Employer of Record in Italy – Legal Compliance and Business Solutions

Introduction

The Employer of Record, commonly known as EoR, has become an increasingly popular option for international companies seeking to employ staff in Italy without creating a local entity. However, under Italian law, this model is not a legal grey area. The EoR arrangement falls under the legal framework of labour supply as defined by Legislative Decree No. 276/2003. It is lawful only when carried out by a company duly authorized by the Ministry of Labour and registered in the official National Register of Employment Agencies. Otherwise, the service constitutes unlawful labour leasing, which carries severe criminal and financial penalties for both the provider and the client.

Operational Model and Legal Framework

In a typical EoR arrangement, the provider formally employs the worker, manages payroll, withholdings and contributions, and ensures compliance with local labour regulations. Meanwhile, the client company maintains operational control and benefits directly from the work performed. This duality — a formal employer and an economic employer — is precisely why Italian law categorizes EoR as labour supply, subject to strict authorization and structural requirements within the Italian territory.

Authorization and Compliance Check

To operate legally in Italy, an EoR provider must hold official authorization and be listed in the National Register of Employment Agencies under the section “Somministrazione di lavoro”.
The verification process is straightforward and should always precede any contractual engagement. If the provider’s name does not appear in the register, the service is not authorized, and both parties risk severe penalties, including criminal prosecution.

Stricter Controls and Penalties since 2024

The Decree-Law No. 19/2024, converted into Law No. 56/2024, has reintroduced criminal sanctions for unauthorized or fraudulent labour supply. The reform clarifies that both the unlicensed provider and the client company are jointly responsible. Violations can result in fines of up to €46,800 per employee, reclassification of the workers as direct employees of the client, and retroactive payment of salaries, contributions, and taxes. Beyond financial exposure, reputational damage is significant. The National Labour Inspectorate (INL) and the Italian Revenue Agency have enhanced powers to investigate EoR structures that operate outside legal boundaries.

Tax Residence and Payroll Obligations

According to Circular 20/E issued by the Italian Revenue Agency, any individual who spends more than 183 days in Italy during a calendar year becomes an Italian tax resident and is therefore subject to worldwide taxation.
This status requires full compliance with Italian payroll, tax, and social security regulations. The employment contract must be compliant with local labour law, payslips must be issued according to Italian standards, and both IRPEF and social contributions must be withheld and paid correctly. Failure to comply may result in tax audits and reclassification of employment relationships.

Essential Contractual Compliance

When a worker becomes an Italian tax resident, the employment contract must be drafted in Italian (or bilingual Italian-English) and aligned with the relevant National Collective Labour Agreement (CCNL).
It should specify job duties, working hours, rights and obligations, and include provisions on health and safety under Legislative Decree 81/2008. For remote workers, the right to disconnect must be guaranteed.
Moreover, if the employee cannot sign contracts on behalf of the client company, the contract should contain clauses limiting authority and clearly identifying the worker’s role as a “representative office employee”.

Permanent Establishment Risk

Using an EoR does not automatically prevent the creation of a Permanent Establishment (PE) in Italy. If employees in Italy negotiate or conclude contracts, hold managerial authority, or represent a stable business presence, the foreign company may be deemed to have a taxable presence in Italy.
Only when the employee performs support or commercial functions without negotiating power can the risk of PE be considered limited. In such cases, the employment contract should precisely describe the role within a representative office and restrict any decision-making powers.
Whenever the activity involves local management or contracting authority, establishing an Italian S.r.l. is the most compliant and sustainable approach.

Legitimate Alternatives for Foreign Companies

In most scenarios, forming an Italian S.r.l. (limited liability company) remains the safest and most transparent solution.
Incorporation typically costs around €4,000 (including notary fees and registration), while annual compliance costs average €5,000 for accounting, tax, and legal obligations.
The S.r.l. structure provides legal certainty, allows direct contracting with Italian clients, and completely eliminates the risk of reclassification or unlawful labour supply.

Foreign employees relocating to Italy can also benefit from the Impatriates Regime, which offers a 50% income exemption (or 60% for workers with minor children) for up to five years, on a maximum taxable income of €600,000 per year.
This incentive makes direct employment in Italy more competitive from a tax perspective, especially when managed through a properly constituted S.r.l. or a licensed EoR.

Other arrangements, such as hiring freelancers or paying only social contributions while the worker self-declares taxes, may be possible but require careful legal and fiscal structuring. Improperly designed setups risk reclassification as regular employment and may attract penalties.

Conclusions

The legality of the Employer of Record model in Italy depends entirely on the provider’s authorization status.
Using an unlicensed EoR exposes the client to criminal liability and severe financial consequences.
Every foreign business must ensure that the provider is listed in the official Ministry register, that employment contracts comply with Italian labour law, and that tax and social security obligations are correctly fulfilled.
Where a stable or managerial presence is required, establishing an Italian S.r.l. remains the most secure, compliant, and strategically sound option.
It provides legal certainty, operational transparency, and a sustainable long-term presence in the Italian market.

Frequently Asked Questions about EoR in Italy