.png)
Spain, a country on the Iberian Peninsula, is one of the most alluring locations for business travelers. An economy that is both highly developed and expanding quickly makes it possible for international firms to obtain highly qualified workers at reasonable labor prices. Spain's official currency is the Euro (€) and it is a member of numerous global organizations, including the United Nations, the European Union, the Council of Europe, and NATO, as well as a de facto member of the G20 summits.
HR and payroll management must comprehend the peculiarities of payroll in Spain to understand the employment costs to build a successful staff there. Collective agreements are formed between worker representatives and employers, and they can significantly affect how Spain's payroll is organized.
Throughout this article, we provide essential information about payroll processing in Spain for international organizations to navigate the country's complicated labor & payroll laws, including social security and income tax laws, as well as statutory payroll reports. Additionally, payroll laws are continuously being revised, which has brought about some payroll processing challenges to determine employment costs. Let's get started.
Payroll Processing in Spain: Steps Involved
When you hire people in Spain, you must manage the Spanish payroll processing to understand the employment costs clearly. Every step in this procedure involves:
- Data Collection - Gathering data from your employee or contractor, such as a copy of their passport and NIE certificate.
- Calculate Gross Pay: Using the hours worked and the pay rate, you may determine your employee's monthly gross pay.
- Calculate Net Pay: The amount your employee earned after payroll taxes, perks, and social security contributions is calculated as net pay.
- Payroll processing: Paying your employees requires that you also give a payslip and maintain payroll records.
- Transferring deductions: Employers are liable for paying employees' taxes, insurance, and social security contributions to the appropriate authorities.
How is Payroll Calculated in Spain?
The payroll cycle runs monthly in Spain and is usually paid on the last day of the month. To calculate the employee’s monthly salary, the payroll tax deductions for social security and the payment of personal income tax on account are done from the gross salary (all remunerations, whether salary or not, that justify the payment of your day-to-day work with the company).
The net salary is the amount an employee receives at the end of the month as a result of this calculation. To put it another way:
Net Salary = Gross Salary (plus non-wage compensation) -Payroll Tax Deductions (contributions to social security and IRPF deduction)
Payroll Cycle & Working Hours in Spain
Working hours in Spain vary greatly depending on the type of employment and the collective agreements in place for the respective industry. The Payroll cycle runs monthly in Spain and is paid at the end of the month. The following rules, however, apply to all employees:
- According to the payroll laws of Spain, there is a limit of 40 working hours per week in Spain. Many businesses operate on schedules of 37 or 38 hours per week. Mon-Fri is the typical workweek.
- An employee cannot work more than 9 hours in a single day. The common standard, however, is eight hours.
- A minimum of 36 hours of uninterrupted rest per week is required.
Employees in Spain are accustomed to taking a two-hour lunch break, which is usually scheduled between 2 and 4 p.m.
Payroll Taxes in Spain
The complexity of Spain's payroll tax structure may make it difficult for foreign businesses operating there. Individual income tax (IIT) for employees in Spain, social security expenditures, VAT, withholding tax, and permanent establishment concerns are the main issues for a foreign company that must abide by Spanish payroll tax rules. The two primary contributions to calculate the employee payroll taxes in Spain & are deducted each month from employee salary are as follows:
Social Security Contribution to Spanish Payroll Taxes
Employers in Spain are required by law to deduct tax and social security contributions from employee wages.
Every employee's contract must be registered with the social security authorities and the national employment service. They are required to register employees with the Public Employment Service within 10 days of the employee's start date.
The Social Security Act of 1994 in Spain provides the legal framework for the social protection system. Accidents and injuries, illness and disease, disability, medical care, parental leave, unemployment, and retirement pensions are all covered by the social security system of national insurance contributions. All Spanish residents who contribute to the country's social security system are eligible to receive its benefits. Both Spanish employees and employers are required to contribute to social security.
Employee contributions range from 6.35 to 6.40 percent of gross salary, with employer contributions ranging from 30 to 33 percent of this amount. The funds are routed through the public insurance system and used for a variety of purposes such as illness, accident, maternity, retirement, and unemployment.
Employer and Employee Contribution to Payroll Taxes in Spain (for 2022):
Also, employers may be required to contribute between 1.5% and 7.15% to employee protection and employment accident insurance, depending on the company's activity.
To be eligible for unemployment benefits in Spain, the employee must have paid into Social Security for at least one year (360 days). This contributory period entitles them to benefits for 120 days (4 months).
FOGASA (Fondo de Garantia Salarial), or Salary Guarantee Fund, is an independent organization in Spain that handles the payment of debts owed by employers to employees when the employers are unable to do so due to declared insolvency or the company is in the process of bankruptcy. Wages, bonuses, and fringe benefits, as well as financial employee participation, are covered up to one year before insolvency. In terms of unpaid wages, the fund pays an amount equal to double the daily National Minimum Wage for each unpaid working day.
Education and employment administrations are primarily in charge of Vocational Education and Training (VET). To ensure that workers, employees, and unemployed workers, especially the most vulnerable, can exercise their right to training in consideration of individual needs and needs of the productive system, both employer and employee contribute to the Vocational Training Fund.
Employee Income Tax in Spain
Employee income tax in the Spanish payroll taxes is dynamic, with rates ranging from 19% to 45%. The amount of income tax that an employee must pay is determined by his or her yearly earnings and the autonomous region in which the taxpayer resides.
Individuals are considered residents for tax purposes in Spain if they spend at least 183 days in the country during the fiscal year. Individuals who are Spanish residents must pay Spanish income tax on all employment earnings, regardless of whether they are earned in Spain.
In Spain, the fiscal year corresponds to the calendar year, from January 1st to December 31st. Taxes must be filed with the ‘Agencia Tributaria’ (Spanish Tax Administration Agency) and paid no later than June 30th of the following year.
Employees in Spain are subject to the following Income Tax Contribution rates on general income (as of 2022):
Foreign employees who are not residents of an EU member country or a European Economic Area country are taxed at a rate of 24% on annual income of up to €600,000, while annual income of more than €600,000 is taxed at a rate of 47%.
Employee Benefits in Spain
Certain payroll laws in Spain define the employee benefits which an employer has to provide and adhere to for accurate and legal calculation of employment costs. These benefits are:
- Minimum Wage
Payroll in Spain should be done at least monthly, but it is often done more frequently if defined as such by collective bargaining. As per Spanish payroll laws, the minimum wage is currently set at €1125 per month as of the beginning of 2022, but due to recent increases, expect further increases soon. - Annual Leaves
Employees in Spain get 30 calendar days (22 business days) of paid annual leave. In addition, employees in Spain enjoy 14 public holidays per year – eight are national and the six remaining ones differ from region to region. - Sick Leaves
Payroll laws of Spain state that in the event of an illness or personal accident, the employee is entitled to temporary disability benefits for sick pay, with at least 60% of their regular salary paid.Employees in Spain are entitled to the following benefits in the event of a common disease or non-work-related injury:
- 0% for 1-3 days (3 days). (There is no obligation to pay unless the employer agrees to do so or it is stated in the CBA.)
- 4 - 15 days (12 days) = 60% (60% of the employer's base employee contributions paid.)
- 16 -20 days (5 days) = 60% Social Security payment (60% of the employee contribution base paid by social security, even if the payment is made on behalf of social security by the employer.)
- 21 days + = 75% paid by Social Security (75% of the employee contribution base paid by Social Security, even if the payment is made on behalf of Social Security by the employer.)
- Maternity & Paternity Leaves
Maternity leave is 16 weeks, with a six-week minimum after birth. In the event of multiple births, maternity leave is extended by two weeks per child. During this time, the employee receives social security maternity benefits. Paternity leave was extended to 16 weeks beginning in 2021, during which the father will be paid by the state. - Parental Leave of Absence
Employees are entitled to parental leave until their child reaches the age of three. Breastfeeding mothers who choose to continue working are generally entitled to one hour of time off per day. Employees can take unpaid adoption leave if they are adopted. The maximum period is 16 weeks, which can be shared by both legal guardians. - Other Leaves
Newlyweds are entitled to 15 days of marriage leave. In the event of a family member's serious illness or death, an employee may take two additional days off - four if they must travel to fulfill their family duties. When an employee relocates, an additional day of leave may be granted. - Pay for severance
Dismissed employees are entitled to 20 days of pay for each year worked, up to a maximum of 12 monthly payments. This severance pay right also applies if an employee refuses to consent to a significant change in their employment contract or a long-term relocation of their job site. - Overtime Pay
Employees in Spain are only expected to work 40 hours per week on average, according to labor laws. As per Spanish payroll laws, overtime is permissible as long as it does not exceed 80 hours per year. In exchange, employees are entitled to at least 50% more pay than their regular rate, or compensatory paid time off at the same increased rate. To ensure fair compensation, both the employer and the employee must keep a record of overtime worked. - 13th Salary
In Spain, 13th and 14th-month salary payments are required according to the payroll laws. The annual salary is typically divided into 14 installments to account for the double salary payment made by the employer in July and December; this is specified in the employee's employment contract and collective agreements.
