Employment law (Italy): INPS contribution ceilings and related risks

Introduction

Calculating the annual cap on the salary, to be considered in order to determine the required INPS (social security) contributions for an employee in Italy, is no easy task, and miscalculations can lead to hefty penalties. In this brief article, we address this increasingly common problem for employers and provide some risk avoidance strategies.

Background

The Italian National Institute of Social Security (INPS) is Italy’s main social security institution in which all employees in the private and public sectors must be enrolled.

Recently, we have noticed more cases where INPS has ordered employers to pay significant penalties due to their erroneous calculation of the annual cap on INPS social security contributions. The cap is applicable to any worker who is enrolled in INPS, but the level of the cap (or ceiling) differs depending on certain criteria related to the particular worker for which the ceiling is being calculated.

Therefore, to avoid the risk of penalties related to miscalculation of the INPS social security contribution ceiling for a particular worker, employers must be aware of two things:

• the criteria established by INPS that must be considered to calculate the social security contribution ceiling; and
• some unique details regarding each worker, in particular, relating to his or her historic employment activities.

Calculating the ceiling

For all categories of enrolled workers, regardless of their salary, the general rule is that, for 2022, the cap on salary to be considered in order to calculate the required INPS social security contribution is €105,014. For prior years, a slightly lower cap applied.

Simply stated, in practice, if the annual cap is €100,000 and the employee earns €150,000, then the employer must calculate the INPS social security contributions for that employee on €100,000 only; the remaining €50,000 is free of INPS social security contributions.

This clear rule has a major exception. It is only applicable to workers who have no years of contribution to consider prior to 1 January 1996. For other workers, the calculation becomes more complex and the outcome can lead to a radically different number.

Discovering a workers contribution history

For an employer, getting accurate information about the worker’s contribution history may be challenging. In many cases, the employer will have to rely heavily and almost exclusively on the information provided by the worker, who in good faith, may not remember or think to include some important details that are relevant to the contribution calculation. For example, contributions relating to agency relationships count. In addition, in some circumstances, work performed after 1 January 1996 may have given rise to contributions prior to that date due to the redemption of credits that relate to compulsory military service, years of university studies, years of internship/practice and/or periods of work abroad.

Managing the risk

The possession of incorrect (or incomplete) information by the employer, notwithstanding the declarations of all the relevant parties made in good faith, may create a risk for it.

We have identified the most prevalent risk areas as regards the calculation of the INPS social security contribution caps and advise clients on how to manage these risks. Contact us for more information.