How much does an employee cost in Spain?

When calculating the costs incurred by hiring an employee, two main factors must be taken into account: salary and social security contributions.

I. Salary

Salary naturally varies depending on the professional and personal qualifications of the employee.

However, the minimum wage applicable in Spain must be taken into account as the lower limit.

For 2016, the minimum salary is 21.84 euros per day or 655.20 euros per month (in 2015, it was 648.60 euros per month, representing a 1% increase). However, this minimum wage is only a general starting point, as the applicable collective agreement is primarily relevant. Only in the absence of such an agreement should the general minimum wage be used.

Collective agreements are concluded separately for different industries and business sectors. Since there are different occupations, professions and qualifications within an industry, a further distinction is made according to education and profession. Furthermore, individual collective agreements may apply throughout the entire Kingdom of Spain or only to individual Comunidades Autónomas, i.e. the autonomous communities of Spain.

Take the Spanish shoe industry, for example, which has a state collective agreement that provides for a minimum annual salary of €26,217.46 for academics in 2016. For an apprentice in their first year of training, however, the minimum annual salary is limited to €10,315.69. This distinguishes between different types of catering establishments, differentiates between the activities and age of the employees and thus provides monthly minimum wages ranging from €1,127.96 to €1,614.59, valid for the period from 1 April 2016 to 31 March 2017.

However, it should be noted that the Workers’ Statute (Estatuto del Trabajador), like the majority of collective agreements based on a year, provides for two special payments in the amount of one month’s salary in addition to the regular twelve monthly salaries. If the total number of monthly salaries paid in a year is less than 14, the two special payments are distributed among the twelve regular monthly salaries and paid accordingly. According to this, the minimum annual income for footballers whose clubs play in the first division is 129,000 euros plus inflation adjustment. In the second division, the minimum income is exactly half that amount, i.e. 64,500 euros plus inflation adjustment.

In order to calculate the costs incurred by hiring an employee, it is therefore necessary to first check whether a collective agreement is applicable in order to at least know the lower salary limit and not fall below it. Of course, the principle of supply and demand also applies here, which is why, depending on the qualifications required of the employee, the minimum salaries described here play an increasingly subordinate role as requirements increase. In the absence of a collective agreement, the so-called Workers’ Statute (Estatuto del Trabajador) must be applied.

Once the salary has been determined or negotiated, the next step is to calculate the social security contributions associated with the employment.

II. Social security contributions

To calculate social security contributions, the a.) general contribution assessment basis (in Spanish, ‘base de cotización por contingencias comunes’) of the b.) contribution rate (in Spanish: ‘tipo de cotización’) must be used.

For employees, the general contribution assessment basis corresponds to the monthly salary. The general contribution rate for employers was 23.60% in 2016. Employees must contribute an additional 4.70%.

BUT: There is a contribution limit both upwards and downwards. For academics, the contribution is calculated on a contribution assessment basis of at least €1,067.40 and at most €3,642.00. The same maximum contribution assessment basis applies to all other employees. The minimum contribution assessment basis for other employees is €764.40.

In addition, both the employer and the employee must pay a contribution to unemployment insurance. The employer generally pays 5.50% of the monthly salary, and the employee pays 1.55%. This amounts to a total of 7.05%.

A further contribution must be paid to the wage guarantee fund (FOGASA = Fondo de Garantía Salarial), which, for example, partially covers the outstanding wages of employees in companies that have gone bankrupt and are subsequently wound up. This contribution is payable by the employer only and amounts to 0.20% of the monthly salary.

The Spanish social security system also requires a contribution of 0.70% of the monthly salary as a training contribution. This 0.70% is divided between the employer and the employee in such a way that the employee pays 0.10% and the employer pays 0.60%.

In addition, a contribution must also be paid for general insurance against temporary incapacity (incapacidad temporal) and permanent incapacity, death and to assist survivors (incapacidad, muerte y superviviencia) [i.e. in the event of death and to assist survivors, support for third parties]. The total contribution consists of two parts. One part is the contribution for temporary incapacity to work, and the other part is the contribution to cover the risks of permanent incapacity to work, death and support for survivors.

For employees in call centres, a contribution of 0.70% of the monthly salary is payable to protect against temporary incapacity to work. An additional 0.70% is payable to insure against the risk of permanent incapacity to work, death and to provide assistance to survivors. This amounts to a total of 1.40% of the monthly salary. For long-distance drivers, however, this would be 2.00% and 1.70% respectively, amounting to a total of 3.70%.

As employees must also be trained and informed about occupational health and safety issues, a service provider is required to take on these tasks. The usual market rates for this service are between £250 and £350, and generally cover two employees.

Last but not least, depending on the collective agreement, insurance must also be taken out to cover accidents at work. The cost of this insurance is around £100 per year per employee.

Here is an example:

The owner of a transport company would therefore have to bear the following costs if he hires a driver and pays him a monthly wage of £1,400: