Spain has strict employment rules, and industry agreements (convenios colectivos) often set the actual standards for pay, working hours, and benefits.

The main law is the Workers' Statute (Estatuto de los Trabajadores), which covers contracts, wages, and working time. Employers also need to account for updates like the Intergenerational Equity Mechanism (MEI) and upcoming EU pay transparency rules.

If you’re hiring in Spain without setting up a local entity, an Employer of Record (EOR) might just be able to handle employment on your behalf.

Overview

Spain’s employment rules are set by the Workers’ Statute (Estatuto de los Trabajadores) and strongly favor employee protection. Employment is contract-based, with clear requirements on terms, working hours, and termination.

In practice, collective agreements (convenios colectivos) are just as important. Most employees are covered by these agreements, which set minimum pay, working hours, and benefits, often above national standards. Employers must identify and follow the correct agreement based on the role and industry.

Employment Conditions

Employment Contracts

Written contracts are mandatory for almost all employment relationships in Spain. Following recent labor reforms, the "indefinite contract" (contrato indefinido) is the default legal standard. Temporary contracts (contrato de duración determinada) are strictly restricted to specific, documented circumstances, such as unpredictable production increases or replacing a worker on leave.

Probation Rules

Probationary periods (periodo de prueba) must be stipulated in writing. While the Workers' Statute suggests limits (typically six months for qualified technicians and two months for other workers), these are frequently modified by the applicable collective agreement (convenio colectivo).

Working Hours and Overtime

• Standard Hours: The statutory maximum is 40 hours per week, calculated on an annual average.

• Overtime: Limited to 80 hours per year, excluding time spent on preventing or repairing extraordinary damages.

• Time Tracking: The Ministry of Labor has reinforced digital time-recording obligations to ensure records are objective and accessible to authorities.

Taxes & Mandatory Contributions

Employers in Spain must withhold income tax (IRPF) and manage social security contributions through payroll.

Social Security Contributions (as of 2026)

Contributions are calculated based on the employee's gross salary, subject to a monthly maximum base of approximately €5,101.20.

Personal Income Tax (IRPF)

Employers must withhold IRPF through payroll. Rates are progressive (around 19% to 47%) and vary based on the employee’s income and location.

Payments & Payroll Administration

Payroll in Spain is usually run on a monthly basis.

Employees are also entitled to two extra salary payments each year (pagas extraordinarias), typically paid in July and December. In some cases, these can be spread across the year—depending on what the applicable collective agreement allows.

Salaries must be paid in euros (EUR).

From a reporting perspective, employers need to submit payroll tax withholdings to the Spanish Tax Agency (Agencia Tributaria). This is done through Model 111 (filed monthly or quarterly) and Model 190 (filed annually).

Benefits

In Spain, most employee benefits are handled through the social security system, so employers are mainly responsible for contributing and ensuring proper registration.

Healthcare

Healthcare is covered through Spain’s public system, funded by social security contributions. Once an employee is registered, they (and often their dependents) can access public healthcare. There’s no legal requirement to provide private health insurance, but some employers offer it as a supplemental benefit for faster access to care.

Pensions

Pensions are funded through mandatory social security contributions. Employers contribute roughly 23–24% of the employee’s salary toward social security, with a portion allocated to retirement. These contributions are capped based on a monthly contribution ceiling, so costs won’t increase indefinitely with higher salaries.

Severance

Severance is a statutory cost that must be paid upon termination and should be factored in from the start. As a general guide:

• Unfair dismissal: ~33 days of salary per year of service (capped)  

• Objective dismissal (e.g., redundancy): ~20 days per year of service  

Because termination rules are strict and procedural, severance costs and the process itself can be significant if not handled correctly.

Leaves

Note: In Spain, statutory annual leave is based on calendar days (30 days), so weekends are included.

Annual Leave and Public Holidays

Sick and Parental Leave

Employee Rights & Protections

Pay transparency

By June 2026, employers with over 100 employees must report on gender pay gaps and may need to justify pay differences between roles. This requires maintaining structured salary data, clear job classifications, and documented compensation criteria.

Data protection

Employee data must be handled in line with GDPR and Spain’s local law (LOPDGDD). In practice, this means collecting only necessary data, limiting access internally, and ensuring proper documentation for how employee information is used and stored. Breaches or misuse can lead to significant penalties.

End of Employment

Termination is a high-risk area in Spain. Employers must provide a valid legal reason and follow strict procedural steps to avoid "unfair dismissal" (despido improcedente).

So, is an EOR a good option in Spain?

If you want to hire in Spain without setting up a local Sociedad Limitada (SL), an Employer of Record (EOR) can be a practical way to enter the market, especially if you’re hiring quickly or testing the market with a small team.

To put simply, the EOR becomes the legal employer on paper. They handle employment contracts aligned with local law and convenios colectivos, run payroll, manage tax withholdings (IRPF), and register employees with social security. This removes the need to build local payroll and compliance infrastructure from scratch.

Your EOR partner helps apply the correct collective agreement from the start. These agreements often go beyond national law and set the rules for salary, working hours, and benefits.  

You still keep full control over the employee’s day-to-day work, while your EOR partner handles the local employment setup and compliance.

Knit offers compliant, locally aligned employment solutions to help you hire and scale in Spain with confidence. Get in touch with us.

Frequently Asked Questions

Do I need a local entity to hire employees in Spain? No. You can use an Employer of Record (EOR) to hire and pay staff legally without a local entity.  

How long does payroll registration take? For a new entity, obtaining the necessary tax ID (NIF) and social security codes can take 4 to 8 weeks. Using an EOR allows you to start hiring in as little as 5 to 15 business days.

Can I pay employees in USD or GBP? No. All employees in Spain must be paid in EUR to ensure compliance with local tax and social security reporting requirements.

Is severance mandatory for all terminations? No. Severance is not required for disciplinary dismissals based on gross misconduct or for resignations. It is, however, mandatory for objective dismissals and collective redundancies.

What are the employer social security rates for 2026? The total employer contribution is approximately 30.65% of the gross salary, which includes the 0.75% MEI pension contribution and the standard 23.6% for common contingencies.

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