Many companies are applying the new 2026 tax relief measures in these months on the assumption that they are simply a tax benefit for employees.
In reality, two different preferential regimes now coexist within corporate payroll, each with its own rules, thresholds, and scope of application.
What has changed is not only taxation. The operational complexity of payroll processing has changed as well.
The result is tangible:
payroll configuration errors may trigger tax adjustments, tax recovery actions, and subsequent audits.
We have prepared an operational guide to explain how to manage the 2026 dual tax relief system correctly and avoid non-compliant applications.
General framework
For 2026, salary increases and premiums for burdensome working time arrangements benefit from significant tax relief. The 2026 Budget Law introduced two separate measures designed to reduce taxation on specific payroll items, with the aim of supporting employees’ purchasing power. In Circular No. 2/E of 24 February 2026, the Italian Revenue Agency provided the long-awaited guidance for the correct application of these rules.
However, the existence of a “dual-track” preferential framework, combined with the many exceptions provided for, risks creating confusion within HR and payroll departments. This article takes a pragmatic look at the Agency’s guidance and clarifies how payroll processing should be structured and how individual pay items should be mapped.
What this article will examine
How the 5% tax relief on pay increases arising from collective bargaining renewals works, including the items covered, such as the fourteenth monthly salary and absorbable individual pay supplements, and those strictly excluded, such as overtime and seniority increments.
Which rules apply to the 15% substitute tax for night work, holiday work, shift work, and on-call allowances, and how the annual ceiling of EUR 1,500 operates.
The crucial exclusion of the Tourism and Catering sector (Ho.Re.Ca.) from the 15% relief measure.
The different income thresholds, EUR 33,000 versus EUR 40,000, to be verified with reference to the previous tax year.
How to manage the prohibition on cumulation in order to avoid formal payroll errors.
The operational rules applicable to absences, monetised holiday entitlement, and the tax adjustment process for the first months of 2026.
Download the operational guide
5% tax relief on CCNL pay increases: requirements and included items
The first measure, under paragraph 7 of the 2026 Budget Law, concerns the application of a reduced substitute tax of 5% on salary increases arising from the renewal of National Collective Labour Agreements (CCNLs) signed between 2024 and 2026, for amounts paid during the 2026 tax year.
This relief applies to private sector employees who, in the 2025 tax year, did not exceed employment income of EUR 33,000.
The preferential regime applies to the contractual base salary increase and to its “carry-over effect” on other pay components. However, Circular No. 2/E defines a very strict perimeter.
Included items: In addition to ordinary base pay, the relief extends to increases generated by the contractual adjustment on items such as the thirteenth and fourteenth monthly salary and absences for the portion supplemented by the employer, including sickness, maternity or paternity leave, and workplace injury. The relief also applies to the contractual increase even where that increase has been absorbed into an absorbable individual pay supplement.
Excluded items: The relief expressly excludes one-off payments made to cover the contractual gap period, seniority increments, severance pay, and, importantly, overtime. Hours worked beyond normal working time, as well as shift and night work premiums, do not benefit from the 5% rate.
Employees subject to special regimes, such as inbound workers: For employees benefiting from special preferential tax regimes, such as the so-called inbound workers regime, the Circular clarifies that the 5% substitute tax applies only to the taxable portion of the increase, calculated net of the exemptions provided under the special regime.
15% substitute tax for night work, holiday work, shift work, and on-call duty
Alongside this measure, paragraphs 10 and 11 introduced a separate preferential regime to compensate employees for burdensome working time patterns. This consists of a substitute tax set at 15%, applicable to premiums and allowances paid for:
Night work, work performed on public holidays, or weekly rest days, such as Sunday work.
Shift work.
On-call duty allowances, which are expressly included by the Circular.
This measure is governed by different parameters:
The income threshold for 2025 is increased to EUR 40,000.
A maximum annual preferential amount of EUR 1,500 applies. The Circular clarifies that this ceiling operates as a true exemption threshold: any amount above EUR 1,500 is subject to ordinary taxation.
Excluded pay items: The 15% regime does not apply to indirect pay items, such as sickness or maternity pay, deferred pay items such as severance pay, or ordinary direct pay, such as the thirteenth and fourteenth monthly salary.
Attention: exclusion of the Tourism and Catering sector
Particular care is required in assessing the sectoral scope of the measure. Although the rule refers generally to the “private sector,” Circular No. 2/E expressly excludes from the 15% relief employees working in food and beverage establishments and in the tourism sector, including spa facilities. For these sectors, the legislator has introduced a different preferential mechanism, the so-called “special additional treatment” under paragraph 18, which follows separate rules.
