Spain Employment Benefits Guide for Mid-Market Companies 2025

Spain's employment landscape can feel like a maze when you're scaling across borders. Between mandatory 13th and 14th-month payments, complex severance calculations, and social security contributions that vary by industry, HR leaders often find themselves making critical decisions with incomplete information. The stakes are high: get it wrong, and you're facing compliance issues, unexpected costs, or worse a talent strategy that can't keep pace with your growth.

This guide cuts through the complexity to give you what matters most: clear guidance on statutory benefits, real-world cost implications, and strategic decision points for mid-market companies expanding into Spain. Whether you're evaluating your first Spanish hire or considering when to move from EOR to your own entity, you'll find the practical insights your CFO needs and the compliance clarity your legal team demands.

Key Takeaways

Before diving into the details, here are the critical points every mid-market leader should understand about hiring in Spain:

Spanish Statutory Benefits At A Glance

Spain operates on a 14-payment salary structure, not 12. Employees receive their regular monthly salary plus two additional payments (pagas extraordinarias), typically in June and December. These aren't bonuses; they're mandatory salary components equal to one month's pay each.

Other statutory benefits include:

• Minimum 22 working days of annual leave (30 calendar days)
• Comprehensive sick leave with coordinated employer-social security payments
• 16 weeks each of maternity and paternity leave
• Accident insurance coverage for all employees
• Social security contributions covering healthcare, unemployment, and pensions

Cost Drivers That Matter To Mid-Market Budgets

Employer social security contributions typically range from 29.9% to 31.2% of gross salary, depending on the employee's contract type and company size. The largest components are:

• Common contingencies (pension and healthcare): 23.6%
• Unemployment insurance: 5.5%
• FOGASA (wage guarantee fund): 0.2%
• Professional training: 0.6%
• Accident insurance: 0.5% to 6.7% based on risk classification

The 13th and 14th-month payments create significant cash flow implications, adding roughly 16.7% to your annual salary costs before considering social contributions on these payments.

When To Shift From EOR To Your Own Entity

Most mid-market companies find the tipping point around 15-30 full-time employees or monthly payroll exceeding €50,000-75,000. Key triggers include:

• Need for stock option plans requiring local entity participation
• Customer or regulatory requirements for local presence
• Desire for greater control over benefits and employment terms
• Long-term commitment to the Spanish market (3+ years)

Compliance Watch-Outs For Regulated Sectors

Financial services, healthcare, and defence companies face additional requirements including enhanced background checks, data localisation rules, and sector specific collective bargaining agreements that can significantly impact costs and processes.

Statutory Pay And Benefits In Spain

Spain's employment framework prioritizes worker protection through comprehensive statutory benefits and collective bargaining agreements. Unlike some jurisdictions where benefits are largely discretionary, Spanish law mandates specific minimums that cannot be contracted away.

This protective approach means three things for mid-market companies: first, you need to budget for statutory costs from day one. Second, collective bargaining agreements (CBAs) often enhance these minimums, particularly in sectors like banking, healthcare, and manufacturing. Third, compliance documentation is critical, Spanish labor inspectors conduct regular audits, and penalties for non-compliance can be substantial.

Understanding these fundamentals helps avoid the common mistake of budgeting based on base salaries alone, only to discover the true employment costs are 45-50% higher when statutory benefits and social contributions are included.

Minimum Wage And Indexation

Spain's statutory minimum wage (SMI) for 2025 is €1,134 per month, paid across 14 payments. This means the effective monthly minimum is approximately €1,323 when the extra payments are factored in.

The government typically updates the SMI annually, often with retroactive effect from January 1st. For companies with 50+ employees, these increases can create pay compression issues where existing employees' salaries fall too close to the new minimum, requiring broader compensation adjustments.

Collective bargaining agreements often establish sector-specific minimum wages above the statutory level. Before hiring, check whether your industry has an applicable CBA, these agreements are legally binding and can significantly impact your cost structure.

Standard Working Hours And Overtime Rules

The standard working week in Spain is 40 hours, averaged over the calendar year. This annual averaging allows for some flexibility in scheduling, but daily and weekly maximums still apply.

Overtime is limited to 80 hours per year and must be compensated at a minimum 75% premium over regular hourly rates. Many CBAs require higher premiums or mandate time-off-in-lieu instead of cash payments.

Night work (10 PM to 6 AM) and holiday work carry additional premiums. Spanish law also requires detailed time tracking for all employees a requirement that has become more strictly enforced following recent EU directives.

