With question no. 130 of 6 June 2024, the Revenue Agency discussed the topic of compensation for the loss of employee income, specifically on the topic relating to the tax treatment of the compensatory allowance pursuant to art. 39 paragraph 2 of Legislative Decree no. 81/2015 – within the scope of Chapter IV relating to the supply of work – recognized to an employee as a result of the ruling of the Labor Judge.
In this regard, we would like to remind you that the law – to protect temporary workers in the event of temporary employment that does not comply with the law – prescribes the following:
“1. In the event that the worker requests the establishment of an employment relationship with the user, pursuant to article 38, paragraph 2, the provisions of article 6 of law no. apply. 604 of 1966, and the term referred to in the first paragraph of the aforementioned article starts from the date on which the worker ceased to carry out his activity for the user.
2. In the event that the judge accepts the request referred to in paragraph 1, he or she orders the employer to pay compensation for damages in favor of the worker, establishing an all-inclusive compensation in the amount between a minimum of 2.5 and a maximum of 12 months of the last reference salary for the calculation of severance pay, having regard to the criteria indicated in article 8 of law no. 604 of 1966. The aforementioned indemnity fully compensates for the damage suffered by the worker, including the remuneration and contributory consequences, relating to the period between the date on which the worker ceased to carry out his activity for the user and the ruling with the which the judge ordered the establishment of the employment relationship.”
As required by the law, the aforementioned compensation is payable in the event that the Labor Judge in question accepts the application for the establishment of the employment relationship with the user as the work was provided outside the limits and conditions of referred to in the articles 31, paragraphs 1 and 2, 32 and 33, paragraph 1, letters a), b), c) and d), of Legislative Decree 81/2015.
The predicted one allowance It therefore has the aim of completely restoring the harm suffered by the workerincluding the remuneration and contribution consequences, relating to the period between the date on which the worker ceased to carry out his work for the user and the ruling with which the judge ordered the establishment of the employment relationship.
Compensatory allowance in favor of the temporary worker: clarifications from the Revenue
The Agency, in its response to question no. 130 of 2024, recalling the now consolidated positions, carries out a survey, pursuant to art. 6 paragraph 2 of the TUIR, on the sums received in replacement of income and on the indemnities obtained, also in the form of insurance, by way of compensation for damages consisting of loss of incomeexcluding those resulting from permanent disability or death, constitute income of the same category as that replaced or lost.
The Agency, therefore, specifies and clarifies the following in this regard.
In general, where the compensation received by a specific person compensates, in a supplementary or substitutive manner, the lack of income from work or the loss of earnings, the sums paid are to be considered intended to replace an income not earned (loss of profit) and therefore go into the total income of the recipient and subject to taxation.
However, in the case in which the compensation is paid with the aim of compensating the subject for the losses actually suffered or to compensate the economic loss suffered by the assets (emerging damage), the sums paid will not be subject to taxation. In this last case the tax prerequisite is no longer valid since the compensation takes on a compensatory nature for the damage to the person of the injured party and lacks any substitutive or supplementary function of any remunerative treatments.
The applicant – a company with 100% public participation – in the request for ruling believes that the all-inclusive compensation referred to in art. 39, paragraph 2, of Legislative Decree no. 81 of 2015, is similar to the indemnity provided for by art. 32, paragraph 5, of law no. 183/2010 and, therefore, believes it must to subject such allowance to separate taxation pursuant to articles 17 and 21 of the TUIR and, consequently, arrange for the application and payment of the withholding tax.
From the ruling of the Labor Judge emerges the exclusion of the establishment of a permanent employment relationship and therefore the only consequence applicable to the violation referred to in the aforementioned art. 31 paragraph 2 is to be identified in the compensation indemnity, which in the specific case – having regard to the duration of the contract and its extensions (approximately 10 months in total), the size of the company and the number of employees – was determined at 2.5 monthly salary of the last reference salary for the calculation of severance pay.
For this indemnity, which fully compensates for the damage suffered by the employee, both for remuneration and contribution purposes, the Agency believes that the compensatory indemnity in question can be classified as compensation for damage consisting in the loss of income from employment and as such has an income replacement value not achieved pursuant to art. 6 of the TUIR.
For this reason the art. applies. 17 paragraph 1 letter. b) of the TUIR which prescribes the separate taxation for emoluments in arrears for employee work relating to previous years, received as a result of laws, collective agreements, sentences or administrative acts that have occurred or for other causes not dependent on the will of the parties.
