Spain

Payroll In Spain

As you contemplate starting a business in Spain, you must also consider payroll-related directions as per the Spanish labor law. Inconsistencies during payment processing and management can land you in legal troubles.

Another challenge is calculating the payroll as you have to gather a lot of information, compute various elements and maintain invoices. Furthermore, there are regional tax deductions and employee-specific considerations that impact the payroll.

This guide will help you understand various aspects and intricacies of payroll in Spain.

How Is Payroll Calculated in Spain?

Payroll in Spain is a combination of the following:

Gross Salary

The total package you offer the employee, including the cost of the benefits

Deductions

These include the income tax and social security contributions viz. income tax and social security contributions.

Net Salary

The amount employee receives in-hand

The formula to calculate payroll is:

Net Salary = Gross Salary – Deductions

Usually, the difference between the net and gross salaries is 30%.

Important Elements of Salary Structure in Spain

Cost to Company (CTC)

Cost to Company (CTC) describes the total amount that the employer spends on the employee during the fiscal year. This includes the direct benefits (amount provided directly to the employee), indirect benefits (a yearly sum paid to the employee to cover business expenses) and saving contributions (schemes that the employer, the employee, or both have invested in).

Following are the segments of CTC:

  • Basic salary, also known as the in-hand salary that the employee receives every month
  • Allowances, to cover daily expenses like leave, travel, stays and more
  • Dearness allowance, to cover the fluctuating cost of living, as per the inflation
  • Fuel allowance, to cover the expenses on the company-provided vehicle
  • Phone allowance, to cover the employee’s phone bills up to a certain amount
  • House rent allowance, to cover the cost of the employee’s accommodation. The employee can earn tax benefits on the annual rent.
  • Leave travel allowance, to cover the cost of business travel in various transportation. This does not include dining.

To calculate the CTC you have to add all the earnings (basic salary and allowances) and subtract the deductions.

Gross Salary

The gross salary is the amount you offer the employee before deductions. Unlike the CTC, gross salary includes the holiday pay, bonus and overtime. To calculate the gross salary, you can deduct the social security contributions, superannuation benefits and gratuity from the CTC.

The gross salary includes the following elements in addition to the ones in the CTC:

  • Remuneration
  • Performance-related bonus
  • Arrears
  • Overtime pay
  • Medical, travel and leave allowance

You must note that the gross salary does not include office refreshments and reimbursements for business trip expenses.

Net Salary

This is the final amount that an employee receives after all the deductions. These deductions include:

  • Social security contributions
  • Income tax
  • Health insurance
  • Company loan
  • Donations to charity, if any

Payroll Structure 

The following elements make up a typical payroll in Spain:

Elements

Details

Company Details

  1. Name of the company
  2. Address of the registered office
  3. CIF Number (for tax purposes)
  4. Social security contribution code

Employee’s Details

  1. Full Name
  2. DNI or NIE number (Foreigner’s Identification Number)
  3. Job role
  4. Social security number
  5. Professional category
  6. Code referring to the type of employment contract

Remuneration

  1. Wage compensation (Base salary, incentives and other taxable elements)
  2. Non-wage compensation (Travel allowances, meal cards, insurance and other non-taxable elements)

Deductions

  1. Income tax
  2. Social security contributions

How to Set Up a Payroll in Spain

Setting up payroll in Spain is a time-taking process, comprising the given steps:

  1. Register your business and open a Spanish bank account. This takes nearly 12 weeks.
  2. Consult with a union representative for your industry to comply with the strict worker’s laws and rights
  3. Register the new employee with the department of social security before their first day of work. Furthermore, you must register them with Spain’s employment service within their first ten days of employment.
  4. Set up income tax processes for the employee’s payroll

Step-by-step Process of Payroll Processing in Spain

If you have an internal team in charge of payroll processing, they have to follow the given steps:

Step 1: Choose the right payroll system

An efficient payroll system is crucial to seamless payroll processing. You can choose to manage payroll internally or partner with an external agency or a PEO. You also need to establish a payroll schedule viz. monthly, bimonthly, weekly or biweekly.

Step2: Payroll policy 

A payroll policy assists your internal payroll team to remain compliant and release on-time payments. Include the following points in your payroll policy:

  • Payroll deductions, both mandatory and voluntary
  • Labor laws for paid and unpaid leaves
  • The number of pay period in a year
  • Process to request a time off
  • Definition of a work week
  • Who is eligible for overtime pay
  • The wage structure
  • Payroll management processes

Step 3:Verify your data

Employee classification, personal information and tax codes are critical during payroll processing. Any errors during this step can  lead to miscalculations related to the employee’s salary, benefits and tax savings. Therefore, double-check your data before you process the payroll.

Step 4: Calculate the total payroll costs

Determine the gross wage, benefits, deductions, National Insurance withholdings and taxes of an employee. This will help calculate how much an employee will cost you beyond their wages and spot any payroll inaccuracies every month.

The deductions to consider are:

  • Social security contributions
  • Income taxes
  • Professional taxes

Step 5: Generate and distribute payslips

The Spanish law mandates employers to release and share payslips with their employees. A typical payslip must contain the following data:

  • Gross pay
  • Net pay
  • Deductions
  • Hours/days worked during the pay period
  • Tax code
  • Pay rate

You must maintain the record of all the processed payments for bookkeeping and tax purposes. These records are valuable if an employee raises a payment dispute or the tax authority requests them for analysis.

