This article will look at how Spain’s payroll system works, including the employment laws, registration of employees and paying taxes. Interesting for people that are thinking about starting a company in Spain, putting people on payroll in Spain, or learning more about payroll administration in Spain.
Spain welcomes foreign investment, especially payroll investments in Spain. National and local authorities are always looking to stimulate the Spanish economy. Next to this, because of the high unemployment rate and the cheap cost of living, being present in Spain as a foreign business is also very attractive.
Employment law in Spain
There is high regulation on employment law in Spain. The Labor Standard Act/Employment Act in Spain is strict, and the government inspects regularly. Therefore, as a business operating in Spain, it’s essential to follow proper employment laws and procedures when you hire or fire employees.
Collective bargaining agreements
Sometimes employment contracts are created with collective bargaining agreements known as the ‘Convenio Colectivo’. These compacts set standards for labour conditions such as minimum pay, maximum working hours, and paid holidays, which significantly influenced Spain’s payroll structure.
Collective Company Agreements are made at the company level or national industry levels by the trade unions and employers’ associations. These agreements are legally binding for all companies that have made these agreements.
Often, the labour unions make groups according to the professional group or profession or their corresponding contributions.
The government sets the country’s minimum wage. Employee’s salary has risen considerably in recent years, reaching €1108 per month (approximately £990, $1250) as of 2020.
Dismissed personnel have an entitlement of 20 days of compensation for each year worked, up to a maximum of 12 monthly payments. This right to severance pay also applies if an employee does not consent to a substantial change in their employment contract or a long-term relocation of their job site.
Regular working hours in Spain are from 9:00 to 17:30, and workers have entitlement to a break of at least 30 minutes during the day. Workers in Spain are permitted to work a maximum of 80 hours of overtime per year, but in certain industries and situations, there are exceptions to this rule.
Employees are entitled to off time on their national holiday. There are ten national holidays in Spain each year and other local holidays that different parts of Spain recognize. A full-time employee gets 22 days of paid vacation time each year, which equals 30 calendar days. They can take it all at once or split it up however they choose by Spain’s labour laws, but at least one vacation period must be two weeks long.
Maternity leave and Paternity leave
Men and women have entitlement to paid leave of 16 weeks when there is a newborn. For twins, the term rises to 18 weeks; it is 20 weeks for triples. There is also an additional two-week period for children with disabilities.
Sick leave in Spain
Standard sick leave in Spain: 1-3 days (3 days) without pay unless the employer agrees to cover, 4-20 days at 60% of the employee contributions base paid by the employer, 21 days or more at 75% paid by Social Security.
Sick leave effective March 11, 2020, the Spanish government has approved an urgent Royal Decree that deems these leaves to be incurred by the state from the first day of absence (75% of the base) so employers will not have to cover them at their expense or not entirely.
Taxation and Spanish Payroll
Taxation rates may vary significantly across regions. In this regard, payroll departments must understand applicable regulations. If you are a foreign company, you should get familiar with the primary taxes in Spain which include: income tax, social security contributions, VAT, and corporate tax.
Taxes in Spain differ across the 17 different regions. Making sure your company’s payroll and HR remains compliant can be a daunting process for local and foreign companies.
Payroll and social security contributions
Tax laws in Spain require employers to withhold tax and social security contributions from employee wages.
Businesses must register every employee’s contract with the social security authorities and the national employment service. They must register workers with the Public Employment Service within ten days after the employee’s commencement date.
The precise taxes primarily depend on taxable monthly payments, and both Spanish employees and employers are required to pay social security contributions. Employers and employees split the tax burden of social security contributions. The employee contribution rate is 6,35 to 6,40 per cent of gross salary, whereas the employer payments are about 31 to 33 per cent of this amount. The funds are channelled into the public insurance system and used for various reasons, including illness, accident, maternity, retirement, and unemployment.
