Employing Staff

The implications of employing people in Spain

Employing Staff

Think very carefully indeed before you employ staff in Spain. It’s no exaggeration to say that you will be stepping into the proverbial minefield.

Try not to employ anyone unless you absolutely have to, although you should beware of using unpaid help (e.g. from family and friends), as this is tantamount to illegal labour, although it’s common practice, particularly among Spaniards. If you cannot cope with the workload on your own and it’s vital to the success of your business to employ someone, make sure you take expert advice from a lawyer who has lots of experience in dealing with labour regulations and can advise you about the law and how it applies to you. If you decide to engage staff, find a professional who can advise you about employment contracts and your social security and tax obligations.

Social Security Payments

As an employer, your main financial obligation is to make social security payments on behalf of your staff. Total contributions in 2004 were 28.3 per cent of an employee’s gross pay, of which the employer must pay a large proportion: 23.6 per cent, the employee paying only 4.7 per cent – and enjoying all the benefits!

Each new worker must be registered with the social security authorities and within his contract registered with the national employment service (INEM) within ten days. Don’t forget about this or be tempted not to do it. If your business is inspected by the labour authorities, you will be heavily fined. To register an employee, you must provide originals and copies of his NIE certificate and passport and the relevant completed form (TA.2/S). The INEM should stamp and return two copies of the contract, one of which should be given to the employee and the other retained for your records.

Tax Deductions

You’re also required to make monthly deductions from an employee’s salary for income tax (usually called withholding tax) provided he earns above the minimum wage, but you aren’t liable to make an annual tax declaration on his behalf. You must provide him with a payslip or ‘certificate of taxes’ ( certificado de retenciones) showing all the amounts that have been paid by you and your employee, and he makes the declaration himself. Personal tax rates for salaried staff range from 15 to 45 per cent, depending on earnings and allowable deductions, which vary according to circumstances.

Employee Rights

Labour laws in Spain have relaxed a little in the last few years, but the rights of employees are still very much uppermost in the eyes of the law. (The main aim of the law is to protect employees from exploitation but, as an employer, you may begin to feel that you’re the exploited party when the bills start to come in!) Employees enjoy extensive rights, which include a minimum wage and 14 ‘monthly’ payments instead of 12. These extra payments are to cover the Christmas holidays and the long summer holiday period and are a long-standing tradition. They’re also entitled to one month’s paid holiday and 14 public holidays (two of which are locally established).


The Spanish government is making considerable efforts to encourage employment stability. Permanent or indefinite or ‘fixed’ contracts ( contrato indefinido/fijo) are supposed to be the rule and temporary contracts ( contrato temporal) the exception and, as a result, these are allowed only in certain circumstances (see below). Whichever type of contract you use, you must make sure that it complies with the minimum legal requirements for workers’ rights as established in the Statute of Workers and you must obtain advice on this from a specialist in labour law ( asesor laboral), who will be able to advise you how best to employ someone (legally) in accordance with your needs.

Temporary Contracts

Labour laws in Spain are such a tangled web that many employers often take risks unnecessarily. They take on staff illegally through ignorance and to avoid the time and expense of doing things properly. There are genuine – and legal – circumstances that allow you to employ staff on a temporary basis and they’re as follows: for specific training purposes; provision of a specific service or the completion of a specific short-term project; to meet specific production needs or contracts for the temporary replacement of employees, usually due to sickness, maternity leave or retirement. This last reason is the one that employers may use to employ seasonal staff.

This means that you can legally employ staff on a temporary contract, such as a training contract, until you see how they perform in the post, rather than commit yourself to a permanent contract from the outset. You’re genuinely training them for the job and, if things don’t work out, both parties are free to terminate the agreement at the end of the period. The minimum and maximum duration of temporary contracts depends upon the type of contract and the job that the employee is doing. There are collective agreements to guide you on this. Usually the maximum duration is six months if the employee holds a university degree and two months if he doesn’t.

