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.
Table of Contents
- EOR vs. Setting Up an Entity in Spain
- Cost Implications of Entity vs. EOR in Spain
- Compliance and Legal Exposure: Entity vs. EOR
- Foreign Compliance: Setting Up a Legal Entity vs. Using EOR in Spain
- Switching from EOR to Entity Establishment in Spain
- Choose Asanify for EOR in Spain
- FAQs
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
- 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.
- EOR allows hiring within days.
- 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.
- EOR is ideal for testing markets or building temporary/project-based teams.
- Administrative Overhead
- EORs manage all HR, payroll, and compliance logistics.
- Legal entities require local representatives, accountants, payroll staff, and HR managers.
- EORs manage all HR, payroll, and compliance logistics.
Why Time to Market Matters for Global Companies
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.
- Notary fees, tax registrations, social security enrollments.
- EOR Setup:
- No upfront investment required.
- Monthly per-employee pricing, typically €350–€700.
- No infrastructure, legal, or HR staff needed.
- No upfront investment required.
Compliance Costs
- Entity Approach:
- Legal updates, employment contracts in Spanish, severance calculations, and union negotiations.
- Fines for non-compliance can be steep.
- Legal updates, employment contracts in Spanish, severance calculations, and union negotiations.
- EOR Solution:
- Manages everything, including collective bargaining agreements, employee benefits, and statutory filings.
- 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.
Compliance and Legal Exposure: Entity vs. EOR
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.
Foreign Compliance: Setting Up a Legal Entity vs. Using EOR in Spain
Setting Up a Legal Entity
Steps include:
- Obtain a NIE (Foreigner ID) for directors.
- Reserve a company name.
- Draft and notarize incorporation documents.
- Open a bank account and deposit share capital.
- Register with the Mercantile Registry and obtain a CIF (tax ID).
- 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:
- Incorporate your Spanish entity.
- Draft new employment contracts under your legal entity.
- Transfer Social Security registrations.
- Notify employees and authorities of the employer change.
- Coordinate with the EOR for a smooth handoff.
Most reputable EOR providers offer assistance during the transition to ensure compliance continuity.
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
An EOR legally employs workers in Spain on your behalf, managing payroll, compliance, and HR tasks.
By ensuring employment contracts, benefits, working hours, and terminations align with Spanish regulations.
Typically €350–€700 per employee/month plus employment-related taxes.
Paid holidays, public healthcare, pension, maternity/paternity leave, and bonus salaries.
EOR calculates gross-to-net pay, remits taxes, pays employees on time, and files with tax authorities.
Yes, but contracts must follow Spain’s freelancer laws to avoid misclassification.
EOR is fast and low-risk; entities provide long-term control but need substantial investment.
Yes, employment contracts must be in writing and compliant with CBAs.
Withholding income tax, paying employer social contributions, and filing declarations.
16 weeks paid leave with job protection, managed through social security.
Public health coverage via social contributions, with optional private insurance.
Both employer and employee; EOR handles deductions and submissions.
Employees are entitled to labor protections; contractors must invoice and manage taxes.
Through automated payroll systems integrated with local banks.
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.
