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An employer who wants to meet an employee's needs by granting him or her advance severance pay outside the cases provided by law must pay close attention to the title of the disbursement.
Let's review together what the characteristics of advances are and examine how to proceed under an exception.
The prerequisites for the advance payment of severance pay
As a reminder, according to Article 2120 of the Civil Code, the prerequisites for advance payment of severance pay are:
- Length of service of at least eight years with the same employer
- Amount of advance payment not exceeding 70% of the treatment accrued at the date of application
- Existence of specific causalities such as:
- Any medical expenses for extraordinary therapies and interventions recognized by the relevant public facilities
- Purchase of the first home for oneself or children.
Article 7, Law No. 53/2000, also provides that severance pay may be advanced for expenses to be incurred during periods of parental leave And training leave.
The advance may be obtained for one time only during the course of employment. Requests are fulfilled annually within the limit of 10 percent of eligible employees and in any case 4 percent of the total number of employees.
Contribution and tax regime
Severance pay and advances, as is well known, do not constitute taxable wages for social security purposes. Therefore, no social security contributions are due on such amounts. In addition, for advances, the regime of separate taxation is applied, according to the theoretical rate calculated on the severance pay at the date of the advance, which will be subject to re-liquidation at the time of termination of employment. Conversely, for the portion of the TFR advance attributable to the Revaluation, no tax will be due.
Is it possible to provide different conditions for the advance payment of severance pay?
The answer is affirmative.
In fact, the last paragraph of Article 2120 of the Civil Code admits the introduction, by collective bargaining or by individual agreement, of improved conditions compared to the codified regime of advances. Collective agreements may also establish priority criteria for accepting requests for advances.
Otherwise, it is not possible to affect in any way the way in which severance pay is determined, except for the identification of the remuneration that is useful for the calculation of severance pay (Supreme Court February 22, 2007, No. 4133).
Where proceeding by means of an individual covenant, it is a good idea to formalize the covenant so that it constitutes a suitable title for disbursement. The covenant, in particular, while introducing hypotheses of advance payments in derogation will still have to fulfill the conditions prescribed by Art. 2120, c. 6 ff.
Accordingly, they should be specified:
- cases of anticipation
- amount of the advance
- Prescribed length of service.
It would also be appropriate to consider a possible certification of the covenant, since under Article 79, Legislative Decree No. 276/2003, the effects of the certification body's determination remain even vis-à-vis third parties, and thus also vis-à-vis the Institutes.
Where these constituent elements are lacking, case law holds that the employer's disbursement does not qualify as an advance of severance pay and, therefore, such disbursement is considered taxable remuneration for social security purposes, with the annexed application of the contribution levy, as most recently affirmed by Supreme Court No. 4670, Feb. 22, 2021, in which it is explicitly stated as "there must be an improved individual derogatory agreement jointly with the additional prerequisites such as seniority and percentage of advance treatment in order to correspond in compliance with the dictate of Article 2120 Civil Code." The risk, moreover, is that the tax authority will also object to the title of the contribution, resulting in recoveries.
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