Keeping Staff: Bonuses, Welfare and TFR in a Pension Fund

Keeping the people who matter is first of all a question of numbers. This is not about company culture, which still matters, but about what a company can concretely put in its people's pockets and into their future by spending the same budget better. There are four tools: productivity bonuses, welfare, health prevention and supplementary pensions.

Why does a pay rise deliver so little?

On a pay rise the company pays social security contributions and sets aside TFR, Italy's severance pay; the employee in turn pays contributions (9.19%) and income tax (IRPEF) at the marginal rate, plus local surcharges. In our simulators one gross euro of pay rise costs the company about €1.40. Here is what reaches an employee earning €35,000 gross a year for every €1,000 the company spends:

• Pay rise: about €420 net.
• Performance bonus, with the 1% substitute tax: about €655 net.
• Contribution to a pension fund or a health fund: about €910 paid in, because the company pays a 10% solidarity contribution instead of ordinary contributions. In a pension fund, tax is due only when benefits are paid out.
• Welfare and fringe benefits within the exemption limits: the full €1,000.

The figures assume a 33% marginal rate plus average surcharges of about 2%. You can rerun them on your own data with the welfare and flexible benefit simulator and the employer contribution simulator.

Productivity bonuses: how does the 1% tax work?

For 2026 and 2027 the Budget Law cut the substitute tax on performance bonuses and profit-sharing to 1%, and raised the eligible amount to €5,000 a year (guidance from the Italian Revenue Agency). The conditions are unchanged:

• the employee works in the private sector and earned up to €80,000 of employment income in the previous year;
• the bonus stems from a company or local agreement that has been filed;
• it is linked to measurable increases in productivity, profitability, quality, efficiency or innovation against a reference period.

A bonus paid in cash still bears ordinary contributions. If the employee chooses to convert it into welfare services, however, they pay neither tax nor contributions, and the company saves its contributions too: resolution 22/E of 2026 confirmed that the €5,000 ceiling also applies to conversion.

Corporate welfare and fringe benefits: what stays tax-free?

Article 51 of Italy's Consolidated Income Tax Act distinguishes two families.

• Welfare services for education, care of family members, health, recreation and public transport: not income for the employee, with no cap on the amount, if offered to all employees or to homogeneous categories.
• Fringe benefits, that is, goods, shopping vouchers and reimbursement of utility bills, rent or mortgage interest on the main home: tax-free up to €1,000 a year, rising to €2,000 for employees with dependent children, for 2025-2027. Above the limit, the whole amount becomes taxable.

For the company, the form makes the difference. Welfare provided under a contract, an agreement or a company regulation that binds it is fully deductible; welfare granted voluntarily, as a gift, is deductible only up to 5 per thousand of staff costs. A written regulation therefore suits both sides.

Health prevention: why does a health fund pay off?

Contributions a company pays to a fund with exclusively healthcare purposes, under a contract, an agreement or a regulation, are not income for the employee up to €3,615.20 a year; on those contributions the company pays the 10% solidarity contribution (the tax framework, in Italian). That amount covers check-ups, specialist visits, prevention and often family members too.

It is one of the benefits an employee notices straight away, because they use it, and it counts when they compare two job offers. It can be combined with cover for long-term care and serious illness, which article 51 also excludes from income.

TFR in a pension fund: why can it work for both sides?

A premise: the employee decides where their TFR goes, and the company cannot steer that choice. It can, however, explain the alternatives clearly and add its own contribution to membership. The real comparison is between TFR left with the company (or, above the size threshold, paid into INPS's Treasury Fund) and TFR paid into a pension fund.

What the employee gains

• Returns. TFR left with the company is revalued at a fixed 1.5% plus 75% of inflation, and the revaluation is taxed at 17% (article 2120 of the Italian Civil Code). According to the COVIP annual report, over 2016-2025 pension-fund equity lines returned about 5% a year on average, balanced lines between 1.9% and 2.9%, TFR 2.5%.
• Taxation. TFR paid out by the company is taxed separately, at a rate starting from 23%; pension-fund benefits are taxed at 15%, falling to 9% with years of membership (COVIP rules).
• Employer contribution. Extra pay that starts working straight away, with no income tax when it is paid in, within the overall deduction limit of €5,300 a year.

