economical aspects of the proposal.

Finally, job proposal or advertisements always show annual salary in terms of ‘gross amount,’ so in the second part of the article a couple of tables clarify the real level of the net amount corresponding to the gross salary proposed.

Kind of contracts

We can rank contractual flexibility and total labour cost:

Permanent employment - This is the most stable contract. It is strictly governed by law and is considered very rigid by the employers and very expensive too (due to the very high level of social fees charged to the employers).

Working hours, over time, holidays and all the other aspects of the relationship between employee and company are fixed in the collective contracts that are the main document on which the rules of the employment are based. A new contract must fix its rules according to the collective agreement.

At least at the beginning of the relationship, it is normal to receive a temporary contract as a proposal. This is also true for Italian people. In fact, currently, permanent contracts are reserved only to skilled, experienced people. Furthermore, for foreign people, the actual personnel situation is frequently not stable enough to be fixed in a permanent contract.

Temporary employment – This kind of contract is strictly governed by law and it has the same rules as the permanent one. The law allows the hiring contract to include a fixed end date. Due to the fact that one of the main constraints perceived by the employers about the permanent contract is the flexibility to end the single contract, to fix the end of the contract as an essential part of the contract itself is considered a good opportunity.

The length of the contract usually is one year + one year (The total max period is 3 years).

Agency (somministrazione di lavoro a tempo determinato) – In this kind of contract, the employer is the agency and the end of the contract can be fixed as it is in the temporary employment contract. Of course this contract is, for the company, more expensive because the agency fee needs to be taken in consideration.

Consultant contract (Contratto a progetto) – This is more flexible compared to the employment contract and contribution fees are cheaper in comparison. It means that the compensation is usually higher.

Working hours, over time, and holidays have no constraints. The scope of the contract must be formalized in a specific project. Even in this case, the length of the contract normally is one year as the initial period. It is related to the time needed to complete the project and it can be extended for further periods even longer than the initial one.

Expat - Companies that are offering position abroad normally have the policies to facilitate the terms and conditions. In some cases, policies are quite rigid; in some other cases, they are flexible and it allows the employee to go through some negotiation.

For the expat, the most important issue that is needed to be taken in to consideration is the cost of living. It increased significantly in Italy after the introduction of the Euro. Housing cost (including heating and electricity) needs to be carefully taken into consideration. In the biggest cities, such as Milan and Rome, houses in the best or even good areas are very expensive. In the small cities and in the country fairly reasonable prices can be found. A quick look in the dedicated web sites or some contacts with the Italian real estate agents could be quite useful.

Salary Gross / net

In Italy it is very important to understand that the salaries are always expressed in gross amounts. The gross amount includes employees public pension fees and taxation (both paid by the company on behalf of the employees). On top of gross salary, there are extra costs for the companies related to social contribution fees charged to them. Based on this very expensive cost of labor structure, cheaper contracts (such as consultancy ones) often allows people to reach a higher net salary level.

In summary:

1)      There is a big gap between gross and net;

2)      The gap between net and total cost charged to the employer is even bigger;

3)      There are differences in the payment between employment and consultant contract.

In the following tables you can find the gap between gross and net and the difference between the two kinds of contracts (employment and consultant):

Employment (temporary or permanent contract) is usually paid in 13 monthly salaries

(Two in December)

The TFR (Trattamento di fine rapporto) is a kind of additional salary, governed by law, and is paid, as lump sum, when the employment ends for any kind of reason it ends (i.e. resignation, layoff etc.). It corresponds (roughly) to one month’s salary for each year of service. The TFR is considered on top of the gross annual salary.

The gap between gross and net in Italy is quite large and is based on social contribution (about 10 percent) and taxes paid by the employer on behalf of the employee.

Consultant: paid in 12 monthly payments

In the case of a consultant, the difference between gross and net is similar to the employment contract, but there is not additional amount charged to the company as TFR. The additional pension fees charged to the company on top of the annual fee is lower for a consultant than the fees charged to the company for an employee.

Summing up

Flexibility and temporary contracts are usually preferred in the initial part of the relationship by the Italian companies. Flexibility, such as consultancy, runs parallel with the lower labour cost and allows people to reach a higher level of rewards.  It reflects a lower social pension contribution and a kind of ‘liberal’ scheme in terms of applied rules.

About Author

Ugo Marrone works in Italy as Ericsson’s people management, compensation and benefit, and payroll coordinator. He also worked with four major companies in Italy and has a law degree. His interests include all aspects of human resources.