Payroll in Spain
Payroll in Spain: A Complete Employer Guide
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Table of Contents
What Is Payroll in Spain?
Payroll in Spain refers to the systematic process employers use to compensate employees while complying with Spanish labor law, tax regulations, and social security obligations. It encompasses calculating gross wages, applying mandatory deductions including income tax (IRPF) and Social Security contributions, processing net salary payments, and maintaining comprehensive records. Spanish payroll operates under strict statutory frameworks governed by the Workers’ Statute, with oversight from the Tax Agency (AEAT) and Social Security Treasury (TGSS).
Employers must register with Social Security, obtain employee tax identification numbers (NIE/NIF), and submit monthly declarations. Payroll processing includes managing 14 annual salary payments—12 monthly payments plus two mandatory extra payments (pagas extraordinarias) typically paid in summer and December. Non-compliance can result in penalties ranging from €626 to €187,515 depending on severity.
How Payroll Works in Spain: A Step-by-Step Overview
Spanish payroll follows a structured monthly cycle integrating salary calculation, statutory deductions, and regulatory reporting. Employers must calculate gross salaries including base pay, allowances, and bonuses, then apply Social Security contributions and income tax withholding (IRPF). The net amount is transferred to employees by month-end, accompanied by a detailed payslip (nómina).
The process requires monthly submission of TC1 and TC2 forms to Social Security by the last day of the following month, quarterly income tax payments through Model 111, and annual tax certificates (Model 190). Employers must maintain payroll records for four years and ensure all payments comply with applicable collective bargaining agreements (convenios colectivos) that set minimum industry standards.
Payroll Cycle and Salary Payment Regulations in Spain
Spain operates on a mandatory monthly payroll cycle, with salaries paid by the last working day of each month. Employees receive 14 payments annually: 12 regular monthly salaries plus two extra payments (pagas extraordinarias) equivalent to one month’s salary each, traditionally paid in June/July and December, though some companies prorate these across 12 months.
Payment must be made via bank transfer with documented proof. Late payment beyond the month-end deadline entitles employees to 10% interest on outstanding amounts. Payslips must be issued for every payment, detailing gross earnings, all deductions, and net pay. The legal working hours are 40 hours weekly, with overtime compensated at minimum 175% of regular rate unless collective agreements specify different terms.
Payroll Calculation Process: How Salaries Are Computed in Spain
Spanish salary calculation begins with gross salary (salario bruto) comprising base salary, allowances, and bonuses. Employers first deduct the employee’s Social Security contribution (typically 6.35% for common contingencies), unemployment insurance (1.55%), and professional training (0.10%), totaling approximately 6.35-6.50% of gross salary up to the annual cap.
Next, income tax (IRPF) is withheld based on progressive rates and the employee’s personal circumstances (family situation, dependents, disabilities). IRPF withholding rates range from 2% to over 45% depending on income level. The final net salary (salario neto) equals gross salary minus Social Security contributions and IRPF withholding. Employers separately pay their Social Security contributions (approximately 29.90% of gross salary) which don’t reduce employee net pay but represent additional employment costs.
Salary Structure and Payroll Components in Spain
Spanish salary structure consists of multiple components regulated by labor law and collective agreements. The gross salary includes base pay (salario base), mandatory extra payments, salary supplements (complementos salariales), and additional benefits. Understanding these components is essential for accurate payroll processing and compliance with minimum wage requirements and industry standards.
Every payslip must clearly itemize earnings and deductions. Collective agreements often mandate specific allowances such as transport, meals, or seniority bonuses. Some benefits like meal vouchers (up to €11 daily) and transport allowances (up to €136.36 monthly) may be tax-exempt within legal limits, reducing both employer and employee tax burdens.
What Are the Standard Earnings Components in Spain?
Standard earnings in Spain include both fixed and variable components that together constitute gross salary. The statutory minimum wage (SMI) serves as the baseline for all calculations.
- Base Salary (Salario Base): The fixed monthly amount specified in the employment contract and collective agreement
- Extra Payments (Pagas Extraordinarias): Two mandatory additional monthly payments, typically paid mid-year and December
- Seniority Bonus (Antigüedad): Additional pay based on years of service, if stipulated in collective agreements
- Overtime (Horas Extraordinarias): Compensation for hours beyond the standard 40-hour week
- Allowances (Complementos): Position-based, performance, or hardship supplements
- Benefits in Kind: Company car, housing, or other non-cash compensation subject to valuation rules
Payroll Deductions in Spain: What Gets Deducted from Employee Salaries?