Prohibition on cumulation: no double benefit
The critical point for correct payroll processing lies in managing the interaction between the two rules. The key principle clarified by the Italian Revenue Agency is the absolute prohibition on cumulation. These are two distinct preferential tax regimes that apply to different components of pay. There is no possibility of applying both benefits to the same amount.
More specifically, the 5% tax relief, which is designed for increases arising from CCNL renewals, does not apply in any way to Sunday work premiums, holiday work premiums, night work premiums, or shift allowances. Any effect of the contractual increase on the night work premium must be handled exclusively under the 15% regime, within the EUR 1,500 ceiling, and cannot rely in any way on the 5% benefit.
Practical cases: paid absences, monetised holidays, and tax adjustments
In order to complete the picture for correct monthly payroll processing, two very common operational scenarios require particular attention.
1. Taken holidays versus monetised holidays: a prudent approach
What happens when an employee is absent and takes holiday leave or paid leave, such as ROL or substitute public holidays? The remuneration paid for those days naturally includes the agreed contractual increase. As clarified through the principle of the “carry-over effect,” the 5% tax relief remains fully applicable to the portion of the CCNL increase included in the pay relating to those absences. The employer must therefore configure the payroll system so that the algorithm isolates the contractual increase.
However, in our view, and pending further official clarification from the Italian Revenue Agency, the case may be different where payment is made in lieu of unused holidays and leave, for example upon termination of employment or in the case of periodic monetisation. Since this is an indemnity with a mixed nature, replacing the enjoyment of a legal entitlement, we consider it advisable to adopt a prudent approach and not apply the preferential tax treatment to these amounts, which should instead be subject to ordinary taxation.
2. Tax adjustments for pay items relating to the beginning of 2026
The Italian Revenue Agency’s Circular was issued on 24 February 2026. This means that companies likely already processed and paid the January payroll, and in many cases also the February payroll, by applying ordinary taxation to amounts that were in fact eligible for the 5% or 15% substitute taxes.
This is not a problem. The withholding agent, namely the employer, may recover the relief not applied in the previous months by recalculating the relevant amounts. The employer may reimburse the employee for the excess tax withheld directly in subsequent payrolls or, at the latest, during the year-end tax adjustment process.
Summary table: the “dual-track” tax relief system for 2026
To facilitate the analysis, we have summarised below the updated parameters set out in Circular No. 2/E.
| Reference parameter | Tax relief on CCNL pay increases | Tax relief on night work, holiday work, shift work, and on-call duty |
| Tax rate | 5% | 15% |
| 2025 income threshold | Up to EUR 33,000 | Up to EUR 40,000 |
| Maximum cap | No limit | Annual exemption threshold of EUR 1,500. Any excess is taxed under the ordinary regime. |
|
Included items |
Contractual pay increases arising from renewals signed between 2024 and 2026, and related effects on the thirteenth and fourteenth monthly salary, sickness and injury absences supplemented by the employer, and absorbable individual pay supplements. | Premiums for night work, Sunday work, holiday work, shift allowances, and on-call duty allowances. |
|
Excluded items |
One-off payments, overtime, seniority increments, severance pay, and premiums for shift work, night work, and holiday work. | Contractual pay increases, thirteenth monthly salary, fourteenth monthly salary, sickness, maternity, and severance pay. Overtime is excluded, except for overtime performed during night hours or on public holidays, where the relevant premiums fall within the preferential regime. |
| Excluded sectors | No exclusions within the private sector. | Tourism, spa, and food and beverage administration sectors are excluded (Ho.Re.Ca.). |
| Cumulation rule | ABSOLUTE PROHIBITION: no pay item may benefit from both relief measures. | |
Conclusion
For employees in the private sector, 2026 offers significant tax levers to increase net pay. For companies, however, the combined application of these rules requires a meticulous update of payroll software and related control processes. It is essential to map pay items accurately, distinguish the different income threshold checks, manage the inclusion of complex items such as absorbable individual pay supplements, and pay the utmost attention to exclusions, such as overtime or tourism-related sectors.
The correct configuration of these parameters is a highly sensitive technical step. If underestimated, it may lead to incorrect payroll calculations and subsequent tax recovery actions.
Our Firm is available to support HR Departments and companies with a regulatory payroll mapping check-up aimed at ensuring full compliance of operational procedures with the recent guidance issued by the Italian Revenue Agency.
Download the operational guide
Want to know more?
The new tax relief system now requires verification that is not only tax-related, but also organisational and procedural.
The integrated team of Bacciardi Partners and Macrelli e Bartolini Associati assists companies and HR Departments in mapping pay items, reviewing payroll configurations, and carrying out preventive checks on the risks connected with the new relief measures, before issues emerge during year-end adjustments or tax audits.
📩 Contact us to arrange a dedicated Payroll Compliance Check for your organisation.
Prepared with the contribution of Macrelli e Bartolini Associati