Updates in European Employment Law and Italy’s Budget Law

European Employment Insights – February 2026

European professionals at Andersen from more than 20 different jurisdictions have prepared the latest Employment Insights Newsletter on the most significant developments in labor law regulations.

Among the most relevant developments in the European labor law landscape: in Slovakia, a series of measures entered into force on January 1, 2026, including the expansion of the right to personal leave, the introduction of contribution obligations during protected absences, and a redefinition of the main responsibilities of employers.

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Italian legislation and new developments in labor law

For Italy, Partner Uberto Percivalle, head of the national Employment & Labor service line, explained the most innovative legislative interventions affecting labor law in our country, such as the Budget Law and the changes to theStatutory severance pay (TFR) allocation system.

Budget Law 2026:

On December 30, 2025, the Parliament approved the 2026 Budget Law, introducing measures aimed at reducing the tax burden on employees and employers with the objective of lowering personnel costs.

Tax measures in the field of labor law:

Among the main developments are the reduced tax rates on salary increases provided for the 2024–2026 period and paid in 2026, as well as on bonuses and meal vouchers. Another favorable measure is the introduction, for 2026 only, of a 15% substitute tax on allowances and compensation related to night work, holiday work, or shift work.

The Government has also strengthened performance-based incentive tools: for 2026 and 2027, productivity bonuses and employee participation plans will be taxed at the reduced rate of 1%. In addition, the tax-exempt threshold for electronic meal vouchers has been increased to €10 per day.

Family support measures:

Starting from January 1, 2026, private employers who hire unemployed mothers with three children under the age of 18 will benefit from a social security contribution exemption of up to €8,000 per year, both in the case of fixed-term contracts (for 12 months) and permanent contracts (for 24 months), until the allocated resources are exhausted.

Parental leave has also been extended and will now be available until the child turns 14, including leave for a child’s illness. For children aged between 8 and 14, the number of available leave days doubles from 5 to 10 per year.

Changes to the Statutory severance pay system:

The reform also introduced changes to the TFR (severance pay) system, affecting both the allocation to pension funds and employers’ obligations. Starting from July 1, 2026, the TFR of employees entering their first job will automatically be allocated to the pension funds provided for by national collective bargaining agreements (CCNL), unless the employee chooses within 60 days of hiring to allocate it to a different fund or to keep it accrued within the company.

Employers remain required to properly inform employees, at the time of hiring, about their right to choose the destination of their TFR.

From January 2026, employers will also be required to make payments to the INPS Treasury Fund based on the company size threshold calculated on the average number of employees in service during the previous calendar year, rather than considering only the average number of employees during the company’s first year of activity. This introduces a criterion that reflects the company’s actual growth over time.

For 2026 and 2027, the threshold is set at 60 employees, while starting from January 1, 2032, it will decrease to 40 employees.