Understanding Payroll in Spain: What Global Companies Need to Know About Spain Payroll
Jul 26, 2016
For organizations considering expanding their operations into Europe, Spain is often a great starting point. While Spain may be well known for its vibrant culture, rich history and beautiful beaches, the country has a lot more to offer, particularly for the expanding multi-national organization. In addition to a strong and highly qualified workforce, and relatively low labor costs, the nation is a gateway to accessing the growing markets of Europe, North Africa and Latin America. Moreover, the Spanish government offers various incentives for developing businesses and offers an inviting environment for foreign investment. Despite the benefits, though, multi-national organizations planning to hire payroll employees in the country must contend with highly complex and complicated labor laws that are subjected to constant changes and revisions.
Complying with a challenging set of labor rules and regulations, deducting the appropriate tax withholdings and ensuring employees are paid accurately and on time are just some of the challenges the company will face. To help better understand these laws, and to ensure employees are compensated accurately, consider the following overview of some of the most important aspects of Spain’s labor legislation:
Understanding Key Labor Laws
The first step to ensuring payroll success in Spain is to become familiar with the country’s labor laws, as established by the country’s Labor Guide. Administered by the Ministry of Employment and Social Security, the labor laws outline the key requirements regarding hiring employees. For instance, the laws dictate the minimum wage, currently €21.84 per day or €655.20 per month for 2016, as well as overtime regulations (any employee working more than nine hours per day or in excess of 40 hours per week is entitled to overtime pay). Spain’s Labor Guide also details the areas of employment contracts, collective bargaining agreements and worker’s compensation.
Employment contracts in Spain are determined by the duration of the worker’s employment. The contracts can either be permanent or temporary, based on the period of employment, or full time for those working 40 hours per week and part time for those working less than the number of hours determined in the collective agreement.
For each employee hired, the company must register the employment contract with social security authorities and the national employment service. New contracts must be registered with social security any time before the start of employment, and with the Public Employment Service within 6 days following the employee’s start of employment, and contract changes or terminations must be registered within six days.
Qualified technical personnel have a probationary period for a maximum of 6 months; for all other types of employees, it’s 2 months (however for small size companies with 25 employees or less, their probationary period can be up to 3 months). During this time, either the employer or employee can terminate employment without prior notice or reason and without the need for the employer to pay severance.
Workers in Spain are permitted to work a maximum of 80 hours of overtime per year, with exceptions for urgent or extraordinary situations, such as the need for immediate damage repair. Overtime pay is taxable and subjected to specific social security tax percentages.
Employees in Spain are entitled to a minimum of 30 calendar days of vacation per year, though this amount can be more depending on individual employment contracts or collective agreements (although some collective agreements change this 30-day period, considering weekends, bank holidays, etc., to 22 working days per year) as well as 14 national, regional and local holidays. Moreover, employees are permitted 13 days for the birth of a child, and 20 days if there are three or more children in the family. Two additional days are granted for multiple births. Additionally, employees are granted leave for a number of significant life events, including 15 days following a marriage, one day of paid leave if moving to a new home, and paid leave for various civic or union duties. In addition, employees are entitled to 16 weeks of maternity leave, as well as paid leave for prenatal examinations.
|Date||Spain's Public Holiday Schedule|
|January 1st||New Year's Day|
|January 6th||Epiphany Day|
|Friday before Easter Sunday||Good Friday|
|May 1st||Labor Day|
|August 15th||Assumption Day|
|October 12th||Hispanic Day|
|November 1st||All Saints Day|
|December 6th||Constitution Day|
|December 8th||Immaculate Conception Day|
|December 25th||Christmas Day|
Pay for Sick Leave
In addition to paid leave, another important factor is payments when employees take leave due to illness. Any sick leave compensation depends on the length of the absence. For example, employees out for three or fewer days are not eligible for sick pay, although the employer must pay 60 percent of the employee’s salary for each day of leave between 4 and 20 days. For a period of leave longer than that, or if an employee is out due to injuries that occurred on the job, Spain’s National Institute of Social Security handles the payments, and makes a payment of 75% of the employee’s salary.
The latest labor market reform of 2012 had a big impact on employers in Spain, and one of the most significant changes that came out of the reform was the way in which severance pay is handled. After February 12th 2012, employers are required to provide dismissed permanent employees with 20 days of salary for every year worked, up to a period of 12 months. However, for if it is the case of a wrongful dismissal, then it would be 33 days of salary for every year worked, up to a period of 24 months.
In the case of a contract signed before February 12th 2012, the calculation would be: 45 days of salary for every year worked, up to a period of 42 months for the total number of days until that date and 33 days of salary for every year worked, up to a period of 24 months for all the days worked after that date.
Social Security Contributions
The employer is required to make monthly contributions to Spain’s National Social Security Institute and withhold contributions from their employees’ paychecks. The amount of these social security contributions, which cover pension plans, labor accidents and illnesses, will vary according to a number of factors, such as length of employment or type of employment contract. Typically, the employer will be responsible for paying between 30.8 and 39.25 of an employee’s salary, while the employee will contribute between 6.35 and 6.4 percent of his or her salary.
Income Tax Payments
Employers in Spain must also deduct income tax from their employee’s paychecks. The amount of tax to be withheld typically ranges from 24.75 to 52 percent depending on the employee’s salary. While most employers in the country will have to submit these payments to Spain’s Tax Authority, employers in the Basque and Navarra regions will submit income taxes to local authorities. In addition, there are rules establishing when the company must submit its tax payments; those with more than €6,010,121 in tax revenue are required to pay taxes on a monthly basis, while all other employers must do so on a quarterly basis.
Employers in Spain must pay their employees on a monthly basis, or more frequently depending on the employment contract or collective bargaining agreements. In addition to the minimum of 12 monthly payments, many collective agreements require two additional payments in July and December, which are prorated and included in monthly payrolls. All payments must be made by check or direct bank deposit, and, for payments made by check, the employer must provide a payslip with the amount of payment and withholdings to be signed by the employee.
Establishing operations in a new country and ensuring your new employees receive proper compensation is never easy. However, by understanding the local regulations of Spain or any country in which you have employees is a step in the right direction. Another best practice is to work with a global payroll provider experienced with the complex regulations of Spain and beyond. Learn more about CloudPay's global payroll solution here.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.