Like the United Kingdom and most European countries, hiring employees in Spain means that the risks and bureaucracy involved in the business have increased dramatically. In general, wages in Spain are lower but bureaucratic and non-wage costs are higher. Before hiring employees, you must understand the risks, reduce costs, and minimize them to avoid annoying surprises and burdens that may threaten the success of the entire enterprise. This article looks at the main characteristics of Spanish labor law and employment and discusses some ways to mitigate risks.
- o Employees must sign a labor contract from the first day of work. If you are using a British foreign employee, you should have their NIE and residence permit (see below for advice on how to obtain a NIE number)
- o Minimum wages and employment conditions, such as disciplinary procedures and leave entitlements, are set by “Convenios Colectivos” in different departments and regions, such as the hotel and catering industry in the province of Malaga.
- o There are many types of contracts, but the essence is to choose between providing a fixed-term contract or a permanent contract. The contract can also be Tiempo completo (usually 40 hours full-time) or parcial (part-time). In the latter case, wages are reduced in proportion to the number of working hours per week specified in the contract. There are special contracts with government tax incentives, such as hiring unemployed workers or women in under-represented sectors.
- o An employee can pay layoff subsidies after one year of service, up to 3.5 years of salary (the service period can be increased by 45 days per year, although it can be reduced in the incentive contract).
- o It is expected to pay about 40% of the non-salary cost of the basic salary, mainly the employer’s social security payment, which is very high in Spain, although some incentive contracts reduce this cost by 75%.
- o The employer is responsible for deducting the employee’s national insurance premium (about 6% of the salary) and income tax from the monthly salary or “nominal”, similar to UK PAYE. They must be provided with a complete analysis of the employee’s current month’s wages and deductions, and the employer must retain a signed copy.
- o Other employee rights: usually 23 days of holiday rights per year and national and local holidays (depending on the Convention, because employees in certain departments expect working holidays but are compensated elsewhere). Employees can choose to pay 14 times a year instead of 12 times a year, and increase the pay day in July and December. Maternity leave is 4 months, there are other time to arrange marriage, death, childbirth and moving. Sick pay is usually paid by the social security system.
break the law
As a foreigner starting a business in Spain, it is important to understand the rules and regulations regarding employment and try to stay in it. Breaking the law can lead to heavy penalties. The authorities are strict because they know that abuse is common. For example, if you have a non-contract worker who helps you during an irregular visit by a government inspector, even if the “helper” is a spouse, don’t expect to be able to excuse.
Employee rights are underestimated
As we have seen, the main role of a strict regulatory framework, the tax law, and the “Convention” is to protect and promote the rights of employees. Employers paid for this, perhaps not based on the base wages that are still lower than in many European countries but based on non-wage costs and the employee’s right to severance and other benefits. The biggest risk a small business may face is to hire employees on a gross salary basis without realizing the additional burden of being a Spanish employer, especially when offering a full-time permanent contract.
Cash flow and profit impact
If you don’t understand and then budget to pay all related employment costs at the right time, there is indeed a danger of cash flow difficulties or profit erosion. The arrears are paid monthly and the national insurance after one month. The income tax withheld from employees should be paid at the end of each quarter, which can be an annoying shock for novices. As mentioned earlier, severance pay can be high.
Reduce risk: smart staffing
The most important thing is to think before considering potentially expensive promises and seeking professional advice. Many companies (including my company) will give some free advice to new companies before starting operations, and provide comprehensive salary and employment services when they provide services.
Many companies in Spain avoid certain costs and burdens of labor laws by “blackening” and paying workers in cash. This is of course risky because it can be easily spotted by government agencies, especially if the “employee” does not have any contracts. If the employer presents a partial certificate