Spain Employer of Record Solutions: Everything You Need to Know

The world is awakening to remote jobs, with more businesses looking into global employment, particularly from countries like Spain.

With its growing GDP catapulting Spain into the top 15 global economies, the country is becoming a hotspot for more than just sunseekers. For non-Spanish companies, however, hiring Spanish citizens poses a quandary.

Only registered legal entities in Spain can employ Spaniards. However, registration is time-consuming and expensive. Setting up an entity and being compliant requires a lot of resources that not all companies are willing to spend, especially if their main objective is to start exploring the market. Thankfully, there’s a smarter solution: using an Employer of Record (EOR).

Let’s explore how an Employer of Record Spain can bring the talent pool to you without adding complexity, such as tax, labor, and social security issues, onto your internal teams’ workload.

How an EOR Can Benefit Spain Employment

Spain is becoming a major player in the manufacturing, agriculture, and energy industries. Its information and communications technology (ICT) sector is also growing; the country now ranks third for connectivity in the European Union.

Spain's growth mirrors its commitment to safeguarding employee rights through constant implementation of stringent regulations. As a global employer, you’ll need to comply with all applicable legislation.

The first step, traditionally, is forming a legal relationship with the Spanish government, typically through registering as a legal entity.

The steps look something like this:

• Obtain the necessary licenses, permits, and authorization
• Obtain an identification number and company tax ID
• Register with the Mercantile Registry and pay the fee
• Register for VAT
• Register employees with the Spanish Social Security System under labor law
• Set up an accounting and reporting system
• Register for corporate tax with the Spanish Tax Agency
• Comply with Spanish and EU Data Protection Laws
• Monitor and continue compliance

When forming a legal entity in Spain, the finish line could be lightyears away, the fees could be thousands of euros, and the upkeep could be financially daunting on your reserves. For many businesses, the costs, paperwork, and timeframes aren’t just unpalatable; they’re unfeasible.
Utilizing a Spain Employer of Record can make short work of such arduous hurdles. These expert organizations partner with businesses like yours to help you onboard and pay international employees with ease.

So how does an Employer of Record work for international hiring? 

• Getting your business registered – An EOR will get you squared away with the Spanish government and (comparatively) fast-track you through the complex rules and regulations.

• Monitoring overheads and set-up costs – An EOR mitigates against and prevents compliance errors and inefficiencies—which skyrocket costs and stagnate progress. EORs make sure the hiring process moves quickly and cost-efficiently.
  
• Securing the right candidate – Background checks. Employment contracts. Every country has its preferences. EORs navigate these issues to help you hire the talent you seek.

• Managing payroll and HR for employees – When it comes to building and maintaining trust with your employees, managing payroll responsibly is at the top of the list. EORs manage payroll and HR issues with diligence and precision, including onboarding and termination, tax withholdings, and employee queries and concerns.
  
• Addressing compliance and legal concerns – EORs identify and quash compliance risks before they snowball. They’re your eyes and ears on the frontline, employing immediacy and tact to proactively avoid risks and issues.

If you are not currently planning to set up an entity (which requires time and resources) and you do not have the necessary expertise to manage your employment relationships in this country in a compliant manner, but still you want to be able to offer competitive employment packages to capable Spanish employees, consider these Employer of Record benefits and hire an EOR versed in Spanish employment.

How to Hire and Pay Employees in Spain With an EOR

EORs handle the logistics of hiring and maintaining remote employees. You get the final say in who you pick and what you pay them, but that’s all you need to worry about. The EOR will guide and advise in every other area, wherever you need.

There are nuances when hiring and paying Spanish employees. Here’s an example of what the two components entail:

The Hiring Process

The hiring process isn’t unusual, barring some contextual differences:

• Advertising the job – Your EOR will assess the Spanish market for trends and expectations regarding customary terms of employment (such as benefits and perks). That’s valuable intel if you want your ad to perk ears (or garner clicks) from top talent. The EOR will also abide by compliance laws and best practices, including non-discrimination and equality laws.
  
• Picking an employee – The EOR streamlines the hiring process by screening candidates, conducting background checks, verifying info, and assessing suitability.
  
• Drafting the contract – With the international employee selected, the EOR can negotiate the contract terms in line with the job market customs and employment laws (we’ll get into expectations in a bit).

• Social Security registration – EORs will register employees with the Spanish Social Security system—as required by law—before their job begins. They’ll also notify the local employment office of the new hire within ten days of the contract start date.

• Employee onboarding – With everything in place, EORs will then help with remote onboarding so that each employee will be comfortable with their responsibilities, and workflow.

