2026 Budget Law: updated overview of measures related to employment and social security

An overview of the latest developments is provided below, focusing on the practical implications for employers and HR/payroll departments. Unless otherwise indicated, the measures take effect on 1 January 2026.

For the three-year period 2026-2028, contribution exemptions (excluding INAIL premiums) linked to the recruitment, between 1 January and 31 December 2026 of non-executive staff on permanent contracts or the conversion of fixed-term contracts to open-ended contracts have been refinanced. The incentives apply to the hiring of young people, disadvantaged women and workers in the ZES (Special Economic Zone for Southern Italy), according to requirements to be established by decree of the Ministry of Labour and Social Policies, in agreement with the Ministry of Economy and Finance. To make the most of the incentives, it is useful to pre-screen candidates and map out the possibility of combining them with other forms of aid.

To promote female employment, an exemption from 100 per cent of employer’s contributions (excluding INAIL) up to euro 8,000 per year will be granted to private employers, who hire from 1 January 2026 women with at least three minor children and without regular paid employment for at least six months. The exemption is granted for a period of 12 months for fixed-term contracts (extendable to 18 months in the event of conversion to permanent contracts) and 24 months for recruitment on open-ended basis. The benefit cannot be combined with other exemptions and does not apply to domestic workers and apprenticeships.

With regard to salary integration measures, the exemption from additional contributions for the production units in areas experiencing complex industrial crises is confirmed in 2026, within the limit of 12 months. The CIGS (Extraordinary furlough) for termination of activities (with a spending cap of 100 million euros), specific allowances for fishery and call centers, and the measure for former Ilva workers are also extended. For companies of national strategic interest with at least 1,000 employees and complex reorganisation plans, an additional period of CIGS is possible until 31 December 2026 (euro 63.3 million allocated); while in the event of production shutdown with serious perspectives for a reabsorption of employment, further 6 months of CIGS are authorised, which cannot be extended. To this end, an agreement must be concluded at ministerial level with the Ministry of Labour and Social Policies and the Ministry of Enterprise and Made in Italy.

Important changes are also planned in relation to severance pay (TFR): from 2026, the obligation to pay into the INPS (Italian Social Security Administration) Treasury Fund will be extended to employers, who reach the threshold of 50 employees or more, even in the years following the start of the scheme, if the annual average for the previous year is at least 60 (for the two-year period 2026-2027). From 2032, the threshold will sink to 40 employees. More and more employers will therefore have to start paying the accrued severance pay to this fund and adapt their procedures, taking into account the additional cash outflow. 

Among other things, the 2026 Budget Law provides that from 1 July 2026, private sector employees entering employment for the first time, excluding domestic workers, will automatically join the collective pension scheme provided for in collective agreements or contracts, including regional or company agreements. In the event of multiple pension schemes, the complementary pension scheme of destination is the one to which the largest number of workers in the company have subscribed, unless otherwise agreed by the company.

In the absence of the above-mentioned collective agreements, the residual supplementary pension scheme identified by the regulation referred to in the decree of the Minister of Labour and Social Policies No. 85 of 31 March 2020 shall be the one to which the entire amount of severance pay -TFR- is transferred.

Whatever the case, within 60 days of the date of first employment, the worker may choose to opt out of automatic enrolment and transfer the entire amount to another supplementary pension scheme. The employer must keep the declaration made by the employee and provide them with a copy. 

At the time of initial hiring, the employer must also provide the employee with specific information on the collective agreements applicable to supplementary pensions, the automatic enrolment mechanism, the supplementary pension scheme to which automatic enrolment applies, the various options available and the relevant timetable. This obligation also comes into force on 1 July 2026, so employers will have time to prepare.

Lastly, fixed-term contracts to temporarily replace employees, who are absent because they are taking maternity/alternative paternity leave, or parental leave, may be extended even after the replaced worker returns to work, in order to facilitate their return, but without exceeding the limit of the first year of the child's life (or from the date of its entry into the family through adoption/foster care).

From 2026, the following three IRPEF ranges will apply to employees' salaries: 23 per cent up to euro 28,000, 33 per cent between euro 28,000 and euro 50,000 (lower than the previous 35 per cent) and 43 per cent above euro 50,000. 

Furthermore, for taxpayers with a total income of more than euro 200,000, a deduction of euro 440 will come into effect on 19 per cent deductions for deductible expenses (excluding medical expenses), as well as for donations to political parties and insurance premiums against natural disasters. 

HR and payroll departments will therefore need to update the forms provided to employees, as well as payroll processing procedures, and carefully plan year-end adjustments, informing employees of the new regulations introduced.

