Payroll & Taxes in Spain: A Guide for Global Employers

Spain, a vibrant player in the global economy, is renowned not only for its rich cultural heritage but also for its robust economic presence. As one of Europe’s largest economies, Spain attracts businesses from around the world with its strategic location, skilled workforce, and dynamic market environment. However, navigating the landscape of payroll and taxes in Spain can be complex for international companies and local businesses alike.

In this blog, we’ll delve into the intricacies of payroll and taxes in Spain, exploring how to efficiently manage employee compensation, comply with local regulations, and leverage Spain’s economic opportunities while ensuring adherence to its fiscal requirements. Whether you’re a multinational corporation or a local entrepreneur, understanding these aspects is crucial for thriving in Spain’s competitive economic landscape.

Contents

• What are the Payroll Taxes & Contributions in Spain?
• Social Security in Spain
  • Unemployment Insurance 
  • Wage Guarantee Fund 
  • Professional Training Fund 
  • Working Accidents Insurance Fee 
  • Employee Income Taxes 
• Other Crucial Payroll Taxes in Spain 
• Payroll Setup Process in Spain
• Options of Payroll for Employers in Spain 
• How to Run Payroll in Spain Without Establishing Local Entities?
• Frequently Asked Questions (FAQs)- Payroll & Taxes in Spain

   

  What are the Payroll Taxes & Contributions in Spain?

  Understanding payroll and tax contributions in Spain is crucial for both employers and employees, as these obligations play a key role in the country’s social security and tax systems. Payroll contributions include various mandatory deductions and employer obligations that fund social security benefits, unemployment insurance, and professional training.

  In Spain, payroll and tax contributions include mandatory deductions for both employers and employees. Employers must contribute around 23.60% of an employee’s gross salary to social security for general contingencies, 5.50% for unemployment insurance, 0.70% for professional training, and 0.20% for the Wage Guarantee Fund.

  Employees contribute approximately 6.35% of their gross salary to general social security, 1.55% for unemployment insurance, and 0.10% for professional training. Additionally, employees pay progressive income tax (IRPF) ranging from 19% to 47% depending on their income level. Regional variations may affect some of these rates and contributions.

  

   

  Social Security in Spain

  In Spain, social security consists of state-supported health insurance program and pension for employees. Further, it offers financial support to employees in times of absence owing to illness, parental leave and non-occupational mishaps.

  Distinct social security contributions in Spain include unemployment fund, wage guarantee fund, professional training fun and working accidents insurance. As a standard, the social security contribution rate in Spain is 24.1% for employers and 4.8% for employees.

  Let’s gain detailed insights into each payroll taxes and contributions applicable in Spain.

  1. Unemployment Insurance

  In Spain, unemployment insurance is a crucial part of the social security system and is handled through payroll taxes and deductions:

  For Employers:

  • Unemployment Insurance Contribution: Employers contribute approximately 5.50% of the employee’s gross salary to unemployment insurance. This contribution helps fund benefits for employees who become unemployed.

  For Employees:

  • Unemployment Insurance Deduction: Employees contribute around 1.55% of their gross salary. This deduction is used to provide financial support in cases of job loss.

  These contributions are mandatory and ensure that employees are supported with unemployment benefits in times of job loss, maintaining a safety net within Spain’s social security framework.

  2. Wage Guarantee Fund (FOGASA)

  In Spain, the Wage Guarantee Fund (FOGASA) is an important component of the payroll tax and social security system, designed to protect employees in case of employer insolvency.

  FOGASA provides financial support to employees for unpaid wages, severance pay, and other compensation that may be due when an employer cannot meet its financial obligations. This fund is crucial for protecting workers’ rights and providing a safety net in cases of economic failure or insolvency of the employer. Employers are required to contribute 0.20% of the employee’s gross salary to FOGASA.

  The fund covers:

  • Outstanding Salaries: Unpaid wages for up to 30 days.
  • Severance Payments: Compensation due for dismissals and redundancies.
  • Other Due Payments: Additional amounts as legally required under the employment contract and Spanish labor laws.

  FOGASA contributions are part of the overall payroll costs for employers and are deducted from employees’ gross salaries, ensuring that the workforce is safeguarded against the risks of employer insolvency.

  3. Professional Training Fund

  The Professional Training Fund in Spain is a component of the payroll taxes and deductions system designed to support employee development and training. The total tax rate is 0.7% with employers contributing 0.6% and employees contributing 0.1%.

   

  The fund is used to support various training activities and professional development programs for employees. It is intended to enhance workforce skills, increase productivity, and help employees adapt to changing job requirements and technological advancements.

  The fund supports:

  • Training Programs: Funding for vocational training and professional development courses.
  • Skill Development: Initiatives that enhance employees’ existing skills and help them acquire new ones.

  This contribution is part of the broader social security and payroll tax obligations that employers in Spain must meet, ensuring that employees have access to ongoing training and professional growth opportunities.

  4. Working Accidents Insurance Fee

  In Spain, working accidents insurance is an essential part of the payroll tax and deduction system, aimed at providing coverage for employees in the event of work-related injuries or occupational diseases.

  Contribution rates for employers vary depending on the nature of job. The rates increase with the higher probability of incidence of risks involved in a particular job. The rate typically ranges from 1% to 7% of the employee’s gross salary. Higher-risk industries, such as construction, may face higher rates compared to lower-risk sectors.

  The insurance covers:

  • Medical Expenses: Costs related to treatment and rehabilitation.
  • Disability Benefits: Financial support for temporary or permanent disability resulting from work-related incidents.
  • Compensation: In case of death, compensation is provided to the employee’s beneficiaries.

  Employees do not directly contribute to the working accidents insurance. The entire cost is borne by the employer.

  5. Employee Income Taxes

  In Spain, employee income taxes are governed by a progressive tax system that varies based on income levels and personal circumstances. Both state and regional taxes constitute the total employee income tax here.

  Income taxes in Spain are clearly bifurcated into two categories-

  • Personal Income Tax (PIT) for residents
  • Non-residents’ Income Tax (NRIT) for non-residents drawing income in-country

  Do note that, while regional tax rates vary between jurisdictions, these are often identical to the state tax rate.

  Here’s a broad overview of the income tax rates applicable for PIT and NRIT:

  PIT

  Taxable Income Rage €	State Rate	Regional Rate	Total Income Tax Rate
  0 to 12,450	9.5%	9.5%	19%
  12,451 to 20,199	12%	12%	24%
  20,200 to 35,199	15%	15%	30%
  35,200 to 59,999	18.5%	18.5%	37%
  60,000 to 299,999	22.5%	22.5%	45%
  300,000+	23.5%	23.5%	47%

  Do note that the final income tax rate may vary depending upon the regional rate variations. 

  NRIT

  As a standard, an income tax rate of 24% is applicable to all non-resident employee income (with certain exceptions).

   

   

• Other Crucial Payroll Taxes in Spain 

  In Spain, the 13th and 14th month payments, commonly referred to as “extra payments” or “extraordinary payments,” are an integral part of the compensation structure for many employees.

  13th Month Pay: Typically, employees receive an additional salary payment at the end of the year, usually in December. This is often referred to as the “Christmas bonus” and is meant to provide additional financial support during the holiday season.

  14th Month Pay: Some companies also provide a second extra payment, often referred to as the “summer bonus” or “July bonus.” This payment is usually made in July and is intended to help cover vacation expenses.

  Amount

  Each extra payment is generally equivalent to one month’s gross salary. For example, if an employee’s monthly salary is €2,000, the 13th and 14th month payments would each be €2,000.

  The provision of 13th and 14th month payments is not legally mandated but is a common practice in Spain. These payments are often stipulated in employment contracts, collective bargaining agreements, or company policies. While the extra payments are widely practiced, the specific terms can vary based on individual employment contracts or collective bargaining agreements. Some sectors or companies may offer these bonuses as part of their standard compensation package, while others may not.

  How is Payroll Tax Calculated in Spain?

  Calculating payroll tax in Spain involves determining both the social security contributions and the income tax (IRPF) to be deducted from an employee’s gross salary. Here is a step-by-step guide:

  1. Determine Gross Salary

     Start with the total gross salary of the employee, including base salary, bonuses, and any other compensations.

  2. Calculate Social Security Contributions
     

     For Employers:
     
     General Contingencies: Multiply the gross salary by 23.60%.
     Unemployment Insurance: Multiply the gross salary by 5.50%.
     Professional Training: Multiply the gross salary by 0.70%.
     Wage Guarantee Fund (FOGASA): Multiply the gross salary by 0.20%.
     Injury and Illness Contributions: Multiply the gross salary by the industry-specific rate (1% to 7%).
     
     For Employees:
     
     General Contingencies: Multiply the gross salary by 6.35%.
     Unemployment Insurance: Multiply the gross salary by 1.55%.
     Professional Training: Multiply the gross salary by 0.10%.

  3. Deduct Social Security Contributions from Gross Salary

     Employee’s Total Social Security Contributions: General Contingencies + Unemployment Insurance + Professional Training

  4. Calculate Taxable Income

     Taxable Income: Subtract the total employee’s social security contributions from the gross salary.

  5. Apply Income Tax Rates
     

     Determine Deductions and Allowances
     Apply any personal allowances, family deductions, or other applicable deductions to the taxable income.
     
     Calculate Income Tax
     Apply the applicable rates to different segments of taxable income according to the progressive brackets to determine the total income tax due.

  6. Deduct Income Tax from Taxable Income

     Withholding Tax Amount: Subtract the calculated income tax from the taxable income.

  7. Calculate Net Salary

     Net Salary: Subtract both the employee’s social security contributions and the income tax withholding from the gross salary.

  Key Aspects of Payroll in Spain

  Let’s unfurl various crucial aspects of Spanish payroll:

  Payroll Cycle

  • Frequency: Payroll is typically processed on a monthly basis. Salaries are paid at the end of each month or on a predetermined date as per company policy.

  Minimum Wage

  • Monthly Gross Minimum Wage (SMI): As of 2024, the gross minimum wage in Spain is approximately €1,260 per month, which may vary based on industry and regional agreements.

  Overtime

  • Regulation: Overtime is usually compensated at a higher rate than regular hours, often 50% more for regular overtime and 100% more for overtime performed on rest days or public holidays.
  • Limits: There are legal limits on the amount of overtime an employee can work, typically not exceeding 80 hours per year.

  Termination

  • Notice Period: Employees usually need to give a notice period of 15 days before resigning, unless otherwise specified in their contract.
  • Termination Reasons: Termination can be due to various reasons, including redundancy, disciplinary actions, or mutual agreement. The procedure must comply with labor laws and may require justification.

  Severance

  • Entitlement: Severance pay is generally required in cases of dismissal without cause or redundancy. The typical amount is 33 days’ salary per year of service, capped at 24 months’ salary.
  • Calculation: Severance is calculated based on the employee’s gross salary and length of service.

  Annual Leave

  • Entitlement: Employees are entitled to a minimum of 30 calendar days of paid annual leave per year.
  • Accrual: Leave is accrued based on the employee’s length of service, typically calculated pro-rata for employees joining partway through the year.

  Holidays

  • Public Holidays: Spain has several public holidays each year, which may vary by region. Employees are generally entitled to time off on these days.
  • Holiday Pay: Some collective agreements or employment contracts provide additional compensation for working on public holidays.

  Payroll Setup Process in Spain

  Setting up payroll in Spain involves several key steps:

  1. Register Your Business: Obtain a Company Tax Identification Number (CIF/NIF) and register with the Spanish Social Security system.
  2. Draft Employment Contracts: Create contracts outlining salary, benefits, and job terms, ensuring compliance with Spanish labor laws.
  3. Set Up Payroll System: Choose payroll software or service that complies with Spanish regulations and can handle salary calculations, deductions, and tax withholdings.
  4. Calculate Gross Salary and Deductions: Determine gross salary, then calculate employee contributions (social security, unemployment insurance, etc.) and withhold income tax (IRPF).
  5. Process Payroll: Run monthly payroll, ensuring all calculations are accurate and payments are timely.
  6. Distribute Pay Slips: Provide detailed pay slips (nóminas) to employees, showing gross salary, deductions, and net pay.
  7. Report and Remit Payments: Submit required reports to social security and tax authorities and remit contributions and taxes.
  8. Maintain Compliance: Stay updated on changes in labor laws and tax regulations to ensure ongoing compliance.

  Options of Payroll for Employers in Spain 

  Employers in Spain have several options for managing payroll, each with its own advantages and considerations. Here’s an overview of the available payroll options:

  1. In-House Payroll Management

  Overview:

  • Internal Team: Manage payroll within the company using internal HR or payroll staff.
  • Software: Utilize payroll software to handle calculations, compliance, and reporting.

  Advantages:

  • Control: Direct oversight of payroll processes and employee data.
  • Customization: Ability to tailor payroll procedures to specific company needs.

  Considerations:

  • Complexity: Requires knowledge of Spanish payroll laws, tax regulations, and social security contributions.
  • Time and Resources: Demands time and resources to manage and update payroll processes and software.

  2. Outsourcing to Payroll Service Providers

  Overview:

  • Third-Party Providers: Contract an external payroll service provider to handle payroll processing, compliance, and reporting.

  Advantages:

  • Expertise: Access to payroll experts who ensure compliance with local regulations and reduce the risk of errors.
  • Efficiency: Reduces administrative burden and frees up internal resources.
  • Scalability: Easily scale payroll services as your company grows.

  Considerations:

  • Cost: Can be expensive depending on the complexity and volume of payroll.
  • Less Control: Reduced direct control over payroll processes and data handling.

  3. Using EOR Services

  Overview:

  • EOR Services: Partner with an EOR, which acts as the employer of record for your employees, managing payroll, benefits, and compliance.

  Advantages:

  • Comprehensive Services: Includes payroll, benefits administration, and HR services.
  • Risk Mitigation: Reduces legal and compliance risks by leveraging EOR expertise.
  • Streamlined Administration: Simplifies administration by consolidating multiple HR functions.

  Considerations:

  • Cost: Higher cost due to the comprehensive nature of the services provided.
  • Employer Branding: Employees may interact more with the EOR than directly with the client company.

  4. Cloud-Based Payroll Solutions

  Overview:

  • Online Platforms: Use cloud-based payroll software or platforms to manage payroll processes remotely.

  Advantages:

  • Accessibility: Access payroll data and manage payroll from anywhere with internet access.
  • Integration: Often integrates with other HR systems and tools.
  • Automatic Updates: Regular updates to reflect changes in tax laws and regulations.

  Considerations:

  • Security: Ensure the platform meets data protection and security standards.
  • Learning Curve: May require training for staff to effectively use the platform.

  How to Run Payroll in Spain Without Establishing Local Entities?

  To run payroll in Spain without establishing a local entity, partner with an Employer of Record (EOR) service. The EOR will act as your legal employer, handling all aspects of payroll, including salary payments, social security contributions, and tax compliance. This approach ensures full adherence to Spanish labor laws and eliminates the need for a local business registration.

  Get started with Asanify EOR services today and take the first stride towards staying compliant. Hiring employees from Spain is now just a cake-walk. Leverage Asanify’s top-notch services and get 24/7 assistance. Relieve yourself of all the compliance burdens and save time!

   

  Frequently Asked Questions (FAQs)- Payroll & Taxes in Spain

  1. How much are payroll taxes in Spain?

  Spain follows a progressive tax system ranging from 19%-45% for individuals.

  2. How does payroll work in Spain?

  Payroll in Spain is generally processes on a monthly basis.

  3. How to calculate payroll in Spain?

  To calculate payroll in Spain, start with the gross salary, then deduct employee contributions for social security (6.35%), unemployment insurance (1.55%), and professional training (0.10%). Subtract the applicable income tax (IRPF) based on progressive rates. The resulting amount is the net salary. Employers must also account for their own social security contributions, including general contingencies, unemployment insurance, and other statutory payments.

  4. Is Spain highly taxed?

  Spain is considered to have a relatively high tax burden compared to some other countries, with significant personal income tax rates reaching up to 47% for high earners and substantial social security contributions. While these taxes support a robust social welfare system, they can impact both individuals and businesses.

  5. How much is overtime pay in Spain?

  In Spain, overtime pay is typically compensated at a rate of 50% above the regular hourly wage for overtime worked on weekdays, and 100% more for overtime on weekends and public holidays. However, specific rates can vary depending on collective agreements or company policies.

Not to be considered as tax, legal, financial or HR advice. Regulations change over time so please consult a lawyer, accountant  or Labour Law  expert for specific guidance.