Thinking about tapping into the talent pool in Spain? Smart move. With its highly educated workforce and growing tech scene, Spain offers exceptional opportunities for remote team expansion.
But before you start hiring, you first need to understand Spain's unique payroll and tax requirements.
Key takeaways:
- Spain's payroll system includes unique elements, like mandatory 13th and 14th-month payments and region-specific holiday entitlements that significantly impact your total employment costs.
- Employers in Spain face substantial mandatory contributions — up to 29.9% on top of base salaries — covering everything from Social Security to professional training.
- Spanish employees are protected by robust labor laws that guarantee generous benefits, including 30 days of paid annual leave and up to 16 weeks of paid parental leave.
Employer Registration and Payroll in Spain
When you decide to hire talent in Spain, you have several options. One route involves establishing a legal entity and registering as an employer — a process that can be both time-consuming and costly. This approach requires navigating Spain's intricate regulatory landscape and managing ongoing compliance obligations.
Alternatively, you might consider working with independent contractors, although this arrangement comes with its own classification risks and work control limitations.
If you choose to establish your own entity and directly employ Spanish workers, you need to buckle up for a multi-step registration process:
- Register with tax authorities: Obtain a tax identification code (CIF) from the Spanish Tax Agency (Agencia Estatal de la Administración Tributaria), which serves as your company's fiscal identity.
- Social Security registration: Apply for a Social Security Contributions Account Code (Código de Cuenta de Cotización) to facilitate Social Security payments for your employees.
- Employee documentation: Collect comprehensive employee information including full name, nationality, tax residence status, job title, Social Security number (Número de Afiliación a la Seguridad Social), and national identity document (DNI or NIE).
- Employment contracts: Provide legally compliant employment contracts before or on the employee's first workday. You must register contracts with the State Employment Office (Servicio Público de Empleo Estatal) within 10 days of the new hire's start date.
- Banking setup: Create a Spanish bank account to process local tax and Social Security payments.
- Payroll administration: Calculate, withhold, and remit taxes and contributions from employee earnings, providing detailed payslips that outline gross pay, deductions, and net earnings.
In Spain, the standard payroll cycle is monthly, and employees are typically paid on the last day of each month. For 2025, the national minimum wage (Salario Mínimo Interprofessional) is EUR 1,184 per month across 14 payments ( EUR 16,576 annually).
The standard workweek is 40 hours, Monday to Friday. Overtime compensation must be at least 125% of the regular hourly rate, although collective bargaining agreements often establish higher rates.
Other Payroll Considerations
If your company has never hired Spanish employees before, you should be aware that Spanish labor laws offer stringent employee protections. Here's what you need to know:
Termination Requirements
Employers must provide notice before terminating an employment contract. According to the Worker's Statute (Estatuto de los Trabajadores), the standard notice period is 15 days. However, this can extend to 30 days, depending on the contract type and service length. Some collective bargaining agreements may specify more extended notice periods.
Severance Entitlements
When terminating permanent contracts, employers must typically provide severance pay of 20 days per year of service, capped at 12 months' salary, for justified dismissals. For unjustified dismissals, that amount increases to 33 days per year of work, with a maximum salary of 24 months.
Annual Leave
In Spain, employees are entitled to a minimum of 30 calendar days (22 working days) of paid annual leave, which cannot be exchanged for financial compensation except upon termination.
Public Holidays
Spain observes multiple public holidays annually, including both national holidays and regional celebrations that vary across Spain's 17 autonomous communities. For example, while everyone celebrates Christmas (December 25th) and Labor Day (May 1st), Madrid might observe San Isidro (May 15th) while Valencia celebrates San José (March 19th).
Parental Leave
Maternity leave and paternity leave in Spain have been equalized under recent legislation. As of 2021, both parents are entitled to 16 weeks of fully paid leave and are required to take at least six weeks immediately following birth or adoption.
Sick Leave
Employees receive paid sick leave starting on their fourth day of illness. The employer covers the cost for the first 15 days (paid at 60% of an employee's base salary). After that, Social Security takes over the payments, paying 75% of the employee's base salary, although many companies continue supplementing these benefits to maintain full salary levels.
In cases of extended illness, employees can receive sick leave benefits for up to one year, with a possible extension of 180 days.
How to Calculate Payroll Tax for Spanish Employees
Here’s how to calculate payroll taxes for employees in Spain:
- Begin with the employee's gross salary
- Determine the applicable income tax withholding rate based on the employee's personal circumstances and income level
- Calculate Social Security contributions using the established contribution bases and rates
- Apply any additional mandatory contributions
- Process deductions to arrive at the net pay amount
Mandatory Payroll Taxes in Spain
Spain imposes several mandatory payroll taxes and contributions on both employers and employees. While the following overview covers the primary obligations, this isn't meant to be an exhaustive explanation. Always consult with a tax professional for advice tailored to your specific situation.