What the company gains

• Compensating measures. On TFR paid into the fund, the company deducts 6% from taxable income if it has fewer than 50 employees, or 4%; it is exempt from the 0.20% contribution to the Guarantee Fund and gets a 0.28% reduction in minor social security charges, in proportion to the TFR paid in (the detail, in Italian).
• No revaluation on the amounts paid in: the cost of 1.5% plus 75% of inflation disappears from the income statement.
• One less debt payable on demand. TFR held by the company is paid when an employee resigns or retires, with no cash notice, and after eight years of service up to 70% can be advanced, within 10% of eligible employees and 4% of the workforce each year. Two or three departures in the same year can strain cash flow.
• A falling threshold. From 2026 the obligation to pay TFR not sent to pension funds into INPS's Treasury Fund applies from 60 employees, from 2028 from 50 and from 2032 from 40, checked every year (paragraph 203 of the 2026 Budget Law). Many small and medium-sized firms will lose that cash anyway: better to turn it into a retention lever first.

Finally, the employer contribution is a deductible cost on which the company pays only the 10% solidarity contribution. Outside what the collective agreement requires, it is not an obligation: it is a reward the company chooses to give, and that is exactly why it sends a signal.

How much could a company with 40 employees save?

Let's take a concrete case: 40 employees, a €1,000,000 payroll, €500,000 of TFR accrued before 2007 and still held by the company, a 1% employer contribution (€10,000 a year) and inflation steady at 2.6%. The TFR accruing each year is worth €69,100 and would be revalued at 3.45%. The compensating measures give back about €1,160 of deduction and €4,800 of contribution exemptions a year; the contribution costs €11,000 including solidarity, €7,930 net of IRES and IRAP.

Our simulator on TFR in the company or in a pension fund estimates cumulative savings of €105,201 over 5 years, €275,485 over 10 and €859,249 over 20. These figures are correct within the model's assumptions, which should be stated:

• the €500,000 of TFR accrued before 2007 (entered in the simulator's field for TFR accrued before 1 January 2007) also moves to the fund, which is possible only by agreement between company and employee, as COVIP has clarified, and means paying that cash out at once;
• the avoided revaluation is not reduced for tax, even though for the company it is a deductible cost;
• nobody leaves the company and inflation stays at 2.6% for twenty years;
• the cash leaving the company does not need to be replaced with borrowing.

Changing one assumption at a time, the result moves like this:

Our reading is this. If the company has surplus cash, or will cross the Treasury Fund threshold by 2032 anyway, moving TFR to a fund costs little or nothing, removes a debt that can be called at any time and strengthens the bond with those who stay. For a 40-employee company, from 2032 TFR not paid into a fund will go to INPS regardless: the 20-year column compares against an alternative that will no longer exist. If instead TFR funds working capital and would have to be replaced with bank debt, the income statement gets worse, and the benefit lies in lower liquidity risk and in the value of the contribution for people.

Is the employer contribution compulsory?

Only when the collective agreement provides for it and the employee joins the sector's contractual fund, paying their own minimum share. In every other case it is the company's choice, which it can set out in a company agreement or regulation, including on an open pension fund with collective membership, for all employees or for homogeneous categories.

Two changes in the 2026 Budget Law are worth keeping in mind. From 1 July 2026 new private-sector hires are automatically enrolled in the fund set by their contract, unless they opt out within 60 days: the company has to inform them. And from 31 October 2026, after at least two years of membership, anyone moving their position to an open fund or an individual plan keeps the employer contribution.

Questions that rarely get a straight answer

These are questions business owners often ask us, and that rarely get a direct answer.

Can a company persuade employees to move their TFR into a pension fund?

It can inform them clearly and fully, and make the choice more attractive with an employer contribution, but the decision stays with each employee. A dedicated meeting, with each person's own numbers, works better than any pressure, which would also be improper.

Can a company pay the pension contribution to some employees only?

Yes, if the criterion is objective and written into a company agreement or regulation, for homogeneous categories: for example all middle managers, or all employees at a given contractual grade. It is the soundest route for tax and social security purposes, and also the easiest to explain to colleagues.

What happens to employees' TFR if the company goes bankrupt?

TFR is guaranteed by INPS's Guarantee Fund, financed precisely by the 0.20% contribution companies pay. Pension-fund contributions that were due but not paid can also be claimed from the Fund, under INPS rules.

Is a check-up paid by the company a taxable fringe benefit?

No, if it is a healthcare service offered to all employees or to homogeneous categories, or if it goes through a health fund within €3,615.20 a year. A cash reimbursement of a medical expense outside these channels, however, does count as income.

Does a performance bonus converted into welfare pay contributions?

No. If the employee chooses welfare services instead of the cash bonus, within €5,000 a year, they pay neither tax nor contributions, and the company saves its own contributions too. The agreement must provide for the conversion option.

Is an open pension fund or the contractual fund better for a company?

The contractual fund has lower costs and usually the contribution set by the collective agreement; an open fund with collective membership lets the company build a tailored plan, with a wider range of investment lines. We compared the different forms in another article.

Pay rise, bonus, welfare or pension: how do they compare?