You can share the payslips in electronic or printed format.

Payroll Contributions:

Employer contribution

Contributions

Rate

Social Security

23.6%

Unemployment

5.5%

Salary Guarantee Fund

0.2%

Vocational Training

0.6%

Employee contribution

Employees are liable for the following contributions:

Contributions

Rate

Social Security

4.7%

Unemployment

1.55%

Vocational Training

0.1%

Individual Income tax rate

Employees are deducted income tax based on their income bracket. However, the employer is directed to deduct the tax during payment and pay the tax office on behalf of the employee.

Income (in EUR)

Rate

0 – 12,450

19%

12,451 – 20,200

24%

20,201 – 35,200

30%

35,201 – 60,000

37%

60,001 – 300,000

45%

More than 300,000

47%

Payroll Cycle

You must pay your employees once every month. The payment must be released in legal tender, bank deposit, or check. Releasing late payments will lead to 10% interest annually.

The Spanish law mandates employers to give 13th and 14th month pay to their employees. A typical annual salary in Spain is divided into 14 installments, with the extra payments released in July and December.

Spain Payroll Options for Companies

Remote payroll: You can choose to operate the payroll of all your employees by adding them to your parent company’s system. However, you might overlook regulations and compliances, leading to hefty fines and legal hassles.

Internal payroll

You can develop an internal team for your Spanish subsidiary. The downside is that you have to spend significant time, energy, and money hiring and onboarding professionals.

Payroll outsourcing

These are external agencies that manage the payroll of your entire workforce and ensure timely release of payments. They also consider the various taxes applicable to each employee to ensure full compliance with the relevant labor laws.

PEO/EOR

The most reliable option is to partner with a Spain payroll processor, like Multiplier. Our digital platform helps you manage your global workforce seamlessly. We initiate timely payments, organize invoices, generate payslips and support 120+ currencies.

Entitlement and Termination Terms

Employees in Spain are guaranteed numerous benefits with employment. The following entitlements are mandatory, as per the Spanish law:

National minimum wage

The Ministry of Employment and Social Security in Spain has set a national minimum wage of EUR 1,125.83 per month.

Healthcare

Both private and public healthcare facilities are available in Spain. The latter provides free-of-cost service to social security contributors and their families.

Working hours

According to Spanish law, full-time staff (above 18 years of age) must not work more than 40 hours a week. The employees are allowed 1.5 days of rest per week with a 12-hour gap between daily shifts. Both parties can agree to flexible work hours under Collective Bargaining Agreements (CBA).

Overtime

Employees are not mandated to work overtime unless stipulated in the CBA. The employers must compensate for the overtime in monetary form or as paid time off. 

The Spanish law prohibits employees from working for more than 80 hours of overtime. However, this does not include overtime compensated for rest time or during urgent situations. Overtime at nights is considered illegal with very few exceptions.

Paid vacation

The working staff is entitled to 30 calendar days (22 working days) of paid leave per year. The leaves cannot be transformed into monetary compensation. It is meant for motivating employees to take time offs and have a balanced life. It is employers’ responsibility to set the holiday calendar, including public, regional and local holidays.

Sick pay

These leaves depend on the days of absence, with no payment for the first three days. However, the employee gets 60% of their contribution base from days 4 to 20. If the employee demands a longer absence, they receive 75% of their contribution base, later reimbursed by the Institute of Social Security.

Maternity/Paternity leaves

Maternity benefits are available for the statutory 16 weeks taken consecutively (including holidays and weekends); out of this,a minimum of six weeks a parent must take immediately after the child’s birth. The Spanish Social Security Institute is responsible for releasing full payments to the mother.

On the other hand, paternity leave is also 16 weeks. However, the allowances cannot be transferred between partners.

Termination and Severance

Individual termination of an employee is legal on the following conditions:

  • The end of the contract
  • Resignation
  • Retirement
  • Permanent illness

The employer or the employee must give 15 days’ notice in advance if they want to end the professional relationship. The notice period might be longer, as per the terms in the collective bargaining agreement. 

Employers  also have the right to objectively dismiss an employee based on incompetence, inability to deliver work, poor attendance, lack of skills, economic or organizational grounds.

The Spanish labor law states that in the event of a fair dismissal, the employer must compensate the employee for a minimum of 20 days for each year of service (a maximum of 12 months’ pay) in the following condition:

  • The employer is not respecting the terms of the employment contract
  • The employer constantly changes the working conditions without following the Spanish labor laws
  • The employee rejects a transfer to a foreign work location

In an unfair dismissal, an employee on an open-ended contract (without any ending date) is entitled to a minimum of 45 days’ pay for each year of service (a maximum of 43 month’s pay).

How Can Multiplier Help With Global Payroll?

Managing the payroll of your global team can be challenging. The amount of workload demands massive time and expertise. Furthermore, both HR and payroll teams must work cohesively to ensure a hassle-free payment release.

You can partner with Multiplier to reduce your workload and ensure legal compliance regarding payroll. Our platform helps you in onboarding employees, allotting benefits, managing their payroll, releasing payments across the globe in local currencies and much more. To know more about how Multiplier can assist you in managing the payroll of your global workforce, contact us.

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