Withholding Income Tax Rates
Employers must deduct the Withholding Income Tax (IRPF - Impuesto sobre la Renta de las Personas Físicas) from employee salaries and remit it to tax authorities. Rather than making one annual payment, this method ensures employees fulfill their personal income tax obligations throughout the year.
Income tax in Spain follows a progressive rates scale ranging from 19% to 47%, depending on income level and autonomous community of residence. The exact withholding percentage is calculated based on the following:
- Gross annual salary
- Personal and family circumstances
- Applicable deductions and allowances
Social Security
Both employers and employees contribute to fund benefits through Spain's comprehensive Social Security system, which covers healthcare, retirement, disability, parental leave, and unemployment.
In 2025, the Social Security contribution rates are:
- Employer: 30.57% of gross salary
- Employee: 6.48% of gross salary
These rates may vary slightly depending on the sector, job role, and salary rate. Mandatory Social Security contributions apply to earnings within established minimum and maximum bases, which are adjusted annually.
Unemployment Insurance
Unemployment insurance is included within the Social Security contribution framework. The specific allocation for unemployment protection is:
- Employer contribution: 5.5% of the employee's salary
- Employee contribution: 1.55% of the salary
These funds provide temporary financial support for eligible workers whose employment is terminated.
Wage Guarantee Fund
The Wage Guarantee Fund (Fondo de Garantía Salarial, or FOGASA) is an employer-only contribution of 0.2% of the employee's salary. This fund ensures workers receive compensation for unpaid wages and severance in employer insolvency or bankruptcy cases.
Professional Training Fund
The Professional Training Fund finances continuous professional development opportunities for the workforce. The contribution rates are:
- Employer contribution: 0.6% of the employee's salary
- Employee contribution: 0.1% of the salary
These funds support vocational training programs and skill development initiatives that enhance workforce capabilities.
Work Accidents Insurance Fee
This employer-only contribution covers workplace accidents and occupational diseases. Unlike fixed-rate contributions, the Work Accidents Insurance Fee amount varies by industry, company size, and risk level.
Taxes on 13th- and 14th-month Pay
Spanish employment law mandates two additional annual payments, known as 13th month and 14th month pay, which are typically distributed in July and December. Employers have two options for handling these payments:
- Traditional approach: Divide annual salary into 14 installments, with two months (usually July and December) receiving double payments
- Prorated approach: Distribute the additional amounts evenly across all 12 monthly payments
Regardless of the payment method, these extra payments are subject to the same income tax and Social Security withholdings as regular salary payments.
How to Pay Remote Employees in Spain
When it comes to managing Spanish payroll for remote employees, companies generally choose from these three approaches:
In-house Administration
If you have a Spanish entity, you can run payroll in-house. But this means staying on top of frequent regulatory changes and working with a local legal/tax expert.
- Pros: Direct control over payroll processes and potential long-term cost savings
- Cons: Requires extensive knowledge of Spanish labor laws, significant setup investment, and ongoing compliance management
This approach works best for companies planning substantial, long-term operations in Spain but requires working with Spanish labor lawyers and tax advisors to ensure compliance.
Local Payroll Services Provider
Alternatively, you can work with a local payroll provider to pay employees on your behalf.
- Pros: Specialized expertise in Spanish payroll regulations and tax requirements
- Cons: Your company is still required to establish a legal entity; coordination can be complex
This option offers some compliance assurance while requiring less internal expertise, but it doesn't eliminate the need to establish a local entity.
Employer of Record
An Employer of Record (EOR) functions as the legal employer for your Spanish team members, handling everything from compliant contracts and onboarding to payroll processing and tax remittance.
- Pros: Eliminates the need to establish a legal entity, provides comprehensive compliance management, and simplifies global hiring
- Cons: Involves service fees and limited direct control over some employment aspects
This solution is particularly valuable for companies testing new markets or hiring small teams across borders, as it eliminates the time and expense of opening a local entity.
Simplify Employment, Payroll, and Taxes in Spain with RemoFirst
Navigating Spain's complex employment landscape doesn't have to be overwhelming. RemoFirst's EOR solution enables you to hire exceptional Spanish talent without establishing a local entity or becoming an expert in Spanish labor law.
Our knowledgeable team of experts take care of:
- Compliant employment contracts tailored to Spanish requirements
- Accurate payroll processing, including all mandatory contributions
- Tax calculation and timely remittance to Spanish authorities
- Administration of statutory benefits and extra payments
- Ongoing compliance with evolving Spanish employment regulations
In addition to Spain, RemoFirst enables you to build global teams across 185+ countries with the same streamlined approach to compliance and HR administration.
Ready to expand your team into Spain (or elsewhere)? Schedule a demo to discover how RemoFirst can simplify your international hiring and global payroll management.
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