Understanding 13th And 14th Month Pay

The pagas extraordinarias system fundamentally changes how you should think about Spanish compensation. Rather than 12 monthly payments, Spanish employees receive 14, their regular monthly salary plus two additional payments of equal value.

This isn't a cultural quirk or employee perk. It's a legal requirement embedded in Spain's employment framework, designed to help workers manage seasonal expenses and provide financial stability.

Eligibility And Timing Of Payments

All employees are entitled to pagas extraordinarias from their first day of employment. The payments are typically made in June (summer bonus) and December (Christmas bonus), though specific dates can vary by collective bargaining agreement.

For employees who don't work the full year, payments are prorated based on months worked. Someone starting in July would receive half the June payment in December, plus their full December payment.

The calculation is straightforward: each paga equals one month of the employee's regular salary, including any fixed allowances but excluding variable components like overtime or commission.

Prorating Into Monthly Payslips

Companies can choose to prorate the pagas across 12 monthly payments instead of making lump-sum payments twice yearly. This approach, called prorrateo, requires either employee consent or authorization in the collective bargaining agreement.

When prorated, each monthly payslip shows the regular salary plus 1/12th of the annual pagas (effectively 2/12ths or 16.67% additional). This appears as a separate line item for transparency.

Many employees prefer lump-sum payments for the cash flow benefit, while employers often favor proration for smoother financial planning. The choice can be employee-specific within the same company.

Cash Flow Planning For Extra Instalments

If paying pagas as lump sums, budget for significant cash flow spikes in June and December. A company with 50 employees earning an average €3,000 monthly will need an additional €150,000 in each paga month.

For growing companies, remember that new hires throughout the year will create varying paga obligations. Someone hired in March will receive a full June paga, while someone hired in August will receive a prorated December paga.

Multi-entity groups should coordinate paga timing across countries to manage consolidated cash flow. Consider establishing monthly accruals of 16.67% of Spanish payroll to smooth the financial impact.

Employer Payroll Costs And Social Contributions

Beyond gross salaries and pagas, Spanish employers face substantial social security contributions that significantly impact total employment costs. These contributions fund Spain's comprehensive social safety net, including healthcare, unemployment benefits, and pensions.

The total employer contribution rate typically ranges from 29.9% to 31.2% of gross salary, depending on contract type and company characteristics. This means a €50,000 annual salary actually costs the employer approximately €65,000-66,000 before considering other employment costs.

Understanding the breakdown helps with accurate budgeting and explains why Spanish employment costs can seem high compared to other European markets.

Pension And Unemployment Rates

The largest component of social contributions covers "common contingencies" - primarily pension and healthcare funding at 23.6% of gross salary for most employees. This rate applies to earnings up to the annual contribution ceiling of €53,478 for 2025.

Unemployment insurance adds another 5.5% for permanent contracts and 6.7% for temporary contracts, reflecting the higher termination risk. These contributions fund Spain's unemployment benefit system, which provides substantial support for displaced workers.

Professional training contributions (0.6% for companies with 50+ employees) fund continuing education programs, while FOGASA contributions (0.2%) provide wage guarantees if employers become insolvent.

Healthcare Funding Contributions

Spain's universal healthcare system is funded through social security contributions rather than separate health insurance premiums. The 23.6% common contingencies rate includes healthcare funding, meaning employees receive comprehensive medical coverage at no additional cost.

This system provides significant value to employees while creating predictable costs for employers. Unlike countries with separate health insurance requirements, Spanish companies don't face the complexity of choosing between multiple insurers or managing premium increases.

For companies coming from markets with employer funded health insurance, this can represent substantial savings, though the overall social contribution burden often offsets this benefit.

Accident Insurance Surcharges

Workplace accident insurance rates vary dramatically based on industry risk classification, ranging from 0.5% for low-risk office work to 6.7% for high-risk industries like construction or mining.

Your rate depends on your company's primary economic activity code (CNAE), not individual job roles. A technology company hiring a maintenance worker would still pay the low-risk rate, while a manufacturing company would pay higher rates for all employees, including office staff.

Some insurers offer premium reductions for companies with strong safety records or comprehensive prevention programs. Given the potential cost impact, it's worth reviewing your classification and exploring risk reduction opportunities.

Calculating Severance For Redundancy Or Dismissal

Spanish employment law provides substantial protection against arbitrary dismissal, with severance requirements that vary based on the termination reason and employee circumstances. Understanding these calculations is crucial for workforce planning and budgeting.

The system distinguishes between objective dismissals (economic reasons, poor performance) and unfair dismissals, with significantly different severance obligations. Most mid-market companies encounter objective dismissal scenarios during reorganizations or market downturns.

Statutory Formula And Caps

For objective dismissals, the statutory formula is 20 days of salary per year of service, capped at 12 months of salary. "Salary" includes the base salary plus any fixed allowances, but excludes variable components like overtime or bonuses.

Unfair dismissals carry much higher costs: 33 days per year of service (45 days for employees hired before February 2012), capped at 24 months (42 months for pre-2012 hires). Given these penalties, proper documentation and process are essential.

Partial years are calculated proportionally. An employee with 2 years and 4 months of service would receive severance based on 2.33 years of service.

The calculation uses the employee's most recent salary, not historical averages, which can create unexpected costs if significant raises occurred before termination.

Typical Severance Scenarios In Mid-Market Firms

Consider a mid-level software engineer earning €45,000 annually with 3.5 years of service. An objective dismissal would require severance of (€45,000 ÷ 365 × 20 × 3.5 years) = approximately €8,630.

For a senior manager earning €75,000 with 6 years of service, the calculation becomes (€75,000 ÷ 365 × 20 × 6) = approximately €24,660.

Collective bargaining agreements can increase these minimums. Some sectors require 25-30 days per year of service, significantly impacting costs for companies with long-tenured employees.

Statutory Leave Including Sick Leave In Spain

Spain provides generous statutory leave entitlements that support work life balance while creating coverage and cost considerations for employers. The system coordinates between employer obligations and social security benefits to provide comprehensive support.

Understanding these entitlements helps with workforce planning and ensures compliance with complex notification and certification requirements.

Annual Holiday Entitlement

Spanish employees are entitled to 30 calendar days (22 working days) of paid annual leave, plus 14 national and regional public holidays. Collective bargaining agreements often increase the annual leave entitlement to 23-25 working days.

Annual leave must generally be taken within the calendar year, though up to 5 days can typically be carried forward with employer agreement. Upon termination, employees must be paid for any accrued but unused leave.

Many companies establish blackout periods during peak business seasons, but these must be reasonable and allow employees meaningful choice in scheduling their main vacation period.

Sick Leave Certification And Pay

Sick leave in Spain involves a coordinated system between employer payments and social security benefits. For the first three days, employers typically pay 100% of salary (though some CBAs allow unpaid waiting periods).

From day 4 through day 15, social security pays 60% of the regulatory base, with many employers topping up to 100% as a competitive benefit. From day 16 onwards, social security pays 75% of the regulatory base.

Employees must obtain medical certification within specific timeframes, typically within 3 days for illnesses lasting longer than 5 days. The administrative burden can be significant, particularly for companies with high absence rates.

Maternity And Paternity Leave

Both parents are entitled to 16 weeks of paid leave following childbirth or adoption. The first 6 weeks must be taken immediately after birth, while the remaining 10 weeks can be used flexibly within the first year.

Social security funds these benefits at 100% of the regulatory base, with no direct cost to employers beyond administrative overhead and temporary replacement costs.

Parents can transfer up to 4 weeks of their leave to their partner, providing flexibility for families while maintaining the overall entitlement structure.

Supplementary Benefits That Attract Mid-Market Talent

While Spain's statutory benefits are comprehensive, competitive employers often add supplementary benefits to attract and retain top talent. These voluntary benefits can provide significant value to employees while offering tax advantages to employers.

The key is choosing benefits that complement rather than duplicate statutory coverage, providing genuine value that differentiates your employment proposition.

Private Health Insurance

Despite universal healthcare coverage, private health insurance remains highly valued for faster specialist access and private hospital facilities. Premiums for comprehensive family coverage typically range from €100-200 monthly.

Many employers provide basic coverage for employees and offer family coverage as a voluntary benefit with employee contributions. The insurance premiums are tax-deductible for employers and tax-free for employees up to €500 annually.

Popular insurers include Sanitas, Adeslas, and DKV, with coverage varying significantly between basic and premium plans.

Flexible Remote Work Stipends

Spain's telework legislation recognises employers' obligation to provide necessary equipment and cover reasonable expenses for remote work. Many companies provide monthly stipends of €50-150 for internet, ergonomic equipment, and utility costs.

These stipends can be structured as tax-free reimbursements if properly documented and limited to actual work-related expenses. Some companies prefer equipment provision over cash stipends to maintain asset control.

The key is establishing clear policies about what expenses qualify and requiring appropriate documentation for tax compliance.

Learning And Development Budgets

Annual learning budgets of €1,000-3,000 per employee are increasingly common, particularly in technology and professional services. These can cover external courses, conference attendance, professional certifications, and language training.

