Detailed Guide to Employer of Record (EOR) vs. Entity Establishment in Spain

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Spain, with its thriving tech scene, robust legal infrastructure, and skilled talent pool, is becoming a prime destination for global companies looking to expand their teams. However, hiring employees in Spain remotely can be daunting without understanding local regulations. Businesses must decide whether to engage talent through an Employer of Record in Spain or establish a legal entity in the country. This guide offers a detailed comparison between the two approaches, enabling foreign employers to make informed hiring decisions.

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Employer of Record in Spain vs. Setting Up an Entity

An Employer of Record in Spain is a third-party service provider that becomes the legal employer of your workers in Spain. You retain operational control while the EOR handles payroll, contracts, taxes, social security, and compliance.

On the other hand, entity establishment requires forming a subsidiary or branch office in Spain, which allows direct employment but involves significant administrative and legal work.

Factors to Consider When Choosing EOR or Entity Establishment

  1. Speed of Hiring
    • EOR allows hiring within days.
    • Setting up an entity can take 2–4 months due to registration, banking, tax ID, and documentation.
  2. Long-term vs. Short-term Goals
    • EOR is ideal for testing markets or building temporary/project-based teams.
    • Entity is suited for long-term expansion, local IP creation, or launching physical operations.
  3. Administrative Overhead
    • EORs manage all HR, payroll, and compliance logistics.
    • Legal entities require local representatives, accountants, payroll staff, and HR managers.
Employer of Record (EOR) vs Entity Establishment in Spain

Speed is a key differentiator in today’s competitive markets. Delays in hiring can:

  • Postpone product launches.
  • Derail market-entry strategies.
  • Lead to opportunity costs in fast-moving industries.

Using an EOR in Spain gives companies a strategic advantage:

  • Rapid onboarding of employees.
  • Immediate market presence without bureaucracy.
  • Reduced risk of legal missteps that could delay operations.

Cost Implications of Entity vs. EOR in Spain

Cost considerations go beyond salaries and must include setup, compliance, and operational expenses.

Setup and Maintenance Costs

  • Legal Entity Setup:
    • Notary fees, tax registrations, social security enrollments.
    • Requires a registered office and local bank account.
    • Estimated setup cost: €5,000–€20,000.
    • Ongoing costs: legal advisors, accounting, audits.
  • EOR Setup:
    • No upfront investment required.
    • Monthly per-employee pricing, typically €350–€700.
    • No infrastructure, legal, or HR staff needed.

Compliance Costs

  • Entity Approach:
    • Legal updates, employment contracts in Spanish, severance calculations, and union negotiations.
    • Fines for non-compliance can be steep.
  • EOR Solution:
    • Manages everything, including collective bargaining agreements, employee benefits, and statutory filings.

Time Savings

  • EOR reduces hiring timelines by 80–90%.
  • Instead of waiting months, you can have your Spanish employee onboarded within a week.
Employer of Record (EOR) vs Entity Establishment in Spain

Spain’s employment laws are highly protective of employees and non-compliance can lead to:

  • Hefty penalties.
  • Litigation and labor disputes.
  • Criminal liability in extreme cases.

Labor Law Overview:

  • 14 annual salary payments (12 monthly + 2 bonus months).
  • Maximum 40-hour work weeks.
  • Minimum 30 days of paid vacation.
  • Statutory severance and notice periods.
  • Collective bargaining agreements (CBAs) often override general labor law.

With an EOR:

  • All contracts and policies are fully compliant.
  • Risk of misclassification or illegal dismissal is mitigated.
  • Your business stays insulated from lawsuits and audits.

Setting Up a Legal Entity

Steps include:

  1. Obtain a NIE (Foreigner ID) for directors.
  2. Reserve a company name.
  3. Draft and notarize incorporation documents.
  4. Open a bank account and deposit share capital.
  5. Register with the Mercantile Registry and obtain a CIF (tax ID).
  6. Enroll in Social Security and tax authorities.

This process is costly and time-consuming, especially for companies without local advisors.

Using an Employer of Record (EOR)

  • EOR already has a local entity.
  • Enables hiring within 1–2 weeks.
  • Provides legally compliant contracts, pays social security, and deducts taxes.
  • Best choice for companies without a Spanish presence.

Switching from EOR to Entity Establishment in Spain

When does it make sense to switch?

  • You’ve hired 10+ employees in Spain.
  • You want full control over IP and R&D activities.
  • You plan to open physical offices or start invoicing locally.
  • You seek long-term tax optimization.

Steps for Transitioning:

  1. Incorporate your Spanish entity.
  2. Draft new employment contracts under your legal entity.
  3. Transfer Social Security registrations.
  4. Notify employees and authorities of the employer change.
  5. Coordinate with the EOR for a smooth handoff.

Most reputable EOR providers offer assistance during the transition to ensure compliance continuity.

Employer of Record (EOR) vs Entity Establishment in Spain

Choose Asanify for EOR in Spain

Asanify is your trusted partner for remote hiring in Spain. Whether you’re launching a pilot team or scaling a distributed workforce, we offer:

  • Fast, compliant onboarding: Hire in days without setting up a local entity.
  • End-to-end HR support: Payroll, benefits, contracts, and statutory compliance.
  • Localized expertise: Deep understanding of Spain’s labor landscape and CBAs.
  • Dedicated support: Spanish-speaking HR specialists and legal advisors.

Why Asanify?

  • Transparent pricing with no hidden fees.
  • Unified dashboard for global workforce management.
  • Proven track record with startups and enterprises worldwide.

FAQs

What is an Employer of Record (EOR) in Spain?

An EOR legally employs workers in Spain on your behalf, managing payroll, compliance, and HR tasks.

How does an EOR help with labor law compliance in Spain?

By ensuring employment contracts, benefits, working hours, and terminations align with Spanish regulations.

What are the costs involved in using an EOR in Spain?

Typically €350–€700 per employee/month plus employment-related taxes.

What benefits do employees get under an EOR arrangement in Spain?

Paid holidays, public healthcare, pension, maternity/paternity leave, and bonus salaries.

How does payroll management work with an EOR in Spain?

EOR calculates gross-to-net pay, remits taxes, pays employees on time, and files with tax authorities.

Can EOR handle independent contractors in Spain?

Yes, but contracts must follow Spain’s freelancer laws to avoid misclassification.

What are the key differences between EOR and setting up an entity in Spain?

EOR is fast and low-risk; entities provide long-term control but need substantial investment.

Is it mandatory to have written employment contracts in Spain?

Yes, employment contracts must be in writing and compliant with CBAs.

What are the tax obligations for foreign companies hiring in Spain?

Withholding income tax, paying employer social contributions, and filing declarations.

What are the maternity leave rules in Spain under EOR?

16 weeks paid leave with job protection, managed through social security.

How does health insurance work under EOR in Spain?

Public health coverage via social contributions, with optional private insurance.

What is the Spanish Social Security system, and who contributes?

Both employer and employee; EOR handles deductions and submissions.

What is the difference between employees and contractors in Spain?

Employees are entitled to labor protections; contractors must invoice and manage taxes.

How does an EOR ensure timely salary payments in Spain?

Through automated payroll systems integrated with local banks.

What are the professional tax rules in different Spanish regions?

Spain lacks a centralized professional tax, but income tax rates vary regionally.

Not to be considered as tax, legal, financial or HR advice. Regulations change over time so please consult a lawyer, accountant  or Labour Law  expert for specific guidance.