Payroll and Taxes in Spain: An Overview for Global Employers

Spain is one of the primary economic powers of Europe, with 47 million residents, a $1.3 trillion GDP, low tax burdens, and a highly skilled workforce. The country is an attractive destination for global companies interested in doing business or hiring talent in the European Economic Area (EEA). 

Still, one of the main challenges global companies face when entering this market is navigating local payroll and tax legislation. 

In this guide, we provide an outline of Spain’s payroll and tax regulations. Find a list of mandatory taxes and contributions and the key elements of Spanish payroll. Plus, read guidelines for setting up payroll and mitigating risk when hiring and paying talent in Spain.

What are the payroll taxes and contributions in Spain?

Payroll taxes and contributions in Spain include social security, unemployment insurance, the wage guarantee fund, the professional training fund, and working accident insurance.

As a part of payroll, employers in Spain must also withhold and remit income tax on employee earnings and 13th and 14th-month salaries.

We outline each of Spain’s payroll taxes and contributions in detail below. 

Read also: The Complete Guide to Payroll Tax

Social security

Social security in Spain supports the state-backed health insurance program and employee pension. It also provides income support for individuals on leave of absence due to illness, non-occupational accidents, and parental leave.

Separate social contributions are made to fund unemployment, the wage guarantee fund, professional training, and working accidents insurance.

The general contribution rate for social security in Spain is 24.1% for employers and 4.8% for employees.

Unemployment insurance

Unemployment insurance provides income for individuals who are unemployed but are able and willing to work—or for those who have suffered a 10% to 70% salary reduction due to employer cutbacks. 

The employer contribution rate is 5.5%, while the employee contribution rate is 1.55%.

Wage guarantee fund

The wage guarantee fund, or Fondo de Garantía Salarial (FOGASA), is an employer-only payroll tax that insures employees against losses incurred from employer insolvency or cutbacks due to economic circumstances.

The employer contribution rate is 0.2% of the employee wage base, which covers the value of wages, bonuses, and fringe benefits for the year leading up to insolvency.

Professional training fund

The professional training fund is an employer and employee tax that supports training programs for employed and unemployed individuals across Spain. 

The fund aims to improve the competitiveness of Spanish companies, bring training initiatives in line with production demands across the country, and reduce unemployment—particularly among young, disadvantaged, or marginalized groups.

The total tax is 0.7%, with employers contributing 0.6% and employees contributing 0.1%.

Working accidents insurance fee

The working accidents insurance fee is an employer-only payroll tax that insures employees against medical costs and income losses resulting from work-related injury or disease.

Employer contribution rates vary depending on the job type, with rates increasing according to the risk involved. In 2023, the current maximum contribution rate is 6.7% for occupations like miners and bricklayers, and the minimum is 1% for occupations like clerks and office workers.

Employee income taxes

In Spain, state and regional taxes comprise total employee income tax.  

Spanish regulators divide state income taxes into two categories: personal income tax (PIT) for residents, and non-residents’ income tax (NRIT) for non-residents who earn income in-country. While regional tax rates vary between jurisdictions, they often closely resemble the state tax rate. 

We outline the total income tax rates for PIT and NRIT below. 

PIT bands*

*The above total income tax rates serve as a guideline for the general tax base, but the final rate may vary slightly according to regional rate variances.

NRIT rate

A general income tax of 24% applies to all non-resident employee income, with some exceptions.

Additional payroll taxes in Spain to know

Employers in Spain should also be aware of taxes on 13th and 14th-month salaries.

13th and 14th-month pay

In addition to regular monthly wages, it’s common practice in Spain for employers to offer two additional annual salaries to their employees, called 13th and 14th-month pay. 

While Spanish law doesn’t mandate them, most employees expect these payments from their employer, leading many businesses to incorporate them into their global compensation strategy.

To account for the additional payments, employers can either divide the employee’s annual salary into 14 installments to provide the 13th salary in the summer and the 14th salary in the winter, or they can pro-rate the additional pay into an employee’s 12 regular payments throughout the year.

The method and time of year that employers must pay the additional salaries varies, depending on their employment contract and relevant collective bargaining agreements. These payments are subject to income tax like regular earnings.

Learn more in our guide to 13th-month pay.

How is payroll tax calculated in Spain?

To calculate payroll tax and contributions in Spain, first determine your employee’s gross pay. Then, calculate employer and employee payroll tax liability for social security, unemployment, workers' compensation, wage guarantee contributions, professional training contributions, and employee income as specified percentages of the employee’s gross pay.

Also, note that Spain’s monthly earnings base on which employers calculate social security tax is floored and capped between €1,260 and €4,495.50, and it typically changes each year.

In other words, even if an employee earns less than €1,260 per month, the employer must calculate payroll taxes based on that figure. Likewise, if an employee earns more than €4,495.50 per month, the employer must calculate payroll taxes based on the max €4,495.50 earnings base.

Interested in hiring employees in Spain? Use our employee cost calculator below to accurately calculate payroll contributions and annual costs for your talent in Spain.

Key elements of payroll in Spain

As a global company hiring talent in Spain, understanding the key elements of local payroll is critical for ensuring compliance and avoiding fines, litigation, and other penalties.

