Italy 2026 Budget: Key Employment and Benefits Changes for Employers

Italy has implemented several employee benefits-related reforms through its 2026 Budget Law. Key reforms include changes to the automatic enrollment mechanism under the severance pay system (Trattamento di Fine Rapporto), an increase in unpaid leave to care for a sick child from five to 10 working days, an increase in the child age limit for parental leave from 12 to 14 years old, and an increase in the meal voucher exemption threshold from EUR 8.00 to EUR 10.00.

These changes took effect on 1 January 2026, except for certain severance pay system changes, which will take effect from 1 July 2026.

Background

The 2026 Budget Law was published in the Official Gazette on 30 December 2025 and entered into force on 1 January 2026. Most provisions took effect on 1 January 2026, with certain provisions scheduled to take effect at later dates.

Key details

The following sets out major changes for employers to note:

Changes to the Trattamento di Fine Rapporto system

The Trattamento di Fine Rapporto (TFR) is a mandatory severance pay entitlement paid to employees when employment ends. An employer is required to set aside 6.91% of the employee’s total annual salary (including cash and benefits-in-kind) as TFR, which must be calculated and set aside on a monthly basis. Additional employee and employer TFR contributions may also be required under an applicable collective bargaining agreement (CBA). The 2026 Budget Law makes changes to the rules that determine whether TFR is transferred to a pension fund or accrued in the employer’s books, as follows:

Automatic enrollment mechanism

Under the current legislation, TFR for a new hire is automatically transferred to a default supplementary pension fund unless the employee opts out within the first six months of employment. The default fund is the one specified in the applicable CBA. If no fund is specified, contributions will be directed to the Cometa pension fund, one of Italy’s primary supplementary pension funds. However, if there are multiple funds specified in applicable CBAs, the default will be the fund with the largest number of the company’s employees.

From 1 July 2026, TFR will be automatically transferred to a default fund unless the employee opts out within the first 60 days of employment (previously six months). This will also apply to any additional minimum employee and employer TFR contributions required by an applicable CBA, which were previously not included in the automatic enrollment mechanism.

Employee opt-out mechanism

If the employee opts out of automatic enrollment, they may keep TFR with the employer or choose to transfer TFR to a supplementary pension fund of their choice.

For employees who choose to keep TFR with the employer, the employer accrues TFR in its books and pays it out to the employee upon termination. However, employers meeting a certain size threshold must transfer TFR to the National Institute of Social Security (INPS) Treasury Fund.

Previously, this threshold applied to employers who had an average of 50 employees or more in 2006 or its first year of operations, if later than 2006. From 2026 to 2032, this size threshold changes progressively to the following:

• 1 January 2026 to 31 December 2027: Average of 60 employees in the previous calendar year

• 1 January 2028 to 31 December 2031: Average of 50 employees in the previous calendar year

• From 1 January 2032: Average of 40 employees in the previous calendar year

More details on the operational rules on the new size thresholds can be found on the INPS’s website here (opens a new window).

Unpaid leave to care for a sick child

From 1 January 2026, up to 10 working days of unpaid leave per year per child (increased from 5 working days) may be shared by employed parents to care for a sick child between three and 14 years old (previously eight years old).

While this leave is unpaid under legislation, employers may be required to provide supplementary benefits if prescribed under applicable CBAs.

Parental leave

Each employed parent is currently entitled to take up to 6 months of social security-paid parental leave (up to a maximum of 10 months between both parents, which increases to 11 months if the father takes at least three months of leave). Social security provides parental benefits for up to nine months per child, as follows:

• Each employed parent is entitled to three months of benefits at 30% of salary. One parent is entitled to receive an increased amount of 80% of salary for all three months, if taken within the child’s first six years of life.

• The remaining three months of benefits at 30% of salary may be shared between both parents.

Previously, parental leave could only be taken until the child reaches the age of 12. From 1 January 2026, the age limit has increased to 14 years old.

Increase in meal voucher exemption threshold

From 1 January 2026, the daily tax and social security contribution exemption threshold for electronic meal vouchers provided by employers to employees has increased from EUR 8.00 to EUR 10.00.

Employer action: ACT

Employers should review and update their internal policies and procedures, as well as employee handbooks and contracts, if they have not already done so, to ensure compliance with the changes. They should also coordinate with their payroll providers on the necessary updates to be made to existing processes and systems.

The changes to the TFR system mean there is a higher likelihood of TFR being pulled into supplementary pension funds or the INPS Treasury Fund, instead of remaining on employers’ books.

Employers who provide meal vouchers should evaluate whether to increase their contribution, given the higher exemption threshold of EUR 10.00. While it is not mandatory to do so, unless required by a CBA, increasing the contribution would maximize the exemptions from taxes and social security contributions.

Written in collaboration with:

Alessia Maggiani

Welfare & Benefit Manager, MAG Italia (Lockton Global Partner)

alessia.maggiani@magitaliagroup.com (opens a new window)

Beatrice Masciale

Welfare & Benefit Specialist, MAG Italia (Lockton Global Partner)

beatrice.masciale@magitaliagroup.com (opens a new window)

Giacomo Maria Soleti

Welfare & Benefits Account Handler International, MAG Italia (Lockton Global Partner)

Further Information

Law No. 199 of 30 December 2025 | Normattiva (opens a new window)