Contractor Payroll Services: How Do They Work and What You Should Know

When you hire contractors in Italy or expand your team across borders, payroll compliance can be daunting. Italy has a large and growing freelance workforce – about 5.17 million independent workers (roughly 23.1% of all employed persons) as of early 2025, well above the EU average. These freelancers (from videographers to developers) often earn substantially more than salaried employees – on average up to 45% higher pay – and can work long hours (around 46 hours per week). While contractors handle their own income tax and benefits, paying them correctly requires juggling Italian payroll rules. A contractor payroll service streamlines this by managing payments, withholding taxes, and social contributions on your behalf, freeing you to focus on your core business.

​Why should I use a contractor payroll service?

Outsourcing contractor payroll is especially attractive for small and medium businesses that lack dedicated HR departments. Italy’s payroll system is complex – one ranking lists Italy as the 4th most complicated country in the world for payroll processing. Each month you must correctly calculate gross-to-net pay, deduct the right taxes and social-security contributions, generate payslips, and submit payments and reports to multiple agencies.

When you’re going to work abroad or are already working abroad, you have to keep a lot of things in mind. Obtaining work permits, residence permits, and not only for yourself, but also potentially for the workers too. Payroll services allow you to effectively manage contractors, ensuring that they are always paid on time and with all the taxes of the new country taken into account.

Effective payroll management plays a vital role in addressing taxation regulations and immigration issues governing the independent contractors, freelancers and consultants. You’ll also find that most services will have a dedicated customer service line should any problems arise. Hiring an independent contractor, freelancer or consultant to do some quick contract work can be a valuable service for your business, but comes with its own set of problems. If you want to hire freelancers, contractor payroll services will save you a lot of hassle come tax time. Independent contractors in Italy are entirely responsible for paying their own taxes, which saves you money on benefits, insurance, and training.

Key benefits of using a contractor payroll service include:

• Ensuring legal compliance with constantly changing Italian tax and labor rules.
• Saving time and avoiding errors on complex tasks (tax filings, paperwork, etc.).
• Access to expert support (often with native Italian-speaking staff) when questions arise.
• Reducing risk of costly fines: for example, Italian law imposes steep penalties (up to 90% of unpaid tax and 100% of unpaid social contributions, plus fines and even jail) for misclassifying contractors or failing to withhold correctly.
• Utilizing technology (mobile portals, digital payroll, automated reports) that many providers offer, streamlining global hiring.

Italian payroll is notoriously intricate. In addition to national income tax (progressive 23–43% rates), there are regional and municipal surtaxes, and social-security contributions (about 30% of gross salary by the employer, 10% by the employee). Employers must register contractors with the tax office (Agenzia delle Entrate), social security (INPS) and accident insurer (INAIL) before paying anyone. Then each pay cycle involves issuing payslips and withholding tax. Tax reports (F24 forms) are submitted monthly by the 16th of the next month, and each January a year-end “Certificazione Unica” (CU) must be issued to contractors, summarizing all payments for the prior year. (Employers also file an annual Form 770 by Sept 30 for all taxes withheld.)

What if I want to do payroll myself?

If you were to handle payroll yourself, you’d need to keep meticulous records and meet all legal requirements. For DIY payroll in Italy, tasks include:

• Registering the contractor (and your company) with the Italian tax office, obtaining tax codes and VAT numbers as needed.
• Setting up monthly or project-based pay in accordance with collective agreements (if any).
• Calculating gross-to-net pay and deducting the correct income tax and social-security contributions.
• Filing monthly tax payments using the F24 form by the 16th of each month (covering income tax, regional/municipal tax, and INPS/INAIL contributions).
• Issuing electronic payslips to each contractor every pay period, and preparing the annual CU statement by mid-March.
• Handling any required insurance or pension contributions (e.g. INPS “Gestione Separata” for freelancers, typically 24–34% of income).
• Staying current on law changes (for example, Italy requires yearly accruals for severance pay (TFR), new labor rules for “para-subordinate” contracts, etc.).

​Large companies will often do payroll in-house as they have the resources to maintain a dedicated department, but for smaller companies and individuals who hire contractors it is generally easier to delegate the job to a contractor payroll service. This will save you time, frustration and, ultimately, leave you free to grow your business. If, instead, you choose to do your own payroll processing for your employees, you’re responsible for filling out all of the tax paperwork for each individual contractor, as well as mailing them and keeping a detailed account of all transactions. However, a payroll service will do that for you.

They’ll also take care of preparing and sending monthly payslips, preparing the annual withholding tax statements (Certificazione Unica), making sure correct contributions are made to the social security system, and keeping detailed files for your contractors.

You and your clients will be able to focus on the job, or jobs, at hand, knowing that a payroll service will have you covered.

Check out our video about paying company’s taxes in Italy below or our video about tax residency in Europe.

Read also our articles about virtual offices in Italy,  buying a shelf company in Italy and our guide to start a small business in Italy.