What global businesses need to know about payroll in Spain

Why do business in Spain? Because it has the winning combination of Latin passion, recent modernization, and strong trade links (and the weather certainly helps, too!).

With links to Europe through its membership of the European Union, and to Latin America through historical and linguistic connections, Spain represents an excellent opportunity for multinational businesses to expand. Home to around 47 million residents, it’s the fourth-largest EU state by population and has modernized rapidly since its transition to democracy in the late 1970s.

The Spanish economy suffered greatly from the global financial crisis of 2008 and 2009, and several years passed before it began to recover. Thankfully, despite a substantial reliance on tourism (which employs around two million people in Spain and accounts for around 5% of GDP), the country has bounced back well from the difficulties of the pandemic. Indeed, its overall GDP is around double what it was when it adopted the euro in 2002.

Spain benefits from an ideal combination of benefits for international businesses: a strong and highly qualified workforce, and relatively low labor costs for a large European country. Spain’s average hourly labor rate is around 20% lower than Italy’s and more than a third lower than France’s.

The Spanish government offers various incentives for developing businesses and foreign investment. However, incoming businesses must navigate a complicated minefield of labor and tax laws, many of which are revised often. Exploring the following important aspects of Spanish payroll and working regulations will help you gain an understanding of how you can succeed in doing business in Spain:

Getting Started

There are two types of company that can be set up: a Sociedad Anónima (S.A.), meaning a corporation, or a Sociedad Limitada (S.L.), meaning a limited liability company. 

The first steps to ensuring payroll success in Spain are to become familiar with the country’s labor laws, and how to register a company with the national trade registry, the Registro Mercantil Central (RMC). The requirement to register applies to all businesses operating in Spain, including branch offices of foreign companies.

You’ll need to obtain a tax identification number (NIE), a tax code, and a certificate confirming the unique name of your business. You will also need to open a Spanish bank account to do business in Spain, and to deposit the initial capital, which is normally €3000 (approx. £2700; $3200). With all of this information, you’ll be able to apply for the deed of incorporation. The fees involved in registration vary depending on the value of the company’s capital stock, and the process normally takes between six and eight weeks.

It is also compulsory to obtain a contribution account code (CCC) in order to be able to hire workers and process their payroll.

Employment Considerations

Many regulations around pay and working conditions in Spain are defined by collective bargaining agreements. These are not only agreed between worker unions and individual businesses but are often also applied to specific sectors in certain geographical areas. For example, a sectoral collective bargaining agreement exists in the Malaga area for the hospitality industry, principally to cover workers in the hotels, bars and restaurants on the Costa del Sol.

Spain’s standard working week is 40 hours, with no more than nine hours permitted per day, and no more than 80 hours of overtime permitted per year. However, these levels can be altered if a collective bargaining agreement is in place. 

A gap of at least 12 hours must separate the end of one working day and the start of the next, and this is now being rigorously enforced. In May 2019, a new law came into force in Spain obliging businesses to record the daily working hours of all their employees, and to retain these records for four years.

Companies must register each employee’s 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 ten days following the employee’s start of employment. Probationary periods last two months, except for businesses with fewer than 25 employees (up to three months) and qualified technical personnel (up to six months). Notice periods are normally 15 days, and payment can be given in lieu if an employer chooses to do so.

Compensation, Bonuses and Severance

The national minimum wage in Spain has been raised regularly in recent times, as the Spanish authorities have worked to help the population through the aftershocks of the pandemic and the cost of living crisis. As of early 2023, the rate is €1260 per month (approx. £1100, $1350), and it is likely that this will increase again in the months and years ahead. 

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 14 monthly payments, many collective agreements can require other additional extra payments. All payments must be made by check or direct bank deposit, and, the employer must provide a payslip with the amount of payment and withholdings to be signed by the employee.

It’s also commonplace for employers to pay discretionary bonuses to employees as a reward for good performance, or to arrange a guaranteed bonus structure defined in employment contracts, as long as the awarding of bonuses is not discriminatory.

If employees are dismissed, they are entitled to 20 days’ salary for each year worked, up to a maximum of one year’s salary. This entitlement to severance pay also applies if an employee does not consent to have his/her employment contract significantly altered, or if he/she doesn’t consent to a long-term change of job location.

Tax and Social Security

Employers in Spain must deduct income tax from their employees’ paychecks. The tax is divided into two equal halves: state tax and regional tax, but rates can vary slightly between Spain’s different states and autonomous regions.

Rates progressively increase as salaries increase, starting at 19% for the first €12,450 a year (approx. £11,000; $13,300) and reaching 45% for all earnings above €60,000 (approx. £53,000; $64,000). A further rate of 47% applies to all earnings over €300,000 a year (approx. £265,000; $320,000). Overtime pay is taxable and is also subjected to specific social security tax percentages. Non-residents are generally taxed at 24%, but a lower rate of 19% applies to non-residents from a number of countries in the European Economic Area (EEA).

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 to pay in tax revenue are required to pay taxes on a monthly basis, while all other employers must do so on a quarterly basis.

Employers are also required to make monthly contributions to Spain’s National Social Security Institute and withhold contributions from their employees’ paychecks. These contributions apply as follows:

• Social security: 23.6% employer, 4.7% employee
• Mecanismo Equidad Intergeneracional (MEI): 0.5% employer, 0.1% employee
• Unemployment: 5.5% employer, 1.55% employee
• Salary Guarantee Fund: 0.2% employer
• Professional training: 0.6% employer, 0.1% employee
  

Holidays and Leave

Spain has nine days of paid public holidays each year that are observed throughout the country. However, there is also a wide selection of extra holidays observed by different states and autonomous communities. Statutory paid leave is a minimum of 22 business days (30 calendar days) of vacation per year, but as with most employment arrangements, this can be increased in individual contracts or through collective bargaining agreements.

In the case of sick leave, employees should receive at least 60% of their salary from the fourth day of absence onwards. Employers pick up these payments until the end of day 15, after which social security payments cover it instead. After more than 20 days, the social security contribution goes up to 75%. As with many areas, these arrangements can be varied through collective bargaining.

Maternity and paternity benefits were unified into a single benefit called Birth and Child Care in 2016. This applies to both parents, with both entitled to 16 weeks of paid leave.

Spain also allows paid leave for a variety of other major life events. These include 15 days for a marriage, one day for moving house, unlimited time for civic or jury duties, and even one hour per working day to care for breastfeeding babies.

Spanish Public Holidays

• New Year’s Day
• Epiphany (6 January)
• Good Friday
• Labor Day (1 May)
• Assumption of Mary (a Monday in mid-August)
• National Fiesta (12 October)
• All Saints’ Day (1 November)
• Constitution Day (6 December)
• Immaculate Conception (8 December)
• Christmas Day
  

In Summary

Spain is a popular destination for international businesses, and with good reason. But it’s also a complicated country to do business in from a payroll perspective, especially because of the heavy influence of collective bargaining in a number of industries, and the variations between different parts of Spain. The expertise and support of a global payroll provider can therefore be vital in ensuring your payroll is efficient and compliant, whatever your plans for Spanish expansion.

This guide 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. Click here to see more country payroll guides from CloudPay.