Still on the subject of taxation, the so-called 'flat tax for employees' has been extended to 2026, available to those, who did not exceed euro 35,000 in income in the previous year. As this is a favourable regulation that coexists with other substitute taxes, it is advisable to carefully check the income received and verify the possibility of cumulation on a case-by-case basis.

Salary increases paid in 2026 following renewals of national collective labour agreements signed between 1 January 2024 and 31 December 2026 will be eligible for a 5 per cent substitute tax. The relief is subject to the condition that the employee did not have an income in 2025 exceeding euro 33,000 and applies automatically, unless the employee waives it in writing. It is therefore advisable to collect a self-declaration of income for 2025 and provide a form for employees to indicate whether or not they wish to opt for the substitute tax.

For performance bonuses, while the 5 per cent rate is confirmed for amounts paid in 2025, on the other hand, in 2026 and 2027, the substitute tax rate will fall to 1 per cent within the limit of euro 5,000 per year, in accordance with the rules of law (measurable objectives, collective bargaining provisions, traceability). 

There is also an ad hoc preferential regime for 'distressing' work. In fact, for the 2026 tax period only, surcharges for night work, work performed on public holidays and weekly rest days, as well as allowances related to shift work, are subject to a substitute tax of 15 per cent, up to a total amount of euro 1,500 per year. The benefit is available to those, whose income did not exceed euro 40,000 in the previous year, and also in this case, employees may waive the benefit in writing. It is advisable to show these items separately on the payslip, managing the threshold 'counter'. In this case too, it is advisable to collect a self-declaration from workers regarding their income in 2025 and check whether they intend to opt for the substitute tax.

In addition, the measure facilitating the allocation of shares in lieu of performance bonuses has also been extended to 2026: dividends of up to euro 1,500 per year are 50 per cent tax-exempt. This is an interesting solution for share-based welfare plans, to be evaluated together with company-level bargaining procedures. 

As for electronic meal vouchers, the daily exemption threshold has been raised from 8 to 10 euros. For companies, this could therefore be the right time to favour the digital form and update policies and suppliers, aligning payroll systems to calculate the exempt amount correctly.

From 1 January to 30 September 2026, among other things, workers in food and beverage establishments, as referred to in Article 5 of Law No. 287 of 25 August 1991, and workers in the tourism sector, including spas, are expected to receive a special supplementary allowance equal to 15 per cent of gross wages for night shifts and overtime worked on Sundays and public holidays. The amount does not contribute to taxable income or social security contributions, but it is only payable if the worker's income in 2025 did not exceed euro 40,000 and subject to a written declaration by the employee. Employers in the sector are advised to prepare a specific self-declaration form for reporting income for 2025, as well as to obtain workers' consent to the application of this measure and to distinguish the subsidised hours on their payslips.

Parental leave is also being strengthened: paid leave can be taken until the child is 14 (instead of 12), including in cases of adoption and foster care, while the annual number of days of leave in case the employee’s children get sick between the ages of 3 and 14 is being doubled from 5 to 10. Among other things, INPS has already issued Message 251/2026, clarifying that leave can be used by all parents of children under the age of 14, who are still eligible to take the parental leave within the ordinary maximum periods, provided that mothers have taken their full compulsory maternity leave. It is also clarified that in the case of adoption or foster care, the 14 years are calculated from the moment the child enters the family, but only until the child reaches the age of 18.

However, the partial reduction in contributions for mothers with at least two children and an income of up to euro 40,000 has been postponed until 2027. In the meantime, for 2026, the INPS (National Social Security Institute) recognises - upon request by the worker - a monthly amount of euro 60, exempt from taxes and contributions to employed mothers (excluding domestic workers) and self-employed mothers enrolled in compulsory or professional funds. The benefit is available to: mothers with two children until the month in which the second child turns 10; mothers with more than two children employed on a fixed-term contract, until the youngest child turns 18, provided that there is no income from permanent employment in the meantime. However, the annual income limit of euro 40,000 from employment still applies. The amounts accrued between January and November 2026 are paid in a single instalment in December and are excluded from the ISEE (indicator of the economic situation).

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Many measures still require practical implementation instructions from the Revenue Agency, INPS or implementing decrees from the Ministry of Labour. Before applying substitute taxes and exemptions, it is therefore advisable to wait for official clarifications. Furthermore, it is necessary to bear in mind that not all support measures can be combined. It will therefore be essential to check the maximum authorizable amounts, prohibitions on combining aid measure and state aid rules before applying any contribution and tax benefits for companies and employees.​