Running payroll in Spain

For foreign employers, payroll processing in Spain can be quite a challenge. In fact, Spain is among the top 5 countries with the most complex payroll systems according to the 2021 Global Payroll Complexity Index. This is due to a number of factors.

For one, employment relationships in Spain are highly influenced by collective bargaining agreements which, in some cases, also have a direct impact on payroll processing. But also the different taxation rules for resident and non-resident employees can cause headaches in the payroll department.

Before they can start processing payroll in Spain, employers have to register with the local tax and social security authorities. After registering with the Spanish Tax Agency (Agencia Estatal de la Administración Tributaria), employers obtain a company tax number, which is needed for payroll processing and withholding income tax from salaries and wages, as well as a Contribution Account Code (CCC) which is needed for social security registration. 

The registration with the National Social Security Institute (Seguridad Social) should be completed before the first employee starts working for the company. In order to do this, companies need their Contributions Account Code. In most cases, registering with the social security authority is done online. Employers further have to take out occupational accident insurance for their employees. 

Employees also need a personal tax number under which their taxes are filed as well as a social security number (NAF). New hires must be reported to the authorities via an electronic hiring declaration. Although employees in Spain can technically also be hired under a foreign entity, registration with the above mentioned authorities is mandatory for all employers so that they can fulfill their withholding and payment obligations with regard to income tax and social security contributions. 

A local bank account is necessary to make payments to local tax and social security authorities. There only is a limited number of Spanish banks to choose from. 

Income tax in Spain is levied on two different levels, i.e. on national level and on regional level. However, the national and regional tax rates are merged into a single income tax rate which is used for payroll calculations. Tax rules and regulations are different for Spanish residents and non-residents. Social security contributions are shared between employee and employer. 

Tax considerations

The Spanish income tax system comprises two different subsystems which apply to resident and non-resident taxpayers. While residents are liable for Spanish income tax on their worldwide income, non-residents are only liable to pay income tax sourced within Spain. Residency for tax purposes is determined via either one of the following criteria: 

• Individuals spending more than 183 days in any given calendar year in Spain

• Individuals whose center of interests (family, life etc.) is in Spain

Income tax rates for residents are progressive and range from 19% up to 47%. However, these rates may vary between regions as income tax rates comprise two different shares, one levied by the state government and one levied by the regional government. Employees are obligated to provide their employers with their personal tax information for the calculation of their monthly income tax payments. This is done via the 145 Tax Form. 

The base for income tax calculation is the employee’s total remuneration. This includes salaries as well as allowances, bonuses and other benefits granted by the employer. Social security contributions and employment-related expenses such as membership fees for labor unions are deductible. In 2022, the personal tax allowance is set at EUR 5,500.

Furthermore, there are different family allowances as well as other tax reductions available, notably for child support payments and contributions to additional pension schemes. Non-residents are taxed at a 24% flat rate - 19% for those who have residency in another member state of the EU. 

* Please note that the rates given in the table are the general tax rates applying to employment income and include both the national income tax as well as the regional income tax levy. Variation between regions is possible. 

Tax withholding and reporting 

It is the employer’s obligation to withhold income tax from employee wages and declare the withheld amounts to the authorities. The competent authority on the national level is the Agencia Estatal de la Administración Tributaria. Regional taxes are administered by separate local authorities. 

Income tax must be deducted from wages and salaries on a monthly basis. However, the frequency with which the employer has to submit the withheld amounts to the tax authorities varies. Payments must be made once a month if the company’s annual turnover exceeds EUR 6,010,121.04. In this case, the deadline for payments is the 20th of the following month. In all other cases, income tax must be paid once every quarter, with deadlines being 20 April, 20 July, 20 October and 20 January for the previous quarter. Late payments are subject to fines. 

A separate tax declaration needs to be filed every quarter or month, stating the total amounts paid to employees and the income tax withheld from wages and salaries. There are two different forms, one for resident employees (111 Form) and one for non-resident employees (216 Form). Both forms are to be submitted electronically. The same applies to the annual income tax declarations (190 Form for resident employees and 296 Form for non-resident employees) which are due 31 January of the following year.  

Employees must file an individual tax return if their annual employment income exceeds EUR 22,000. In order to do so, they receive an annual income tax certificate listing the total amount of tax withheld from their wages and salaries during the tax year. Returns are due between 2 May and 30 June of the following year. Spouses may file a joint tax return. The tax year is the calendar year. 

Social security contributions

Employers in Spain are responsible for withholding social security contributions from their employees’ monthly salaries as well as making their own contributions. The employer share of the social security contributions is currently (as of 2022) fixed at 29.9%. This includes payments to general social security funds as well as to the unemployment fund, the wages guarantee fund and the vocational training fund. Employees pay 6.35% of their wages to social security.

The calculation base for the contributions is the employee’s gross pay which includes any type of cash payments made to the employee as well as benefits in kind. It should be noted that social security contributions are only levied on income exceeding EUR 1,125.90 - a higher minimum threshold may apply depending on the employee's position and job category. Furthermore, no contributions are due for the share of the income exceeding EUR 4,139.40, which is the universal maximum contribution base for the 2022 contributions year. 

Payments to the Social Security Treasury must be made no later than the last day of the following month. There is an official platform for the administration of social security contributions which is the SILTRA. 

Occupational accident insurance premiums are paid separately. Rates vary depending on the employee’s occupation. Companies may also set up an additional pension plan for their employees. If they decide to do so, they have to file an additional annual declaration to the tax authorities by 31 January for the previous year.

Employees in Spain are entitled to various benefits. These include:

• Annual leave and public holidays: 30 calendar days, plus 14 public holidays

• Maternity leave: 16 weeks, extendable by 2 weeks per child in case of multiple births 

• Paternity leave: called “partner leave”, 16 weeks

• Parental leave: unpaid leave until the child turns 3

• Sick leave: 3 days unpaid; sick days 4 to 15 paid at a rate of 60% by the employer; thereafter, sickness benefits are provided by Social Security (limited to 365 days, but further 180 days possible); after 20 days, sick pay rises to 75% 

For more information on employee benefits and other employment requirements in Spain (including severance pay and termination procedures), check out our Global Hiring Guide.

In September 2021, the national minimum wage in Spain rose to EUR 965 per month. This minimum pay level is applicable to employees receiving 14 payments per year, which brings the minimum annual income of full-time workers to EUR 13,510.

Overtime pay is determined by the provisions made in the applying collective bargaining agreement. Usually, overtime is compensated by additional pay or time off. Most employees in Spain are covered by collective bargaining agreements which provide not only for a 13th but also for a 14th month salary. These bonuses are usually paid out in July and December. 

Payroll in Spain is generally processed on a monthly basis. Payments to employees are commonly issued between the 25th of the month to which the pay relates and the 5th of the following month. It is mandatory to pay employees in the standard currency which is Euros. For each pay period, the employer must provide a payslip which should include all of the following information: 

• Total amount of remuneration payable (including number of paid working days), as well as net salary

• Social security and tax deductions which have been made, plus social security contributions paid by the employer 

• Personal information relating to the employee, including name, address, tax and social security number and job details

• Information relating to the employer, including company name and address, tax number and account code for contributions (social security and more) 

Payslips should follow the standard format and can either be provided in paper form or electronically. It is mandatory to keep payroll records for no less than 4 years.