EPF, ESI and Professional Tax vs INPS, INAIL and IRPEF: Why CTC Is Not RAL

Indian offers are built around CTC, cost to company: base, allowances, employer PF, gratuity provision, insurance, variable pay, all rolled into one number. Italian offers are built around RAL (retribuzione annua lorda), the employee’s gross annual salary. The employer’s contributions sit on top of RAL. If you send an Italian candidate a “CTC” and they read it as RAL, you will overshoot your budget by roughly 40%. Full side-by-side on Italy vs India .

India: what sits inside CTC  

• EPF and EPS (Employees’ Provident Funds and Miscellaneous Provisions Act, now under the Code on Social Security): 12% of basic wages from the employer and 12% from the employee. Of the employer’s 12%, 8.33% goes to the pension scheme (EPS). From 17 September 2026 the statutory wage ceiling is ₹25,000 a month (previously ₹15,000): coverage is mandatory up to that wage, and many companies cap contributions at 12% of ₹25,000 ( PIB ).
• EDLI and admin charges: small additional employer percentages.
• ESI: 3.25% employer and 0.75% employee, for employees earning up to ₹21,000 a month. Most IT professionals are above that limit and outside ESI.
• Gratuity provision: about 4.81% of basic, often shown in CTC.
• Professional tax: a state levy deducted from salary, capped by the Constitution at ₹2,500 a year.
• Income tax (TDS): withheld by the employer under the Income-tax Act.

For a typical software engineer, statutory employer costs above salary are modest, which is why CTC is a convenient headline.

Italy: what sits on top of RAL  

• INPS social security: the employer pays roughly 30% of gross pay, with no wage threshold below which contributions are not due. The core pension contribution (IVS) is 33% in total, of which 23.81% is paid by the employer and 9.19% is withheld from the employee (plus 1% on pay above €56,224 a year in 2026; contribution ceiling €122,295 for those first insured from 1996, INPS circular 6/2026). The remaining employer share covers unemployment insurance (NASpI), illness, maternity and other funds, and varies by sector and company size.
• INAIL workplace accident insurance: paid only by the employer, at a rate depending on the risk class of the job. For office work it is low.
• TFR: about 6.91% of pay set aside every year (see gratuity vs TFR ).
• 13th month (and 14th in some CCNLs): already inside RAL, but paid as separate monthly salaries.
• CCNL funds: supplementary health funds and bilateral bodies, typically small fixed amounts.
• IRPEF income tax: withheld from the employee at progressive rates of 23% up to €28,000, 33% from €28,000 to €50,000 and 43% above (2026, after Law 199/2025 cut the middle rate from 35%), plus regional and municipal surcharges.

The conversion that matters  

So a rough rule:

• Italian employer cost ≈ RAL × 1.36–1.40, assuming employer INPS of about 29–32% (office employee, industry or commerce), INAIL below 0.5% and TFR at 6.91%; the RAL already includes the 13th and any 14th month.
• An Italian candidate quoting “€45,000 RAL” will cost the employer around €61,000–63,000 a year before EOR fees.

Why “CTC” does not translate  

1. Different base. Indian employer PF is often capped at 12% of ₹25,000 (the ceiling since 17 September 2026). Italian INPS applies to the whole salary, from the first euro.
2. Gratuity is contingent; TFR is not. In India many employees never reach five years. In Italy TFR is paid on every exit.
3. Allowances. Indian CTC structures use HRA, LTA and special allowances for tax efficiency. In Italy, most cash allowances are simply taxable salary and subject to INPS. Tax-favoured items exist (meal vouchers, welfare plans), but they have strict limits.
4. Variable pay. In India, variable pay is often part of CTC. In Italy, a target bonus is outside RAL and is subject to contributions when paid; productivity bonuses under a company agreement can get a reduced tax rate.

Talking to Italian candidates  

• Quote RAL, and say whether it is paid in 13 or 14 instalments.
• State any bonus separately as a target, not as part of RAL.
• Do not mention CTC. If you need to show total cost internally, call it “employer cost”.
• Expect candidates to compare net monthly pay. A €45,000 RAL employee takes home much less than an Indian employee with the equivalent CTC would expect, because of the 9.19% INPS and IRPEF.

What the employee gets for those contributions  

Indian employees sometimes see EPF as savings they can withdraw. Italian INPS contributions do not work that way: they fund a pay-as-you-go public pension, unemployment benefit (NASpI), sick pay, maternity and parental pay. Healthcare is provided by the national health service, funded through general taxation rather than payroll. That is why many Italian employers do not offer private health insurance, although some CCNLs include a supplementary health fund.

Sending Indian employees to Italy: is there a social security agreement?  

India has social security agreements (SSAs) with a number of countries, which let posted workers stay in EPF for a limited period with a certificate of coverage instead of paying into the host system. Italy is not on the MEA list of India’s social security agreements (updated 15 July 2026), so no India–Italy SSA is in force. Until one is in force, an Indian employee working in Italy is generally subject to Italian INPS contributions, and as an “international worker” may also remain liable for EPF in India. Indian nationals also need an Italian work permit; see India to Italy visas .

What this means if you hire through an EOR  

The EOR runs Italian payroll: it calculates INPS, INAIL, IRPEF and surcharges, issues the payslip (cedolino), pays contributions through the F24 form and files the annual certifications. Your Indian entity receives one monthly invoice covering the full employer cost plus the EOR fee, in euros. That invoice is a service cost for your Indian company; talk to your Indian tax adviser about withholding and transfer pricing.

Run the numbers in the cost calculator , read about Italian employment contracts , or contact us .

Related guides for Indian companies  

• Gratuity vs TFR
• Labour Codes vs Italian civil code and CCNL
• Leave, working hours and overtime

General information, not legal advice.