Employee payroll deductions in Spain include mandatory Social Security contributions and income tax withholding (IRPF). These deductions reduce gross salary to arrive at net take-home pay.
- Social Security Contributions: Approximately 6.35% for common contingencies, unemployment (1.55%), and training (0.10%)
- Income Tax Withholding (IRPF): Progressive withholding based on income level and personal circumstances, ranging from 2% to 45%+
- Additional Contributions: Overtime hours up to the annual cap, professional fees if applicable
- Voluntary Deductions: Union dues, private pension contributions, or salary advances if authorized
Total employee deductions typically range from 15% to 50% of gross salary depending on income level and personal tax situation. The contribution base has an annual maximum (€53,478.12 monthly for most categories), above which contributions are not calculated.
Understanding Salary Taxes and Statutory Obligations in Spain
Spanish employers face dual statutory obligations: employer Social Security contributions paid on top of gross salary and employee-side deductions withheld from wages. The combined tax burden significantly impacts total employment costs, with employers paying approximately 29.90% in Social Security contributions while employees contribute around 6.35% plus income tax.
Both employer and employee contributions are calculated on the contribution base (base de cotización), which includes base salary, extra payments prorated monthly, and most allowances. Understanding the distinction between employer obligations and employee deductions is crucial for accurate cost planning and payroll compliance.
Employer Salary Taxes: Statutory Contributions and Payroll Obligations in Spain
Employee Salary Deductions: Income Tax and Social Contributions in Spain
Employees in Spain have two primary deductions from gross salary: Social Security contributions and income tax withholding (IRPF). Combined, these typically reduce gross salary by 15-50% depending on income level.
| Deduction Type | Employee Rate |
|---|---|
| Common Contingencies | 4.70% |
| Unemployment | 1.55% |
| Professional Training | 0.10% |
| Total Social Security | ~6.35% |
| Income Tax (IRPF) | Variable (2-45%+) |
IRPF withholding rates are calculated based on annual projected income, family situation, and regional variations. Employers adjust withholding throughout the year and issue annual certificates (Model 190) for employee tax returns.
Income Tax in Spain: Rates, Withholding, and Filing
Spain operates a progressive personal income tax (IRPF – Impuesto sobre la Renta de las Personas Físicas) system with rates determined by both national and regional governments. Employers must withhold IRPF from employee salaries monthly based on projected annual income, personal circumstances, and applicable deductions. Withholding rates range from approximately 2% for low earners to over 45% for high-income employees.
The tax year runs from January to December, with employees filing annual tax returns (Declaración de la Renta) between April and June of the following year. Employers submit quarterly withholding payments via Model 111 and provide annual employee certificates via Model 190, enabling employees to reconcile withheld amounts against actual tax liability.
How Does Income Tax Withholding Work in Payroll?
IRPF withholding in Spain is calculated using tables published annually by the Tax Agency (AEAT), considering gross annual salary, personal allowances, and family circumstances. Employees complete Form 145 declaring their personal situation (marital status, dependents, disabilities) to determine the applicable withholding percentage.
Employers apply this percentage to monthly salary payments, including base pay, bonuses, and most allowances. Special rules apply to extra payments, stock options, and severance. The withholding system aims to approximate annual tax liability, minimizing year-end tax payments or refunds. Employees can request withholding adjustments if circumstances change (marriage, children, mortgage) by submitting updated Form 145. Employers must recalculate withholding rates annually each January and whenever employees report status changes.
Tax Slabs, Rates, and Filing Requirements in Spain
Spanish income tax combines national and regional rates, with total marginal rates ranging from 19% to 47%+ depending on income level and autonomous community. National tax brackets apply progressive rates to taxable income after deductions.
| Taxable Income (Annual) | National Rate | Typical Combined Rate |
|---|---|---|
| Up to €12,450 | 9.50% | 19% |
| €12,450 – €20,200 | 12% | 24% |
| €20,200 – €35,200 | 15% | 30% |
| €35,200 – €60,000 | 18.50% | 37% |
| €60,000 – €300,000 | 22.50% | 45% |
| Above €300,000 | 24.50% | 47% |
Regional governments add supplementary rates, causing variation across autonomous communities. Employees earning over €22,000 annually or with multiple income sources must file annual tax returns.
Social Security and Statutory Contributions in Spain
Spain’s Social Security system (Seguridad Social) provides comprehensive coverage including healthcare, pensions, unemployment, and workplace injury benefits. Both employers and employees make mandatory monthly contributions calculated on the contribution base (base de cotización), which includes salary, prorated extra payments, and most allowances up to annual maximum thresholds.
Total combined Social Security contributions reach approximately 36.25% of gross salary (29.90% employer, 6.35% employee). Registration with the General Treasury of Social Security (TGSS) is mandatory for all employers. Contributions must be paid monthly via the RED electronic system by the last day of the following month. The system operates on contribution groups (grupos de cotización) ranging from Group 1 (engineers, graduates) to Group 11 (unskilled workers), each with specific minimum and maximum contribution bases.
- Common Contingencies: Funds healthcare and pensions (23.60% employer, 4.70% employee)
- Unemployment Insurance: Covers job loss benefits (5.50-6.70% employer, 1.55% employee)
- FOGASA: Wage guarantee fund for insolvency situations (0.20% employer only)
- Professional Training: Supports vocational development (0.60% employer, 0.10% employee)
- Workplace Injuries: Variable rate based on industry risk classification
Payroll Compliance: What Employers Must Follow in Spain
Spanish payroll compliance requires adherence to multiple regulatory frameworks including the Workers’ Statute (Estatuto de los Trabajadores), Social Security legislation, tax law, and applicable collective agreements. Employers must register with Social Security, obtain company identification codes (CCC), and register each employee before their first working day.
Monthly obligations include submitting Social Security forms TC1 and TC2, paying contributions via RED system, and withholding/remitting income tax. Quarterly requirements include Model 111 submission for IRPF withholding. Annual obligations involve issuing Model 190 certificates to employees and maintaining payroll records for four years. Collective agreements (convenios colectivos) establish industry-specific minimums for salaries, working conditions, and benefits that often exceed statutory requirements.
- Registration Requirements: Social Security enrollment, Tax Agency registration, Labor Authority notification
- Documentation: Written employment contracts, detailed payslips (nóminas), contribution records
- Payment Timing: Monthly salary by month-end, Social Security contributions by last day of following month
- Record Retention: Four-year retention of payroll documentation, time records, and contribution proof
- Employee Rights: Compliance with minimum wage, working time limits, leave entitlements, and collective agreement terms
What Payroll Challenges Do Global Companies Face When Hiring in Spain?
International companies expanding into Spain encounter significant payroll complexities stemming from language barriers, intricate regulatory requirements, and cultural differences. Spanish labor law strongly favors employee protection, with extensive mandatory benefits, strict termination procedures, and powerful collective agreements that vary by industry and region.
- Legal Entity Requirements: Processing payroll typically requires establishing a Spanish legal entity, involving significant time, cost, and ongoing compliance obligations
- Collective Agreements: Navigating over 5,000 industry and regional agreements that establish binding minimum terms exceeding statutory law
- Language Barriers: All official documents, contracts, and payslips must be in Spanish; dealing with monolingual government agencies
- Regional Variations: Each autonomous community has different tax rates, holidays, and regulatory interpretations
- Administrative Complexity: Multiple government portals (RED, AEAT, SEPE) with complex filing requirements and limited English support
- Extra Payments: Managing 14 annual salary payments and understanding proration implications
- Classification Rules: Properly categorizing workers into contribution groups and applying correct collective agreement terms
- Penalties: Severe fines for non-compliance ranging from hundreds to hundreds of thousands of euros
In-house Payroll vs Payroll Outsourcing vs Employer of Record (EOR): Which Is Right for You?
Companies hiring in Spain can choose between three payroll delivery models, each offering different levels of control, compliance support, and resource requirements. The optimal choice depends on company size, expansion timeline, local expertise, and strategic objectives.
| Model | Best For | Pros | Cons |
|---|---|---|---|
| In-house | Established companies with local presence | Full control, direct oversight | High cost, compliance risk, requires expertise |
| Outsourcing | Companies with Spanish entity | Expert compliance, cost-effective | Requires legal entity, less control |
| EOR | Fast expansion without entity | No entity needed, full compliance, fast setup | Higher per-employee cost |
Most international companies entering Spain benefit from EOR services initially, transitioning to outsourcing or in-house payroll once they establish a local entity and hire larger teams.
How Does Payroll Outsourcing Work in Spain?
