14 February 2025

How to ensure workforce compliance in Spain: a guide for international employers

Written by: María

Spanish Payroll Specialist

Compliance with local labour laws and regulations is essential for international businesses operating in Spain. Failure to meet Spanish compliance standards can lead to legal disputes, financial penalties, and reputational damage.

Ensuring compliance may seem complex for companies unfamiliar with the country’s legal framework. However, understanding the key obligations and implementing proper processes can make workforce management far more straightforward.

This guide overviews Spain’s employment regulations, from labour laws and employment contracts to tax and social security responsibilities. It also highlights how businesses can simplify compliance by working with an Employer of Record (EOR) to reduce administrative burdens and minimise legal risks.

Key Spanish labour laws employers must follow

Spain’s employment framework is governed by comprehensive labour laws outlining employer and employee rights. Central to this framework is the Estatuto de los Trabajadores (Workers’ Statute), which covers working conditions, leave entitlements, salary payments, and termination procedures.

For businesses hiring in Spain, it’s crucial to understand how these laws apply to various employment relationships, including permanent, temporary, and freelance workers. While permanent employees are entitled to greater protections and benefits, temporary contracts are strictly regulated, and freelance workers (autónomos) operate under a separate legal regime. Missteps in adhering to these rules can lead to fines, disputes, and other complications.

Employment contracts and classification of workers

One of the first steps in workforce compliance is correctly classifying workers and issuing appropriate employment contracts. Spain offers several types of contracts, including:

Permanent contracts: Offering long-term stability and full employment rights.
Temporary contracts: Designed for short-term projects, seasonal work, or specific tasks, with strict legal limitations on their duration.
Freelance/self-employed (autónomos): Workers who operate as independent contractors, often handling their own taxes and social security contributions.

Employers must ensure contracts accurately reflect the nature of the employment relationship. Misclassification—treating an employee as a contractor to reduce tax or benefit obligations—can result in penalties, back pay requirements, and legal challenges. Getting the classification right from the outset is critical to maintaining compliance and avoiding disputes.

Employer obligations: tax, payroll, and social security

When employing workers in Spain, businesses are responsible for adhering to a range of tax and social security requirements. Key obligations include:

Income tax withholding: Employers must deduct and remit IRPF (Spanish personal income tax) from employees’ salaries.
Social security contributions: Employers and employees each contribute a percentage of the salary towards Spain’s social security system, covering benefits like healthcare, pensions, and unemployment insurance. Employers typically pay a larger share than employees.
Payroll reporting: Regular reporting and payment of payroll taxes to local authorities is mandatory, with strict deadlines to prevent penalties.

Non-compliance in these areas can have significant legal and financial consequences. Employers must maintain accurate payroll records, ensure timely filings, and stay informed about any changes to tax rates or reporting procedures.

Working hours, holidays, and employee benefits

Spain’s labour laws set strict regulations on working hours, overtime pay, and rest periods, including specific breaks and daily rest requirements. As of 2024, the Spanish government has approved a plan to gradually reduce the standard full-time working week from 40 hours to 37.5 hours. Despite this change, rules on overtime compensation and work-life balance protections remain in place. Employers must also adhere to regulations on:

Holiday entitlements: Employees are generally entitled to at least 30 calendar days of paid annual leave, in addition to national and regional public holidays.
Sick leave: Employers are often required to cover part of the employee’s salary during illness, with social security stepping in after a certain period.
Maternity/paternity leave: Spain provides generous parental leave provisions, with paid leave for both mothers and fathers. Spain’s standard maternity leave is known as Permiso de Maternidad, and it entitles mothers to 16 weeks off work. This increases to 18 weeks for twins and 20 weeks for triplets.
Severance pay: In cases of dismissal or redundancy, employers may need to provide severance based on the employee’s length of service.

Understanding and implementing these benefits correctly ensures compliance and fosters a positive working relationship between employer and employee.

Compliance challenges for international employers

For companies new to the Spanish market, understanding and adhering to complex labour laws and tax regulations can be a daunting task. Businesses often face several compliance challenges, from keeping up with frequent legal and regulatory updates to properly classifying their workforce.

Missteps—such as incorrectly treating employees as contractors—can lead to significant legal repercussions. Additionally, failing to meet payroll tax and social security filing obligations within required deadlines poses a serious compliance risk.

The lack of in-depth local knowledge can make it easy to overlook critical requirements or misinterpret certain aspects of Spanish labour laws. Such errors not only expose companies to legal disputes and financial penalties but also risk audits that can disrupt day-to-day operations.

Beyond financial consequences, non-compliance can tarnish an employer’s reputation, making it harder to attract top talent and maintain positive relationships with existing employees. In short, without proper guidance, the road to workforce compliance in Spain is fraught with potential pitfalls.

How an Employer of Record ensures compliance in Spain

An Employer of Record (EOR) provides a straightforward way to meet Spain’s compliance standards for businesses without a local entity. An EOR serves as the legal employer on behalf of the company, taking on the administrative and regulatory responsibilities of payroll, taxes, and employment contracts.

With an EOR, employers benefit from:

Streamlined payroll management: Ensuring salaries, tax withholdings, and social security contributions are accurately processed and filed on time.
Employment contract compliance: Drafting contracts that meet Spanish labour law requirements, reducing the risk of misclassification.
Ongoing compliance monitoring: Keeping the business up to date on any changes in Spanish labour regulations.

For instance, a Canadian tech start-up, decided to expand into Spain but quickly found themselves overwhelmed by local labour laws, complex employment contracts, and strict tax regulations. Initially, they struggled to stay compliant, nearly facing penalties for misclassification and late filings.

After partnering with an EOR, they handed over payroll, tax filings, and contract compliance to local experts. The EOR’s guidance ensured that all employees were properly classified and that filings were done on time, eliminating compliance risks. As a result, the company was able to focus on growing its business, confident that its workforce in Spain was managed legally and smoothly.

Simplifying workforce compliance in Spain

Ensuring workforce compliance in Spain is a complex yet vital aspect of expanding into the market. From learning intricate labour laws to managing payroll and social security contributions, businesses must take proactive steps to maintain legal and regulatory standards.

A reliable Employer of Record can provide the compliance support needed for smooth operations for international companies without the expertise or resources to handle these tasks in-house. Contact us today, and we will help you to simplify your workforce management, reduce risk, and concentrate on achieving your growth goals.

Written by:

María | Spanish Payroll Specialist

As a passionate Payroll Specialist based in the sunny city of Barcelona, she brings years of experience in the payroll industry, specialising in assisting international businesses in smoothly expanding their operations into Spain. Her efforts for helping companies navigate the complexities of Spanish payroll and employment regulations makes her an invaluable resource for HR managers and business development teams. When she's not crunching numbers, you might find her exploring Barcelona's vibrant tapas scene or cheering on her favourite football team, FC Barcelona.

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31 March 2025