Spain offers training tax credits (bonificaciones) that can offset up to 100% of training costs for some programs, making professional development particularly cost-effective.

Many companies combine individual budgets with company-wide training programs to maximise both the tax benefits and learning outcomes.

Hiring Models For Spain Contractor, EOR Or Entity

Mid-market companies entering Spain face three primary hiring models, each with distinct advantages, costs, and compliance requirements. The right choice depends on your timeline, headcount plans, control requirements, and long-term market commitment.

Understanding these options helps avoid costly mistakes and ensures your employment strategy aligns with broader business objectives.

Contractor Compliance Risks

Spanish law applies strict tests to distinguish between genuine contractors and disguised employees. The key factors are subordination (who controls how work is performed), integration (is the work part of the company's core activity), and exclusivity (does the contractor work primarily for one client).

Misclassification penalties can be severe, including back payment of social contributions, fines up to €187,515, and potential criminal liability for social security fraud. Recent enforcement has intensified, particularly in technology and consulting sectors.

To minimise risk, ensure contractors have multiple clients, use their own equipment, set their own schedules, and invoice for specific deliverables rather than time worked. Written contracts should clearly establish the independent nature of the relationship.

When EOR Fits Post Series B Speed

Employer of Record services allow rapid hiring without establishing a local entity, making them ideal for companies needing to scale quickly or test market demand. EOR providers handle employment contracts, payroll, benefits, and compliance while you maintain day to day management control.

Costs typically range from €400-700 per employee monthly, depending on service levels and benefit packages. While more expensive than direct employment, EOR services can be cost effective for smaller teams or uncertain market commitments.

The trade-off is reduced control over employment terms, benefit design, and employee experience. Some EOR providers also have limitations on stock option participation or specific industry requirements.

Pros And Cons Of Setting Up A Sociedad Limitada

A Spanish limited liability company (Sociedad Limitada or SL) provides maximum control and can be more cost-effective at scale. Setup costs range from €5,000-15,000 including legal fees, with ongoing compliance costs of €3,000-8,000 annually.

Benefits include complete control over employment terms, ability to participate in stock plans, direct customer relationships, and potential tax advantages. However, setup takes 4-8 weeks and requires ongoing legal, accounting, and HR infrastructure.

The entity also creates permanent establishment for tax purposes, potentially affecting your global tax strategy. Consider these implications before committing to local incorporation.

When Mid-Market Companies Should Establish A Spanish Entity

The decision to establish a local entity involves balancing control, cost, complexity, and strategic considerations. Most mid-market companies find clear tipping points where entity establishment becomes advantageous.

Understanding these thresholds helps time the transition appropriately and avoid both premature complexity and delayed cost savings.

Headcount And Cost Thresholds

The financial break-even point typically occurs around 15-30 employees, depending on EOR costs and local setup expenses. At €500 monthly EOR costs, a 20-person team costs €120,000 annually in EOR fees alone, often exceeding the total cost of local entity operations.

However, headcount isn't the only consideration. High-value employees or specialised roles may justify earlier entity establishment, while temporary or project-based teams might remain on EOR arrangements longer.

Consider your 2-3 year hiring projections, not just current headcount. If you expect to reach 25+ Spanish employees within two years, earlier entity establishment often makes financial sense.

Board And Investor Expectations

Investors and boards increasingly expect portfolio companies to demonstrate strategic thinking about international operations. Remaining on EOR arrangements indefinitely can signal lack of market commitment or strategic clarity.

Audit and governance requirements may also favour local entities, particularly for companies preparing for IPO or acquisition. Direct employment relationships provide clearer financial reporting and reduce third-party dependencies.

Customer contracts in regulated industries often require local entities for liability, data protection, or regulatory compliance reasons. Factor these requirements into your timing decisions.

Transition Plan From EOR To Entity

Successful transitions require 3-4 months of planning and coordination. Key steps include entity establishment, tax and social security registrations, benefits provider selection, payroll system setup, and employee contract novation.

Employee communication is critical - transitions can create anxiety about job security or benefit changes. Provide clear timelines, explain the benefits, and ensure continuity of key terms like vacation accruals and service recognition.

Plan for overlap periods where both EOR and entity payrolls run simultaneously. This complexity is temporary but requires careful cash flow management and reconciliation.

Compliance Considerations For Regulated European Sectors

Companies in financial services, healthcare, and defence face additional compliance layers that can significantly impact hiring strategies, costs, and operational requirements in Spain.

These sector-specific requirements often drive earlier entity establishment and require specialised legal guidance to navigate successfully.

Financial Services Data Controls

Spanish financial services regulations, combined with EU requirements, create strict controls around data handling, system access, and personnel vetting. Many roles require background checks that can take 6-12 weeks to complete.

Data localisation requirements may restrict cloud services or require specific data residency arrangements. Some institutions require dedicated Spanish entities for regulatory reporting and local management accountability.

Senior Manager & Certification Regime equivalents are being implemented across EU jurisdictions, creating personal accountability for senior executives that extends to employment decisions and compliance oversight.

Defence Export Control Alignment

Defence contractors face dual-use export control restrictions that can limit remote work, equipment provision, and international collaboration. Security clearance requirements often mandate Spanish citizenship or EU residency.

Facility security requirements may necessitate dedicated offices with specific access controls, background-checked personnel, and restricted IT systems. These requirements can drive real estate and operational costs significantly above standard employment expenses.

Some contracts require demonstration of local industrial capacity, making entity establishment and direct employment relationships contractually necessary rather than optional.

Healthcare Patient Data Safeguards

Healthcare companies must navigate GDPR alongside Spanish health data protection laws (LOPD-GDD) and sector-specific regulations. Data Protection Impact Assessments (DPIAs) are often required for new hiring or system implementations.

Clinical roles may require specific professional registrations, continuing education requirements, and professional indemnity insurance. These requirements vary by region and professional category.

Patient data access requires documented training, system access controls, and regular compliance auditing. The administrative overhead can be substantial for companies unprepared for healthcare sector requirements.

Strategic Takeaways For HR And Finance Leaders

Spain offers tremendous opportunities for mid-market companies, but success requires understanding the true costs, compliance requirements, and strategic decision points that differentiate sustainable growth from expensive mistakes.

The 14-payment salary structure, comprehensive social contributions, and protective employment laws create a higher-cost environment than many other European markets. However, this comes with access to highly skilled talent, strong worker protections that reduce turnover, and a stable regulatory environment.

Key planning considerations include budgeting for total employment costs 45-50% above base salaries, establishing proper accruals for pagas and severance obligations, and timing entity decisions based on headcount projections rather than current needs.

Key Numbers To Present To Your CFO

When building your Spanish expansion business case, include these critical figures:

• Total employment cost multiplier: 1.45-1.50x base salary
• Employer social contributions: 29.9%-31.2% of gross pay
• Mandatory 13th and 14th month payments: +16.7% annual cost
• Statutory severance exposure: 20 days per year for objective dismissals
• Minimum annual leave: 22 working days plus 14 public holidays
• EOR to entity break-even: typically 15-30 employees

Cash flow considerations include June and December paga payments (if not prorated) and potential severance accruals for workforce planning scenarios.

Talk To The Experts At Teamed

Navigating Spain's employment landscape doesn't have to be overwhelming. Whether you're planning your first Spanish hire or considering the transition from EOR to entity, having experienced guidance can mean the difference between smooth expansion and costly compliance issues.

At Teamed, we help mid-market companies make informed decisions about Spanish employment strategy, from initial contractor arrangements through entity establishment and beyond. Our team understands the nuances that matter to growing businesses and can provide the clarity your board and investors expect.

Talk to the experts to discuss your Spanish hiring strategy and ensure your expansion plans are built on solid ground.

Frequently Asked Questions About Hiring In Spain

What are split payments for Spanish bonuses?

Split payments refer to prorating the 13th and 14th month salaries across 12 monthly payslips instead of paying them as lump sums in June and December. This requires employee consent or collective bargaining agreement authorisation and appears as a separate line item showing 1/12th of annual pagas each month.

Does Spanish law allow probation extensions beyond six months?

Standard probation periods are typically 2-6 months depending on the role and collective bargaining agreement. Extensions beyond the initial period are generally not permitted, though some senior or highly technical roles may have longer initial probation periods specified in their contracts or applicable CBAs.

Can we pay the 13th month in cryptocurrency?

No. Spanish labor law requires salaries and mandatory payments like pagas to be paid in legal tender through regulated banking systems. Cryptocurrency payments do not satisfy statutory payment obligations and could create compliance violations with both employment and financial regulations.

How do collective bargaining agreements affect severance?

Collective bargaining agreements can increase severance payments above statutory minimums but cannot reduce them. Some sectors require 25-30 days per year of service instead of the statutory 20 days. Always check your applicable sectoral agreement before calculating severance obligations, as these agreements are legally binding.

What is mid-market?

Mid-market companies typically have 200-2,000 employees and annual revenue between £10 million and £1 billion. These organisations have outgrown startup-focused solutions but haven't yet reached enterprise scale, creating unique needs for strategic guidance combined with operational agility.