Payroll in Spain: A Practical Guide for Employers in 2025

Spain's strategic location in Europe, diverse economy, and skilled workforce make it an attractive destination for organizations looking to expand.

However, navigating Spain's intricate payroll and tax legislation can be challenging due to frequent regulatory changes and complex compliance requirements.

Here’s a comprehensive guide on payroll in Spain, tailored to cover the full scope from taxes to payroll setup and options for employers.

Payroll Taxes and Contributions in Spain

Understanding payroll taxes and contributions in Spain is crucial for employers to ensure compliance and proper financial management.

This section delves into the essential components of payroll taxes and contributions applicable to both employers and employees in Spain.

1. Social Security Contributions (Seguridad Social)

Purpose: Covers healthcare, pensions, parental leave, sick leave, unemployment, and other public benefits.

Total Contribution (2025):

• Employer: 30.57% of gross salary
• Employee: 6.48% of gross salary

Key components included in employer share

Component	Employer Rate (Approx.)
Common contingencies (illness, pension)	23.60%
Unemployment	5.50%
Wage Guarantee Fund (FOGASA)	0.20%
Professional Training	0.60%
Occupational Accidents (variable)	~1% (depends on activity code)

Employee contribution breakdown

Component	Employeee Rate (Approx.)
Common contingencies (illness, pension)	4.70%
Unemployment	1.55
Professional Training	0.10%
Other minor funds	small fractions

Base limits:

• Contributions are subject to annual salary floors and ceilings set by the government.
• For 2025, the maximum monthly contribution base is €4,720; minimum depends on contract type and work category.

More info: Social Security Contribution Bases 2025 (Seguridad Social)

2. Unemployment Insurance (Desempleo)

Purpose: Provides temporary income to eligible individuals after job loss.

Contribution Details:

• Employer: 5.50% (part of the 30.57%)
• Employee: 1.55%
• Rates may vary for temporary contracts (slightly higher employer rate).

More info: SEPE - Public Employment Service

3. Wage Guarantee Fund (FOGASA)

Purpose: Ensures payment of wages and severance if the employer becomes insolvent.

Employer Contribution: 0.20% of gross salary
Employee: No contribution

Administered by the Fondo de Garantía Salarial (FOGASA).

4. Professional Training Fund

Purpose: Supports vocational training and upskilling.

Contribution Rates:

• Employer: 0.60%
• Employee: 0.10% (included in the Social Security remittance).

Employers can reclaim part of this through FUNDAE training programs.

More info: FUNDAE - Fundación Estatal para la Formación en el Empleo

5. Solidarity Contribution (Contribución de Solidaridad – 2025 onward)

Purpose: A new surcharge, in addition to the standard Social Security contributions, on very high earners to support pension sustainability.

Application (2025–2027 Transition Period):

• Applied only to salary above the max contribution base (€4,720/month)
• 2025 rate: 0.92% (full burden on employer)
• Scheduled to rise gradually:
  • 2026: ~1%
  • 2027: ~1.17%

More info: Pension Reform Details—Ministerio de Inclusión, Seguridad Social y Migraciones

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6. Other Considerations

• IRPF (Personal Income Tax): While not a payroll "contribution," employers are required to withhold IRPF from employee paychecks based on tax brackets, family status, and residence.
• Special Regimes: There are special contribution rules for:
  • Agricultural workers
  • Domestic employees
  • Self-employed workers (RETA)
  • Executives and administrators (alta dirección)

Summary Table

Contribution Type	Employer Rate	Employee Rate	Mandatory	Notes
Social Security (total)	30.57%	6.48%	✅	Includes all components listed below
– Unemployment	5.50%	1.55%	✅	Higher rate for temporary contracts
– FOGASA	0.20%	0%	✅	Insolvency protection
– Training	0.60%	0.10%	✅	Used for reclaimable training programs (FUNDAE)
– Occupational Accidents	Varies (~1%)	0%	✅	Based on risk level of sector
Solidarity Contribution	0.92%	0%	✅ (2025+)	Applies only to salary above €4,720/month
IRPF Withholding (Income Tax)	0%	Based on slab	✅	Deducted monthly by employer

How Payroll Tax Is Calculated in Spain

Calculating payroll tax in Spain involves several steps to ensure accurate deductions and compliance with national regulations. Understanding this process helps employers manage payroll effectively and meet legal obligations.

