As in the UK and most European countries, hiring employees in Spain means a significant increase in business risks and bureaucracy. In general, Spain has lower wages but more administration and non-wage costs. Risks and expenses must be understood and minimized before hiring employees to avoid unpleasant surprises and burdens that could threaten the success of the entire business. This article covers the main features of the labor law and the employment of employees in Spain and examines some ways to mitigate risks.
Labor Law – The Basics
Employees must have employment contracts from their first working day. If you are using UK expatriate employees, they must have their NIE documents and residency (for tips on how to obtain an NIE number, see below)
Minimum wages and working conditions such as disciplinary procedures and the right to leave are set by “Convenios Colectivos” in different sectors and regions, for example. The hotel and restaurants operate in Malaga Province.
There are a wide variety of contract types, but the choice is basically between offering a fixed-term contract or a permanent contract. Contracts can also be completed (full-time 40 hours) or part-time (part-time). In the latter case, wages are reduced according to the number of weekly hours indicated in the contract. There are special contracts with government tax incentives to employ unemployed or women, for example, in sectors where they are underrepresented.
The termination payment is due once the employee has served one year and can reach 3.5 years of salary (increases by 45 days per year of service, although this may be less in contract incentives).
Expect to pay about 40% of the basic salary in non-wage costs, mainly employers’ social security contributions that are very high in Spain. However, some incentive contracts reduce this cost by up to 75%.
The business owner is responsible for deducting employee social insurance contributions (about 6% of the salary) and income tax, similar to UK PAYE, from the monthly salary or “nominal”. A complete analysis of the employee’s salary and monthly deductions must be submitted, and a copy signed by the employer shall be kept.
Other employee rights: usually 23 days a year, the right to holidays in addition to national and local vacations (depends on the rest system, because employees in some sectors plan to work during holidays, but their wages are paid elsewhere). The employee can choose to divide his salary by 14 instead of 12 once a year with additional payment days in July and December. Maternity leave is four months, and another consent is provided for marriage, death, birth, and transmission. The social security system usually pays sickness benefits.
Staffing – risk
Breaking the law
As a foreigner doing business in Spain, it is essential to understand the rules and regulations governing employment and trying to stay there. Violating the law can lead to hefty fines, and the authorities are strict because they know there are widespread violations. For example, if you have a non-contract worker who assists you during an unscheduled visit by government inspectors, do not expect to be able to use an excuse even if the “assistance” is a wife.
Employee rights are undervalued.
As we have seen, the main cumbersome regulatory framework and tax laws and Covenius have the main impact of protecting and promoting employee rights. It is the employer who pays the price, perhaps not in terms of basic wages that are still lower than they are in many European countries, but in terms of unpaid costs and employee rights to redundancy compensation and other benefits. Perhaps the most significant risk to a small business is hiring employees based on nominal salary and not appreciating the additional costs associated with having a Spanish business owner, especially when offering permanent full-time contracts.
Impact on cash flow and profitability
If you fail to understand your budget and budget to pay it in time, there is a real risk of cash flow difficulties or eroding profits. Wages are paid monthly as arrears and national insurance after one month. Withheld employee income tax is paid at the end of each quarter.
Many companies in Spain avoid some labor law costs and burdens by going to the “blacks” and paying the cash on hand. This is, of course, risky because it can be discovered relatively quickly by government agencies, especially if the “employee” has no contract at all. If an employer gives a part-time commitment to employees who work full-time and then raises wages in cash, it is difficult to find out, but it still carries risks.
A smarter approach is to advise on the different contracts available and match the obligations you make to employees with how well you define future income levels. Temporary agreements or those that attract government support can be used. Another option is to have some of your “employees” work on their own, as they register independently for social security and taxes but only work for your company. For more details, see the effects of social security see: