While it has a different native language and is six hours ahead of US East Coast time, workers from Spain are similarly educated to US workers and often command slightly lower salaries. When expanding your business operations to Spain, you’ll have to learn how to do payroll in the country and handle compliance with its employment laws. Doing payroll in Spain is easier than in some other foreign countries—but you’ll still need to register your business, get accurate employee information, and ensure compliance with its employment laws.
Use these seven steps as a guide on how to do payroll in Spain.
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Step 1: Set Up Your Business as an Employer
When you’ve decided to hire Spanish employees, you can either form a Spanish company or register your existing US-based company as a foreign company in Spain. Unlike some countries, you can hire and pay employees in Spain without establishing a legal entity—so unless you plan on hiring lots of employees in Spain, this is the path to choose.
Starting a Foreign Company in Spain
To start, you’ll need to get an NIE number from the National Police of Spain by submitting an application. You can also submit your application domestically to the nearest Spanish Consulate. The NIE is like a US Social Security number, and it allows you to act on behalf of the business in Spain. To complete the application, you’ll need passport photos, your valid US passport, and detailed information about why you need an NIE, like hiring and paying employees in Spain.
You’ll then need to contact the Spanish Ministry of the Interior and request an NIF number. This was previously called a CIF but was replaced by the NIF in 2008 for business purposes (you may still see references to both acronyms). The NIF is equivalent to the US’s federal employer identification number (FEIN). It allows your company to pay taxes on behalf of your Spanish workers.
Once you’ve received your NIE and NIF, you’ll need to apply for a Social Security Contributions Account Code. This enables you to register each employee for Social Security and to withhold contributions.
Forming a Spanish Company
If you decide to form a Spanish company instead of registering your US-based company in the country, you need to register your company’s name first with the Registro Mercantil Central (Central Mercantile Registry) to confirm its uniqueness and avoid duplication with other businesses. You are allowed to submit five names in order of your preference. Next, you need to open a Spanish bank account where you will deposit the initial share capital required for your company. This is a critical step as proof of deposit will be needed for subsequent procedures.
Following this, draft the Articles of Association (Estatutos Societies) which outlines the company’s structure, purpose, and internal regulations. These documents must be notarized as part of the legal formation process. Then, sign the Public Deed of Incorporation before a notary, which includes the Article of Association and other relevant documents. This deed must be registered with the local Mercantile Registry to formalize the establishment of your company.
Next, obtain a Tax Identification Number (NIF) from the Spanish Tax Agency (Agencia Tributaria). The final step involves completing the D1-A form, which is a declaration for foreign investments in Spain, to ensure compliance with regulatory requirements. With these steps completed, your company will be legally registered and ready to commence business operations.
Avoiding Misclassification: Employee vs Independent Contractor
Before we get too deep into this, let’s discuss employee misclassification. Unlike the US, employment is highly regulated in Spain, providing significant protections for workers. Like the US, however, Spanish regulations look at both the written relationship between the parties as well as the practical relationship.
The distinction between an employee in Spain and an independent contractor essentially boils down to two parts. If both of these factors are present, a court will likely establish an employment relationship:
- There is an agreed-upon exchange of work for pay
- The worker is dependent on the company for regular work and training
Like the US, if you partner with an independent contractor who is actually an employee, you’ll be liable for the worker’s back pay, overtime, your share and their share of taxes, and penalties. While written employment agreements are more common in Spain than in the US, one is not required. We do recommend at least providing a written offer letter laying out the terms of employment, which may also reference collective bargaining agreements, which are much more prevalent in Spain.
Step 2: Establish Your Payroll Process & Policies
You’ll want to create a structured process so you don’t miss any vital payroll steps. Consider the following:
- In Spain, employers are required to pay workers once per month. Be aware of your pay schedule to ensure your payday falls no later than the last day of the month.
- Decide whether you will hire full-time or part-time workers. If you’re not sure, get more insights on each of their pros and cons in our types of employees article.
- How will you track employee hours—are you going to do it manually, or will you be using time tracking software? Additionally, how will it be reported to you? Here are a few suggestions on how you can track employee hours.
- There are four major types of benefits you can offer to your employees. However, you have to decide which benefit(s) to offer to them. You also need to consider who pays for them and how you will manage the payroll deductions.
- How often will you need to pay taxes? What tax rates will you pay? How often do you need to remit taxes and to what agencies?
- How about payroll processing and calculations? Will you calculate payroll by hand, Excel, or use a payroll service or software? Here’s a quick guide (plus a free template) on how to calculate payroll.
- There are a number of ways on how to pay your employees. You can write manual checks, use pay cards, pay via direct deposit, or pay in cash. Consider what your employees prefer
A Spanish workweek cannot regularly exceed 40 hours. The typical workday starts at 8:30 a.m. to 9 a.m. and goes until about 2 p.m. when businesses close for siesta. The workday then resumes around 4 p.m. to 5 p.m. and continues until about 8 p.m. This is not a schedule most US companies are used to, so this might require some flexibility, as this is routine in Spain. It’s also important to note that overtime is allowed, but an employee cannot work more than 80 overtime hours in a calendar year.
Step 3: Determine Salaries & Ensure Compliance
The cost of living in Spain is substantially less than in the US—currently about 43% less expensive. The average annual salary in Spain is about 27,000 euros ($29,056.05).
When determining what you’re going to pay your Spanish workers, consider their experience and skills, in addition to the cost of living. You may be able to save money by having Spanish workers, but you’ll still need to pay competitive rates to ensure you attract and retain the best talent.
Payroll & Employment Law Compliance
Spanish employment law provides more protections for workers than the US’s compliance laws. Spanish employment laws are found in the comprehensive Workers’ Statute.
Spain has a federal minimum wage, which is currently 15,876 euros per year or 1,323 euros monthly. However, It’s customary to make 14 payments a year, which equals 1,134 euros per payment.
If your industry is covered by a collective bargaining agreement, you’ll likely be required to pay a higher minimum wage. Remember that this is often paid in 14 installments over the year. Pay close attention to the minimum wage, as Spain has been raising it aggressively over the last two decades.
Spain bases the workweek on 40 hours per week. As discussed above, overtime is capped at 80 hours per year per employee, and employees can refuse a request to work overtime.
There is no required overtime pay rate in Spain, except that overtime hours must be compensated by at least the same hourly rate as regular hours. However, it’s common for overtime to be discussed in employment contracts and collective bargaining agreements. In these cases, overtime pay rates are often 1.75 times or higher than the regular hourly rate for the employee.
Unless otherwise agreed to in an employment contract or collective bargaining agreement, employees in Spain are entitled to 30 calendar days of paid time off per year. Workers can take this entire time at once or break it up into smaller vacation periods. However, Spanish law requires that every employee take one period of leave that lasts at least two weeks.
Employees are also entitled to 12 hours of rest between working shifts. Each week, employees are also entitled to 1.5 days of uninterrupted break from work. This means no phone calls, texts, or work emails generally from Saturday afternoon until Monday morning.
Federally regulated employees are entitled to 10 paid holidays each year. Each of Spain’s 17 regions also has additional holidays that may require additional days off.
- New Year’s Day
- Epiphany (January 6)
- Good Friday
- Labor Day (May 1)
- Assumption of Mary (August 15)
- National Day (October 12)
- All Saints’ Day (November 1)
- Constitution Day (December 6)
- Immaculate Conception (December 8)
- Christmas Day (December 25)
Employees in Spain are entitled to temporary disability benefits that include sick pay. Most workers will receive at least 60% of their regular salary while they are out sick.
When a worker is out sick, they’re entitled to the following:
- Up to three days: No sick pay unless the employer has agreed to pay by policy, in an employment contract, or a collective bargaining agreement
- 4 to 15 days: 60% of the employee’s base pay paid directly by the employer
- 16 to 20 days: 60% of the employee’s base pay paid by Social Security
- Over 21 days: 75% of the employee’s base pay paid by Social Security
These are the minimum requirements. If a collective bargaining agreement or employment contract provides higher rates, the employer must abide by those terms instead.
Maternity and paternity leave in Spain are mandatory. Workers on leave are entitled to 100% of their regular salary, paid by Social Security.
Standard leave for both maternity and paternity is 16 weeks. It generally breaks down as follows:
- Compulsory leave for the first six weeks after birth
- The remaining 10 weeks of leave may be taken with 15 days’ notice at any time up to one year after the birth of a child (usually taken at once and either as 10 full weeks or 20 weeks of half-days)
Spain also provides additional paid leave for workers in different situations. Here are the most common:
- Up to 15 calendar days off for a wedding and honeymoon
- Up to two calendar days (four, if travel is required) for the death, accident, serious illness, or hospitalization of a family member
- One day to move
For each situation, employees must provide employers with advance notice, to the extent possible. Collective bargaining agreements may also increase these leave times.
If an employee is governed by a collective bargaining agreement, you must abide by those terms. If not, the general termination and severance terms will apply.
For each termination, employers must give the employee at least 15 days’ notice. If they do not, they must pay the employee the equivalent of 15 days’ salary as severance pay.
Step 4: Collect Employee Data & Forms
As with US-based employees, you’ll need to collect certain data from your Spanish employees. This often includes:
- Employee’s full name
- Employee’s nationality
- Employee’s permanent address in Spain
- Employee’s date of birth
- Identification proving the employee’s identity
- Employee’s social insurance number
- Bank account information
Step 5: Collect Time Sheets & Calculate Payroll
When a business first launches, it often uses paper time sheets. However, we don’t recommend this as it’s ripe for errors and misuse, especially if you have a large number of employees. The best and most effective way to keep track of employee hours is to use time tracking software. Your employees clock in and out electronically, and your managers can review and approve timesheets before they get to your payroll team for processing.
When calculating your Spanish payroll, you’ll need to account for tax and payroll deductions. Missing these will leave you out of compliance and could cause costly fines and penalties from Spanish government agencies.
Calculating Spain Payroll Tax
Determine your employee’s gross pay first when calculating payroll taxes and contributions in Spain. After that, calculate both the employer and employee’s tax liability for the following areas as specified percentages of the employee’s gross salary:
- Social security
- Unemployment
- Worker’s compensation
- Wage guarantee contributions
- Professional training contributions
- Employee income
You can use the following tables as guides to ensure proper allocation of deductions. Take note that this information was taken from Papaya Global’s website—make sure to consult with a payroll expert in Spain for the latest data.
Type of Payroll Deduction | Employer Share | Employee Share |
|---|---|---|
Social Security | 24.18% | 4.82% |
Unemployment | 5.50% | 1.55% |
Salary Guarantee Fund | 0.20% | 0.0% |
Professional Training | 0.60% | 0.10% |
Besides these payroll withholdings, you’ll also need to withhold appropriate income tax from your employee’s paychecks. Here are the current tax brackets in Spain.
Annual Salary | Income Tax Withholding |
|---|---|
Up to €12,450 | 19% |
€12,451-€20,200 | 24% |
€20,201-€35,200 | 30% |
€35,201-€60,000 | 37% |
€60,001-€300,000 | 45% |
Over €300,000 | 47% |
Step 6: Pay Employees
Now that you’ve reached the point of calculating your payroll, it’s time to pay your employees. Make sure you’re following the monthly pay schedule required in Spain.
If you have just a single employee in Spain (or a handful), you may want to outsource your payroll to a local provider. It will be licensed and familiar with Spanish payroll laws and processes. While you’ll pay a fee, it’ll likely be worth your time for just a few workers.
However, if you have more employees or plan on dramatically expanding your Spanish workforce, you may want to do payroll in-house. Make sure you or your payroll team are familiar with Spanish payroll laws and deductions to ensure you’re making the right deductions from employees’ paychecks and sending tax payments to the right Spanish government authorities.
For the easiest time, you can also work with an international payroll service. Such services are typically familiar with local laws and will ensure that your business won’t miss any compliance regulations.
Step 7: Document & Store Your Payroll Records
Payroll records in Spain must be kept for at least four years. These records must be available to your workers, but also to the Spanish government, which routinely inspects employer records. Your payroll records should include, at a minimum:
- The dates of employment and rate of pay
- The number of hours worked
- Deductions
- Total regular and overtime pay
- Total leave taken
- Net employee pay
Payroll Options for Employers in Spain
Foreign companies looking to operate in Spain and manage payroll for their employees have several options to consider, each with its own advantages and compliance requirements. Here are some of them:
Foreign companies can establish a local entity or branch in Spain, which then operates like a Spanish company. This entity will be responsible for all local payroll obligations, including withholding taxes, social security contributions, and compliance with employment laws. This option gives the company full control over its operations but involves significant setup and operational costs.
You can opt to outsource your payroll processes to a local payroll provider. This option simplifies the management of payroll, as the provider takes care of calculations, withholdings, payments, and compliance with local regulations. Learn more about how you can leverage this option with our guide on how payroll outsourcing services work.
An Employer of Record (EOR) can hire and payroll staff on behalf of a foreign company without the need for the company to establish a local entity. The EOR becomes the legal employer in terms of payroll, taxes, and employment benefits, but the day-to-day control and management of the employees remain with the foreign company. This is particularly useful for companies testing the market or those needing a quick setup.
Similar to an EOR, a PEO co-employs staff already hired by the company. In this arrangement, both the PEO and the company share responsibilities for the employee. The PEO handles the taxes and compliance, while the company manages employees’ roles and responsibilities. This can be an effective strategy for medium to long-term market engagement without setting up a full-fledged operation.
Read our article on what is a PEO and how it works for more in-depth insight into this option. You might also want to look at the best PEO companies we have evaluated and handpicked just for you.
Bottom Line
Doing payroll in Spain for the first time is not as hard as other foreign countries. With similar processes to the US, you’ll find it won’t take long to get the hang of it. Just make sure you take your time and set everything up correctly from the start.