Employee income tax
Employee income tax is progressive in Spain, with rates ranging from 19% to 45%. How much income tax the employee needs to pay depends on yearly earnings and the autonomous region where the taxpayer resides. For instance, the employee income tax rate for people residing in Andalucia is lower than in Madrid.
The following are the current employment income withholding tax brackets:
- 19%: €0 – €12,450
- 24%: €12,450 – €20,200
- 30%: €20,200 – €35,200
- 37%: €35,200 – €60,000
- 45%: over €60,000
Employers are responsible for collecting and withholding income tax on behalf of their workers. They must make the payments for the withheld amounts to the treasury by the 20th. Income tax applies to all types of incomes paid in salary, real property, cash on hand, and financial assets. Employers must also complete Form 111, which is titled ‘IRPF Withholdings at Source,’ and submit it to the Ministry of Finance.
Income tax declaration by employees
As previously discussed, when you have employees in Spain, you have a legal obligation to withhold taxable income payable to their employees. The necessary withholdings estimate the final tax due based on the previous final declaration. Companies must pay tax authorities on a monthly or quarterly basis.
Employees must finalise their income declaration in the period after the end of the year and have to pay or receive the difference. The deadline to file your tax return for the previous year is the 30th of June of the next year.
In the case of hiring non-residents in Spain, there will be a flat tax rate on income earned. When an employee is not 183 per year in Spain, he is considered a non-resident and will pay a different income tax.
In general, the withholding rate for non-residents is set at 24 percent. However, if you are from the EU or EAA, the withholding tax that applies is 19 per cent.
Registering your business for payroll
There are two ways to register your employees for payroll. You can form a Spanish company and join the Social Security system to administer payroll for workers or register your already foreign company with the social security office. If you would like help with your payroll and registering your business, you can contact us for payroll services.
When you are a foreigner and want to register employees on a company in Spain. The basic steps to get there are:
1. Get yourself an individual Tax ID number
As a foreigner, you will need a NIE number this number. This number is necessary to open bank accounts, work, and start companies in Spain.
2. Get a Fiscal identification number for the company
Your company will need a NIF number. This functions as the VAT number for the company.
3. Register the company on the local Chamber of Commerce (Registro Mercantil)
When forming the company you will need to sign deeds of incorporation, and bylaws at a notary.
4. Register the company for corporate and income tax
The next step is to register the company with the tax office. With this, you will be obligated to pay the required taxes for your business activities.
5. Obtain authorisation to hire employees
Authorisation by the government to hire employees is needed. Your company needs to pass the requirements to have employees, and therefore the government will do a check.
6. Register employees with the social security office
After you have passed the check, you will be able to fill out a form online to register employees with the Social Security office, and put them on the payroll in Spain.
Payroll Services in Spain
At SpainDesk, we will help you navigate the taxes in Spain. Our qualified team closely engages with clients to ensure compliance and deliver pay accurately and on time. We manage all aspects of payroll, including benefits, withholdings, and social security payments. Our payroll outsourcing services are ideal to ensure full employment and payroll compliance.
Payroll services we offer are:
- Spanish Employment Contracts
- Handling of salary payment
- Payroll Processing
- Handling of social security contribution
- Tax declarations and administration
- Tax and Labour Law
As a business owner or manager, you want to hire a payroll provider with in-depth insight into payroll laws and regulations, including complex payroll tax issues. With us, we will give you this. We know how the Spanish labour law works, and our services are especially essential for companies working in multiple jurisdictions.
Prioritize your core business
Payroll doesn’t have to be a core function of your business in Spain. In this regard, we help business owners devote more time and resources to focus on revenue-generating activities. SpainDesk effectively takes control of your payroll processing, and thus you can focus more on your core business, especially customer service, sales, and marketing.
Complying with laws and regulations isn’t an option for businesses, especially when foreign governments are involved. As a business owner or manager, you want to avoid running afoul of the law since it can be very costly regardless of the size of your business. At SpainDesk, we ensure your company is continually on top of all relevant labour, tax, immigration, and business laws.