If it’s a casual contract to cover an extra heavy workload, you can hire someone for a maximum of six months within a 12-month period. However, you cannot keep renewing it indefinitely throughout the year. If you contract someone for a specific project, he may be employed only for the length of that project; if he’s replacing a permanent worker, the contract can cover only the period of absence.
When you offer a short-term contract for any of the above reasons, remember that the contract must still be in writing, stating the reason for the temporary employment.

Permanent Contracts

Although you must be very careful about entering into a permanent contract with an employee, it’s encouraged by the Spanish government. All manner of financial incentives, in the form of tax benefits and social security reductions, are available if you employ staff on a permanent basis, especially if they’re disabled, have been registered as unemployed for more than six months, are aged between 16 and 30 (a group with especially high unemployment in Spain), or are unemployed and over 45 or female.

You should agree, in writing, a trial period, so that you don’t commit yourself until you’re sure about your employee’s suitability for the job, and ensure that the contract states when it comes up for renewal – or it will be virtually impossible to dismiss the person if you need to and you could find yourself faced with an unfair dismissal claim, which will undoubtedly prove very costly.

All contracts must, by law, be written in Spanish, so make sure that your adviser arranges a translation if you aren’t fluent in Spanish. Two copies of the signed contract must be sent off to the Employment Service (INEM), who will be stamp and return them, one for the employee and one for your records.


If you want to terminate an employee’s contract, you will need to tread with extreme care and, as always, take professional advice from an expert in labour laws. Until recently, Spain’s labour laws didn’t allow for dismissal unless the employee was guilty of the most heinous crime. Although this has begun to change a little due to pressure from employer’s organisations, dismissal is still strictly controlled and, where there’s a dispute, courts almost always rule in favour of the employee, leaving the employer with a crippling fine.

There are generally three circumstances in which termination of a contract is allowed, as follows:

  1. Economic or Organisational Reasons – These are what is commonly termed ‘restructuring’. As an employer, you can claim that dismissing an employee, or several employees, is the only way to save the business from bankruptcy. This requires the intervention of the labour authorities and, if they decide that dismissal is justified, the contract is terminated and the employee receives 20 days’ pay for each year of service up to a maximum of 12 months’ salary. If the labour authorities decide against you but you dismiss staff anyway, you must compensate them with 45 days’ pay for each year of service, up to a maximum of 42 months’ salary.
  2. Objective Reasons – These cover, for example, ineptitude on the part of an employee, an inability to adapt to technological changes after a reasonable period of retraining, and ‘continuous and unjustified absences’. To dismiss an employee for any of these reasons, you must give him 30 days’ written notice and pay an indemnity of 20 days’ salary for each year of service up to a maximum of 12 months’ salary.
  3. Disciplinary Reasons – As the name suggests, this covers areas such as insubordination or disobedience, ‘serious and wilful non-compliance with duties’, verbal or physical abuse of employer or his family, betrayal of an employer’s confidence or trust, a continual decrease in the normal accepted standard of work, and habitual drinking or drug-taking which affects performance.

An employee dismissed for either objective or disciplinary reasons must be notified in writing of the reasons for the dismissal. I he doesn’t agree, he must file a request for conciliation within 20 days of receiving the dismissal letter. This attempted conciliation at the arbitration office ( Servicio de Mediación, Arbitraje y Conciliación) is obligatory before resorting to the labour courts. If arbitration is unsuccessful and the case goes to court, where the dismissal is judged to be fair, the employee receives no compensation. If it’s judged to be unfair, you may have a hefty bill to pay: 45 days’ pay for each year of service up to a maximum of 42 months’ pay. Further details of the law relating to dismissal can be found on the website of the Spanish Institute for Foreign Trade .

This article is an extract from Making a Living in Spain. Click here to get a copy now.

Further reading

Does this article help?

Do you have any comments, updates or questions on this topic? Ask them here: