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Article | Global News Briefs

Italy: Incentivized workforce renewal extended to smaller employers

Retirement|Health and Benefits|Total Rewards
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By Ivan Abbruzzo and Alessandro Mencarini | June 30, 2021

Changes to employment law giving more workers access to early retirement allow more companies to reorganize and upskill workforces.

Employer Action Code: Act

The Sostegno Bis decree has reduced the minimum workforce size required for a firm to qualify for an expansion contract (contratto di espansione) to provide more workers access to early retirement. Since 2015, companies with 1,000 or more employees in Italy have been able to enter into an expansion contract with the Ministry of Labor and labor unions to terminate employees who are within five years of retirement and pay them a bridge pension (partially met by the government) until they reach their normal retirement date. In return, the employer is expected to hire new workers and retrain staff to revitalize the enterprise’s workforce. The minimum workforce size required to conclude an expansion contract was reduced to 250 employees under the 2021 Budget Law, and more recently to 100 employees under the Sostegno Bis decree. This change, which is valid through 2021, may have a significant impact given the large share of the Italian workforce employed in small and medium-sized enterprises (78% according to the European Commission compared with the European Union average of 67%).

Key details

Details of arranging a bridge pension under an expansion contract include:

  • The employees concerned must be within 60 months of reaching either their normal social security (INPS) retirement age (i.e., age 67) or minimum contribution period (42 years and 10 months for men, 41 years and 10 months for women).
  • Workforce plans must be developed in consultation with the Ministry of Labor and Social Policies and the representative labor union or works council (RSA or RSU).
  • The expansion contract must stipulate the expected average reduction in total working hours; the number and types of workers to be hired to replace departing staff (at least partially), which should be consistent with the enterprise’s plan for reorganizing operations and staffing; the employment contracts to be offered; and the expected timeline for recruiting new employees, among other things.
  • Training plans must be established for employees who do not qualify for redundancy under the program to help them develop new skills.
  • Employees who are eligible receive a bridge pension based on their accrued INPS pension at the date of termination, payable by the employer for the period between separation from employment and commencement of the social security (early or normal retirement) pension. Termination of employment must occur no later than November 30, 2021, subject to each individual employee’s express written consent.
  • Bridge pension payments for early retirement are subject to employer INPS pension contributions.
  • For the first 18 months after dismissal, employees also receive an INPS unemployment benefit, which is offset against the employer bridge pension payment.
  • The employer must provide a bank guarantee in relation to the value of the bridge pensions offered to ensure fulfillment of its INPS obligations, the amount due increased by a variable portion of at least 15% to account for any subsequent decisions adopted by the INPS that may affect pensions payable.

Employer implications

This alternative to a pure redundancy program represents a potential cost saving for companies, especially since INPS (temporary) unemployment benefits may be offset against the bridging pension paid by the employer. The government’s overall goal is for expansion contracts to facilitate renewal and reorganization of company workforces, including upskilling, which should benefit companies in the long run.

Contacts


Alessandro Mencarini

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