Below, we list the key aspects of Spanish payroll:

• Payroll cycle. The payroll cycle in Spain is monthly, with employers making payments at the end of each month. 
• Minimum wage. The daily minimum wage in Spain is €36 for employees.
• Overtime. A standard working week in Spain is 40 hours per week, with any additional hours qualifying as overtime. Collective bargaining agreements regulate overtime rates, allowing employers and employees to choose between overtime pay or time off in lieu of pay.
• Termination. Spanish labor law requires employers and employees to provide a minimum 15-day notice before terminating an employment contract. 
• Severance. Severance packages vary depending on the work contract, employment duration, and reason for termination. However, most employees are entitled to 20 days’ pay for each year of service—or 33 days’ pay per year of service in the event of unfair dismissal.
• Annual leave. Employees are entitled to at least 30 calendar days, or 22 working days, of paid annual leave, though employment contracts and collective bargaining agreements may stipulate more.
• Parental leave. Both parents are entitled to 16 weeks of fully paid maternity leave. 
• Sick leave. Social security pays for employees' sick leave through contributions starting after their first day of absence. Employees do not need to meet any conditions before becoming entitled to sick leave.
• Holidays. In addition to paid annual leave, employees are entitled to 14 annual paid national holidays, the dates and names of which vary by region.   

How to set up payroll in Spain

While the exact payroll process varies depending on individual circumstances, the outline below gives you a general idea of what Spanish payroll procedures entail: 

• Register with local tax and social security authorities. Resident and non-resident companies must register with the Spanish Tax Agency (Agencia Estatal de la Administración Tributaria) and receive a tax identification code. This code is necessary to apply for a Social Security Contributions Account Code, which allows you to pay social security contributions on employee salaries.
• Collect employee details. Collect the required employee details, including the employee’s full name, nationality, country of tax residence, job title, social security number, and national identity document. 
• Report new employees to local authorities. Provide new employees with an employment contract on or before their first day of work and register the contract with the State Employment Office within 10 days of their start date.
• Register with a local Spanish bank. Open an account with a local bank so you can make tax and social security payments to local authorities.
• Establish your payroll process and policies. Choose a payroll software and determine your approach to payroll (for example, in-house or outsourced). If administering payroll in-house, remember to establish a payroll schedule according to Spain’s monthly cycle. 
• Determine salaries and ensure compliance. Clarify employee salaries and determine the applicable social security taxes and contributions.
• Calculate deductions and pay employees. Calculate and withhold relevant taxes and contributions from employee earnings, make timely payments to employees, and provide them with a payslip detailing net earnings and withholdings.

Payroll options for employers in Spain

Foreign companies generally take one of three approaches to administering payroll in Spain and other international markets: handling payroll internally, outsourcing payroll to a local vendor, or outsourcing payroll to a global payroll partner.

We discuss each of these below.

Internal payroll

Global companies with established entities in Spain may build their in-house finance team to run payroll for their workforce in the country.

However, internal payroll requires a thorough understanding of local employment and payroll laws, leaving the employer responsible for payroll compliance. If you choose this option, consider obtaining legal counsel to reduce risk exposure.

Local payroll outsourcing

Global companies with entities in Spain may choose to outsource payroll to an in-country payroll vendor in Spain instead. These vendors handle the entire payroll process on your behalf, including calculations, payments, and filings.

While this option may seem more cost-effective and time-efficient, it offers limited visibility into the payroll process and may result in payroll errors or delays. Also, if you plan to hire talent in multiple markets, you may work with several in-country payroll vendors, siloing your payroll information and decreasing visibility even more.

Global payroll outsourcing

Lastly, global companies with entities in Spain may decide to outsource payroll to a global payroll partner. A global payroll partner thoroughly understands Spanish and international payroll and tax laws and runs payroll for your international employees.

Typically, a global payroll partner coordinates with in-country payroll providers and streamlines payroll processes into a single system to help reduce errors, inefficiencies, and visibility issues when paying an international workforce.

How to administer payroll in Spain before entity establishment

To directly hire and pay Spanish talent, global businesses must establish a legal entity in the country. However, businesses have various global expansion goals, and some may want to test the market before establishing a permanent presence. Alternatively, some businesses may want to employ Spanish talent while undergoing the lengthy process of entity establishment.

In these cases, global businesses can partner with an employer of record (EOR) to hire and pay Spanish talent without first establishing an entity. An EOR allows businesses to engage and pay employees internationally without undergoing entity establishment or other headaches.

An EOR partner serves as your global HR team, with expertise in international employment and payroll laws. They also handle compliant onboarding and payroll administration on your behalf—all while you maintain day-to-day management responsibilities of your team.

An EOR partner not only runs compliant global payroll but also handles HR tasks like benefits administration, talent relocation, and ongoing support to provide an ideal solution for businesses building distributed teams or eyeing expansion into multiple markets.

Learn more: What Is an Employer of Record (EOR)?

Simplify payroll and taxes in Spain with Velocity Global

Navigating Spanish payroll and tax regulations doesn’t have to be overwhelming or risky. Simplify hiring and paying Spanish talent and eliminate risk by partnering with Velocity Global. 

Velocity Global is a market leader in providing EOR solutions that leverage a cloud-based platform and local experts across 185 countries to help companies quickly and compliantly engage and pay a globally distributed workforce without the need for entities.

Our technology consolidates payroll into one workforce management platform that integrates with your HR stack, facilitating timely, accurate, and compliant payroll and reporting for globally distributed teams.

Lean on us to help you quickly and compliantly engage, pay, and manage talent in Spain so you can grow your global workforce with ease.

Contact Velocity Global today to learn how to simplify hiring and paying talent in Spain and beyond.

Disclaimer: This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. You should contact your attorney or tax advisor to obtain legal and/or tax advice with respect to your particular situation. Only your individual attorney or tax advisor can provide assurances that this information—and your interpretation of it—is applicable or appropriate to your specific situation. All liability with respect to actions taken or not taken based on this information is hereby expressly disclaimed. All content is provided "as is," and Velocity Global makes no representations or warranties concerning this information.