A pay rise is measured on the total employment cost, not on the gross salary
13 October 2026, 09:35
On 12 October, at a hearing in Parliament, the president of Istat (Italy's national statistics institute), Francesco Maria Chelli, said that "the phase in which nominal pay was catching up with rising prices" has come to a halt. If no further renewals arrive by December, pay under collective agreements would grow by 2.5 per cent in 2026, while the inflation already locked in for the year, the figure that would result even if prices stayed flat until December, is 3.
When a collective agreement is renewed, or when a business decides on a pay rise of its own accord, there is only one question to ask: how much does it really cost the company?
Gross salary is only part of what is spent on staff
The RAL, the annual gross salary, is the figure written in the letter of appointment: all the monthly payments of the year, the thirteenth month included and the fourteenth where the agreement provides for it, before tax and social security deductions. It is the figure people usually mean when they talk about salary.
The total employment cost is what an employee weighs on the company's profit and loss account in a year. Two items that never reach the payslip are added to the RAL:
- social charges: the pension contributions payable by the company, paid to INPS (Italy's social security agency) on top of the share deducted from the employee, and the insurance premium paid to INAIL (the national workplace insurance institute);
- severance pay (TFR): the amount that accrues each year in the employee's favour and is recorded among the company's costs, even when it is paid later or transferred to a fund.
To give an order of magnitude: an experienced administrative clerk on a RAL of €42,000 has a total employment cost of just under €60,000. The difference is about 40 per cent of the RAL.
Social charges and severance pay grow together with pay
The two items that separate the RAL from the total employment cost are percentages of pay. Contributions are calculated on gross pay, at rates that vary with the sector and the size of the business. Article 2120 of the Italian Civil Code states that severance pay accrues each year at an amount equal to the annual pay divided by 13.5, that is about €7.40 for every €100.
It follows that a pay rise pushes up social charges and severance pay in the same proportion. And the monthly increase written into a collective agreement is paid on every monthly payment, the thirteenth month included: over a year it is worth more than twelve times the monthly figure.
The accounts show how much the company spends for every euro of pay
The profit and loss account, in the format set out in article 2425 of the Civil Code, groups spending on employees under item B9, "for staff", split into five lines: wages and salaries, social charges, severance pay, pensions and similar obligations, other costs. In abridged financial statements, article 2435-bis of the same Code allows the last three lines to be combined into one.
The first line contains gross pay. Adding up the first three, that is pay, social charges and severance pay, and dividing the total by the first, gives how much one's own company spends for every euro of gross pay. If severance pay is combined with pensions and other costs, the whole of item B9 is divided by the first line: the result may come out higher than the figure sought, never lower. That figure varies with the sector, with the collective agreement applied and with the make-up of the workforce, and it is measured on one's own accounts.
The typical mistake is to budget the increase written in the agreement
The same pay rise can be read in three ways. Employees look at the net amount they find in their payslip. The collective agreement states the monthly gross figure. The company pays the total employment cost. The most frequent mistake is to put into the budget the figure in the agreement, or the difference in RAL, and leave out social charges and severance pay: with the proportions of the clerk seen above, about €40 for every €100 of increase.
An example. An engineering company with 60 employees applies a renewal that gives each of them €1,300 more in gross pay a year. Added up across the whole workforce, the gross salaries rise by €78,000. With the same proportions as the clerk, the total employment cost of all the employees goes up by about €109,000.
There is also a difference in duration. A one-off bonus weighs on a single financial year. An increase in pay stays: it enters staff costs this year and every year after, and the next renewals start from there.
Before signing a company-level agreement, or finalising the 2027 budget, the calculation is short. From item B9 in the latest financial statements one works out how much the company spends for every euro of gross pay. That figure is multiplied by the gross increase over a full year, the thirteenth month included. The result is the amount the business will really pay, every year.
This article was prompted by a news item published in ANSA on 12 October 2026.