The process can quickly become disjointed if handled without care. EORs are experts in keeping things moving smoothly. Once hiring is taken care of, the next important part is employee compensation and benefits.

Payroll Management with an EOR

Spain’s payroll regulations cover salary, tax and social contribution deductions. The EOR is instrumental in setting up and maintaining employee payroll and ongoing contribution deductions, providing comprehensive global payroll services. They’ll ensure your employees are paid in full, on time, and in line with local law.

Here’s what you can expect your EOR to handle when managing your payroll:

• Payroll setup – Configure payroll components, including tax withholdings, social security contributions, and applicable deductions.
  
• Payment processing – Execute monthly salary payments through the EOR with accuracy and timeliness.
  
• Tax compliance – Handle monthly and annual tax filings and manage communications with Spanish tax authorities.
  
• Benefits administration – Administer employee benefits, such as health insurance and retirement contributions, in compliance with Spanish regulations.
  
• Payroll queries – Address and resolve any employee queries or concerns related to payroll and compensation.

Once payroll is set up, the EOR continues to ensure all necessary compliance and legal aspects of the employment relationship in Spain are adhered to on a daily basis. An EOR’s continued support even keeps companies abreast of evolving regulations.

Compliance Risks When Paying Spain Employees

It’s an exciting and fulfilling time for any company when you find that perfect employee who checks all your boxes. With an EOR, the chances of risks or obstacles getting in the way of hiring that ideal employee are mitigated significantly.

That said, there are some potential risks a responsible company should consider when hiring abroad, from Spain or other countries.

Here are some common local labor laws to keep in mind:

• Contracts – Spain recognizes various types of employment contracts, including indefinite, temporary, part-time, and fixed-term contracts— though the use of the latter has been heavily restricted.
  
• Working hours and overtime – The standard work week in Spain is 40 hours, spread across five days. Overtime is regulated (80 hours a year maximum), and employees are entitled to additional pay or compensatory rest for hours worked beyond the standard.

• Wages and benefits – You’ll need to pay employees at least the national minimum wage. Salaries are typically paid monthly, with an additional payment in July and December. Many employers provide benefits such as health insurance, meal vouchers, and retirement plans.

• Time off – Employees in Spain are entitled to 30 days of vacation per year. Although these can be spread out, a minimum of two weeks must be taken consecutively. However, employers will always need to look into the applicable Collective Bargaining Agreement (CBA).
  
• Parental and sick leave – Employees are entitled to 18 months of continued sick leave; new mothers and fathers may each get parental leave which is fully paid and covered by Social Security.
  
• Public holidays – Spain celebrates 14 national public holidays across the country, not including those specific to the regions where your employee may reside.
  
  
• Job classification – Jobs are categorized according to regulations set by a Collective Bargaining Agreement (CBA), which promotes fair contract negotiation.

• GDPR compliance – There are strict data laws in Europe known as the General Data Protection Regulation (GDPR). Even innocent mishandling of employee data can incur significant fines.

Finally, we can’t forget taxes. When hiring in Spain, compliance risks can also stem from tax requirements. The tax laws include:

• Employee tax withholding – You should withhold Personal Income Tax (IRPF) and Social Security contributions from employee salaries. These withholdings are to be remitted to the Spanish Tax Agency and Social Security system.

• Employer contributions – Under the Social Security Contributions Law and the Workers' Statute, employers need to allocate around 31.42% of an employee's salary towards social security, unemployment, and professional training.

• Filing and payment of taxes – The ‘General Tax Law’ states that when filing tax returns—whether monthly or quarterly—they should be accurate, timely, and include an annual summary. Late or inaccurate filings can lead to fines.

• Proper record keeping – Maintaining meticulous and accurate record-keeping is paramount for compliance with Spanish tax laws, ensuring all transactions, withholdings, and remittances are correctly documented and easily accessible for audits or inquiries.

Viable Alternative: Virtual Employer Organization (VEO)

For some EU countries like Spain, a Virtual Employer Organization, also known as VEO, may serve as an alternative to EORs. This is a direct employment model where our clients directly act as the legal employers. Therefore, they will be registered as a Non-Resident Foreign Employer, enabling them to hire employees in Spain. This allows you to assume even more control over the hiring and onboarding process.

Omnipresent will help you to register with the authorities, and we will provide you with a bundle of documents that will include key knowledge of the country and the employment model in Spain. In addition, we will provide you with templates to help you carry out the necessary documents to be compliant , as well as guidance on the mandatory benefits and referral to a trusted partner in those areas where special support is needed.

In addition on a monthly basis, we will support you with payroll processing, while last mile payments will be made through an escrow account by our trusted partner.