Payroll outsourcing in Spain involves contracting a specialized provider to manage payroll processing while the company maintains its Spanish legal entity and employment contracts. The outsourcing partner handles salary calculations, statutory deductions, Social Security filings, tax withholding submissions, and payslip generation.
Companies provide employee data, hours worked, bonuses, and changes to the outsourcing provider, who processes payroll according to Spanish regulations and collective agreements. The provider submits monthly TC1/TC2 forms, quarterly Model 111 tax filings, and annual Model 190 certificates. Companies retain employer liability and must fund payroll and contributions, while the provider ensures technical compliance. This model suits companies with Spanish entities seeking to reduce administrative burden and compliance risk without relinquishing legal employer status. Costs typically range from €30-80 per employee monthly depending on service scope.
How Does Payroll Through Employer of Record (EOR) Work?
An Employer of Record (EOR) in Spain acts as the legal employer, enabling companies to hire Spanish employees without establishing a local entity. The EOR holds the employment contract, assumes legal liability, manages full payroll processing, handles Social Security registration and contributions, processes tax withholding, and ensures complete labor law compliance.
The client company directs daily work activities and performance management while the EOR manages all employment administration. This includes drafting compliant contracts under applicable collective agreements, processing 14 annual payments, managing leave and benefits, handling terminations per Spanish law, and bearing employer liability. EOR services provide the fastest route to hiring in Spain—often within days—and eliminate entity establishment costs and ongoing corporate compliance obligations. Pricing typically ranges from 8-15% of gross salary or €200-600 per employee monthly, making it cost-effective for teams under 10-15 employees.
How Much Does Payroll Cost in Spain?
Payroll costs in Spain encompass direct processing fees plus substantial statutory employer contributions. Total employment costs typically reach 135-145% of gross salary when including employer Social Security contributions (approximately 29.90%), payroll processing, and administrative overhead.
Processing costs vary by delivery model. In-house payroll requires dedicated staff, software (€50-200 monthly), and compliance expertise, totaling €30,000-60,000 annually for small teams. Outsourcing costs €30-80 per employee monthly (€360-960 annually). EOR services charge €200-600 per employee monthly or 8-15% of gross salary. Beyond processing, employers pay Social Security contributions, workplace injury insurance (0.90-8.00% depending on industry), and potential costs for collective agreement compliance. Additional expenses include extra payments, severance provisions, and benefit administration. Hidden costs include penalties for non-compliance, training expenses, and system maintenance.
How Asanify Manages Payroll in Spain
Asanify, recognized as the #1 global payroll and EOR platform on G2, delivers comprehensive payroll solutions for companies hiring in Spain. Our platform combines advanced technology with local expertise to ensure full compliance with Spanish labor law, tax regulations, and Social Security requirements while simplifying the administrative burden for international employers.
We offer both payroll outsourcing for companies with Spanish entities and full EOR services for those without local presence. Our Spain payroll solution includes automated salary calculations incorporating applicable collective agreements, management of 14 annual payments and prorations, Social Security registration and monthly contributions via RED system, IRPF withholding and quarterly/annual tax filings, generation of compliant Spanish payslips (nóminas), and leave management including Spain’s generous holiday entitlements.
Asanify’s technology platform provides real-time visibility into payroll status, automated compliance alerts, centralized employee data management, and multi-country payroll consolidation for global teams. Our local Spanish HR and legal experts ensure contracts align with collective agreements, navigate regional variations across autonomous communities, and manage complex situations including terminations, restructuring, and dispute resolution. With Asanify, companies reduce compliance risk, accelerate time-to-hire in Spain, and scale confidently across Europe.
Best Practices for Managing Payroll in Spain
Successful payroll management in Spain requires proactive compliance, attention to detail, and understanding of complex regulatory requirements. Implementing best practices minimizes risk and ensures smooth operations.