1. Determine Gross Salary: Calculate the total gross salary based on the employee's contract, including any regular bonuses or allowances.
2. Calculate Social Security Contributions:
   • Deduct the employee's portion of Social Security contributions (6.48% of gross salary).
   • Include the employer's portion (30.57% of gross salary) for overall financial planning.
3. Apply Income Tax Withholding
   • Determine the applicable income tax rate based on the employee's income bracket and personal circumstances.
   • Deduct the calculated amount from the gross salary.
4. Account for Solidarity Contribution (If Applicable)
   • For high earners, apply the 0.92% solidarity contribution on the designated portion of the salary.
5. Adjust for Other Deductions
   • Include any additional deductions such as union fees or pension contributions if applicable.
6. Calculate Net Salary
   • Subtract all deductions from the gross salary to determine the net salary payable to the employee.

pro tip

Use automation for calculations, tax tables, and benefit deductions, but never skip post-run validations. After each payroll run, do a final check—look at payroll summaries, spot-check a few employee records, and confirm totals before funds are disbursed.—BJ Anderson, Director of Payroll & Leave Management, Humareso

Example Calculation for a Full-Time Professional

• Gross Salary: €3,500 per month
• Social Security Contribution (Employee): €3,500 x 6.48% = €226.80
• Income Tax Withholding: Assume 20% rate = €700
• Solidarity Contribution: Not applicable in this example
• Net Salary Calculation:
  • Gross Salary: €3,500
  • Social Security: -€226.80
  • Income Tax: -€700
  • Net Salary: €3,500 - €226.80 - €700 = €2,573.20

This example illustrates a typical calculation process for payroll tax in Spain, ensuring transparency and compliance with fiscal responsibilities.

Key Elements of Payroll in Spain

Understanding the key elements of payroll in Spain is essential for employers to properly manage employee compensation and benefits in accordance with local laws. This section covers crucial aspects such as fiscal year, payroll cycle, and various types of leave.

Fiscal Year

• Duration: January 1st to December 31st.
• Relevance: Aligns with the calendar year for tax and financial reporting.

Payroll Cycle

• Frequency: Typically monthly, with payments made at the end of each month.
• Considerations: Ensure timely processing to comply with labor regulations.

Minimum Wage

• Current Rate (2025): Subject to annual updates by the government; refer to official sources for the latest figures.
• Application: Applies to all employees, with potential variations for age or experience.

Overtime

• Rate: Generally 1.25 to 1.75 times the regular hourly rate.
• Limitations: Subject to maximum hours defined by labor agreements.

Termination

• Notice Period: Typically ranges from 15 to 30 days, depending on the contract and tenure.
• Documentation: Required to provide written notice and justification.

Severance

• Calculation: Based on the length of service and reason for termination.
• Legal Requirement: Mandated for dismissals not based on employee misconduct.

Annual Leave

• Entitlement: Minimum of 30 calendar days per year.
• Scheduling: Often determined by mutual agreement between employer and employee.

Maternity Leave

• Duration: 16 weeks, with the possibility of extension.
• Compensation: Paid leave, typically covered by Social Security.

Paternity Leave

• Duration: 16 weeks as of 2025.
• Purpose: Supports family bonding and shared parental responsibilities.

Adoption Leave

• Duration: Similar to maternity leave, allowing for bonding and adaptation.
• Eligibility: Applies to both parents in the case of adoption.

Sick Leave

• Compensation: Typically covered by Social Security after the fourth day of absence.
• Documentation: Medical certification required for validation.