It’s worth mentioning that legal and compliance requirements about payroll can be very complex and daunting, especially when operating internationally. By outsourcing payroll to SpainDesk, you assure that payroll tasks are handled effectively by a qualified team knowledgeable about local, regional, and national laws and regulations.
SpainDesk takes pride in helping businesses in Spain avoid penalties and unnecessary audits triggered by non-compliance. We are continually keeping up with changing payroll laws in Spain.
Stay compliant when it comes to payroll and human resource-related services in Spain. We will ensure your Spanish expansion is seamless and hassle-free if you are a foreign entity. Contact us to learn more about our services or get bespoke quotations for your business. SpainDesk offers competitive prices, so you don’t have to break the bank!
Frequently asked questions
Below you can find some frequently asked questions around payroll in Spain.
How is the management of payroll tax in Spain?
When working in Spain, the payroll tax splits between the employer and the employee. However, the employer holds a certain percentage for these taxes on the salary of its employees. The payroll tax works on a progressive rate (depending on your income level).
What is the payroll tax in Spain?
As with most countries, the Spanish payroll tax comprises several elements that pay for workers and government benefits. There’s a standard deduction on your annual salary form, and others deductions for pension insurance and health insurance, amongst other things.
When is the payment of salaries in Spain?
In general, salary payments are every month. However, it can also be weekly or biweekly, depending on the employment contract. It is best to state the payment date on the employment contract.
How do I employ international people someone in Spain?
First, they need to get a NIE number. After this, you need to fill out a registration form with the Labor Office. The third step is registering the employees with the Social Security system. It’s vital for companies hiring foreign nationals to know how to deal with payroll tax in Spain. If you would like us to help you. Contact us and we will send you a quote.
Do I need to register my company in Spain to have employees in Spain?
No, you can also hire employees in Spain by registering your foreign business with the social security office. We can assist you with this.
What is the CCC number in Spain?
The code is a numerical combination of eleven digits that is assigned to each business in order to make social security payments. The General Social Security Treasury (TGSS) uses this code to identify employers.
What is the NIE number?
The NIE number is the Spanish Tax Identification Number for foreigners. If you’re planning to start a business in Spain, you need it.
Do you have to declare taxes at the end of the year as an employee?
Yes, the name is of the annual declaration of income for employees ‘Declaración de Renta’.
Can I put someone on the payroll in Spain without registering them as an employee?
No, however, if the person you want to recruit in Spain starts working as a self-employed (Autonomo). You can hire them without the need for social security contributions, payroll tax withholding, and contracts. However, they will have to pay social security contributions themselves, and other Autonomo Taxes.
Do I need a NIF if I want to hire employees in Spain?
If your company has economic activities in Spain, you need a NIF number to declare taxes. The NIF number (Número de Identificação Fiscal) for limited companies functions is the VAT Number in Spain. The document provides identification to tax authorities. The number consists of a letter and eight digits. Previously the NIF number was called the CIF number.
What is the SEPE?
The SEPE is the Spanish National Public Employment Service. It is a policy package that includes structures, measures, and actions to advance employment in the entire state.
When a work accident has happened do I need to report it?
Yes, when you have someone on the payroll in Spain and a work injury happen, you must complete paperwork regarding the work injury through an online process known as the Sistema Delt@.
How do I communicate social security documents to the General Treasury of Social Security in Spain?
The RED Direct transmission mode handles the communication. Through this system, companies are required to fulfil their Social Security obligations.
A word from SpainDesk
Payroll in Spain is a tough field without the aid of an expert. It is recommended for foreign businesses with someone on the payroll in Spain to seek professional advice. We help foreign businesses based in Spain to solve their payroll challenges. We offer a complete service from company formation and tax declarations to recruitment. If you are looking for information about payroll in Spain or payroll services then contact us today to find out how we can help.
Disclaimer: Information on this page may be incomplete or outdated. Under no circumstances should the information listed be considered professional legal advice. We highly recommend seeking guidance from a legal expert if you lack extensive knowledge or experience dealing with any of the procedures outlined in these articles.