- Understand Collective Agreements: Identify and apply the correct convenio colectivo for each employee’s industry and role
- Maintain Accurate Records: Keep detailed documentation of hours worked, leave taken, and all payroll transactions for four years
- Register Before Day One: Complete Social Security enrollment before an employee’s first working day to avoid penalties
- Automate Calculations: Use compliant payroll software to accurately calculate contributions, taxes, and prorations
- Submit Timely Filings: Meet all monthly, quarterly, and annual deadlines for Social Security and tax submissions
- Issue Compliant Payslips: Provide detailed nóminas showing all earnings, deductions, and net pay for each payment
- Budget for 14 Payments: Account for two extra payments when planning annual compensation budgets
- Stay Updated: Monitor changes to minimum wage, contribution rates, and tax brackets announced annually
- Partner with Experts: Engage local advisors or specialized providers for compliance guidance and complex situations
Your Payroll Success Guide: Running Payroll in Spain Without Compliance Risk
Successfully managing payroll in Spain requires balancing complex regulations, cultural expectations, and strategic objectives. Companies must navigate multi-layered compliance obligations spanning labor law, Social Security, taxation, and collective agreements while delivering timely, accurate compensation to employees. The Spanish system’s emphasis on employee protection and comprehensive social benefits creates administrative complexity but also provides workforce stability and social cohesion.
Your compliance roadmap begins with proper entity establishment or EOR partnership, followed by Social Security and tax authority registration. Implement robust systems for tracking hours, calculating contributions, and meeting filing deadlines. Engage local expertise to interpret collective agreements and regional variations. Maintain meticulous records and conduct regular compliance audits. For international companies, partnering with specialized providers like Asanify eliminates compliance risk while enabling rapid, confident expansion into the Spanish market. With proper planning and expert support, payroll becomes a competitive advantage rather than an administrative burden, enabling you to attract top Spanish talent and build successful local operations.
Frequently Asked Questions About Payroll in Spain
How does payroll work in Spain?
Payroll in Spain operates on a monthly cycle where employers calculate gross salaries, deduct Social Security contributions (~6.35%) and income tax (IRPF), pay employer contributions (~29.90%), and transfer net salaries by month-end. Employees receive 14 annual payments including two extra payments, with all transactions documented via detailed payslips and submitted to Social Security and tax authorities monthly.
What are the payroll rules in Spain?
Spanish payroll rules require monthly payment by month-end, 14 annual salary payments, Social Security registration before employment starts, monthly contribution filings via RED system, IRPF withholding and quarterly tax submissions, four-year record retention, compliance with applicable collective agreements, and provision of detailed payslips for every payment. Non-compliance results in penalties from €626 to €187,515.
What taxes are deducted from salary in Spain?
Employees in Spain have Social Security contributions deducted (approximately 6.35% covering pensions, healthcare, unemployment, and training) and income tax withholding (IRPF) ranging from 2% to 45%+ based on income level and personal circumstances. Total deductions typically reduce gross salary by 15-50%, with the exact amount depending on earnings and family situation declared on Form 145.
What is the payroll cycle in Spain?
Spain uses a mandatory monthly payroll cycle with salaries paid by the last working day of each month. Employees receive 14 payments annually: 12 regular monthly salaries plus two extra payments (pagas extraordinarias) traditionally paid in June/July and December, though some employers prorate these across all 12 months. Monthly Social Security contributions are due by the last day of the following month.
How much does payroll processing cost in Spain?
Payroll processing costs vary by model: in-house requires €30,000-60,000 annually for small teams, outsourcing costs €30-80 per employee monthly (€360-960 annually), and EOR services charge €200-600 per employee monthly or 8-15% of gross salary. Total employment costs including mandatory employer Social Security contributions (~29.90%) reach 135-145% of gross salary.
Is payroll outsourcing legal in Spain?
Yes, payroll outsourcing is fully legal and common in Spain. Companies with Spanish entities can contract specialized providers to handle payroll processing, Social Security filings, and tax compliance while maintaining legal employer status. Outsourcing payroll administration differs from illegal employee leasing—companies must hold employment contracts and retain employer responsibilities while the provider manages technical payroll processes.
How does Employer of Record handle payroll in Spain?
An EOR in Spain becomes the legal employer, holding employment contracts and assuming full liability while the client company directs daily work. The EOR manages complete payroll including salary calculations, Social Security registration and contributions, IRPF withholding and tax filings, 14 annual payments, benefits administration, and compliance with applicable collective agreements, enabling companies to hire without establishing a Spanish entity.
Can EOR providers manage payroll without a local entity in Spain?
Yes, EOR providers operate through their own Spanish legal entities, eliminating the need for client companies to establish local presence. The EOR’s entity serves as the legal employer, handling all employment administration, payroll processing, and compliance obligations. This enables international companies to hire Spanish employees within days, avoiding the 2-4 month entity establishment process and ongoing corporate compliance requirements.
Streamline Payroll Compliance in Spain with Asanify
Asanify handles payroll, taxes, and statutory filings in Spain—so you stay compliant while scaling confidently.