Holidays

• Public Holidays: Varies by region, with national holidays observed across Spain.
• Considerations: Employers must account for regional variations in holiday schedules.

How to Set Up Payroll in Spain

Setting up payroll in Spain involves several crucial steps to ensure compliance with local regulations and effective management of employee compensation. This guide provides a clear roadmap for employers looking to establish payroll operations in Spain.

Step-by-Step Guide to Setting Up Payroll

1. Register with the Spanish Social Security System
   • Action: Obtain a social security number for your business by registering with the Tesorería General de la Seguridad Social (TGSS).
   • Purpose: Enables the employer to contribute to the social security system on behalf of employees.
2. Register with the Tax Authorities
   • Action: Obtain a Tax Identification Number (NIF) from the Agencia Tributaria.
   • Purpose: Required for all tax-related transactions and reporting.
3. Open a Business Bank Account
   • Action: Establish a dedicated bank account for payroll transactions.
   • Purpose: Facilitates smooth and organized payment processes.
4. Determine Employee Classification
   • Action: Identify employee roles, contract types, and applicable labor agreements.
   • Purpose: Ensures appropriate classification for tax and benefit purposes.
5. Set Up Payroll Software or Service
   • Action: Choose a reliable payroll software or service provider that complies with Spanish regulations.
   • Purpose: Streamlines payroll processing and reduces administrative burden.
6. Establish Payroll Policies and Procedures
   • Action: Define payroll cycles, payment methods, and reporting protocols.
   • Purpose: Maintains consistency and transparency in payroll operations.
7. Enroll Employees in Social Security
   • Action: Register each employee with the social security system and obtain their individual social security numbers.
   • Purpose: Necessary for tracking contributions and benefits eligibility.
8. Calculate and Withhold Taxes and Contributions
   • Action: Implement systems to accurately calculate and withhold necessary taxes and social security contributions from employee salaries.
   • Purpose: Ensures legal compliance and proper financial management.
9. Maintain Accurate Records
   • Action: Keep detailed records of all payroll transactions, tax filings, and employee information.
   • Purpose: Essential for audits, legal compliance, and internal reviews.
10. Stay Updated on Regulatory Changes
    • Action: Monitor updates from government agencies and adapt payroll practices as needed.
    • Purpose: Ensures ongoing compliance with evolving laws and regulations.

Payroll Options for Employers in Spain

Employers in Spain have several options for managing payroll, each with its own advantages and disadvantages. 

Choosing the right method depends on the size of the business, budget, and specific needs.

Internal Payroll Management

• Description: Companies handle payroll processes in-house using their own HR and finance teams, often supported by payroll software.
• Pros:
  • Greater control over payroll processes and data.
  • Direct communication with employees regarding payroll issues.
• Cons:
  • Requires significant time and resources.
  • May lead to compliance risks if staff are not well-versed in Spanish payroll regulations.

Outsourcing to a Local Partner

• Description: Engaging a local payroll service provider to manage payroll tasks and ensure compliance with Spanish laws.
• Pros:
  • Leverages local expertise in tax and labor regulations.
  • Reduces administrative burden on internal teams.
• Cons:
  • Less direct control over payroll processes.
  • Potential for communication challenges if not well-coordinated.

Global Payroll Provider

• Description: Using an international payroll service that manages payroll across multiple countries, including Spain.
• Pros:
  • Streamlines payroll processes for multinational companies.
  • Consistent payroll practices across different regions.
• Cons:
  • May lack specific local expertise compared to a dedicated local partner.
  • Can be more costly for smaller businesses.

Employer of Record (EOR)

• Description: Engaging an EOR to handle all employment responsibilities, including payroll, taxes, and compliance, while the company manages day-to-day activities.
• Pros:
  • Simplifies compliance with Spanish employment laws.
  • Ideal for businesses expanding into Spain without establishing a legal entity.
• Cons:
  • Less control over employment decisions and processes.
  • Costs can be higher than other options.
• Note: See our pick of the best EOR in Spain.

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