1. Introduction: Labor Laws in Spain and the 2025 Compliance Landscape
Spain has long been a strategic gateway to Southern Europe. Its position as the Eurozone’s fourth-largest economy, modern infrastructure, and skilled bilingual workforce make it a natural hub for regional growth. However, as regulatory oversight intensifies in 2025, foreign employers must now align their market ambitions with meticulous compliance with these laws, particularly when hiring employees in Spain.
Whether your company is opening a local subsidiary or hiring in Spain, getting labor laws wrong can carry steep consequences. Employment laws in Spain are being modernized to reflect European values around transparency, social security, and workplace equity. These changes are welcomed, but also closely monitored.
Why Now?
Several developments are converging in 2025:
- Among the most significant is the proposed reduction of the legal workweek to 37.5 hours. As of May 2025, this measure has been approved as a draft bill by the Council of Ministers but is still undergoing parliamentary debate and approval. The final implementation date and specific requirements may be subject to change as the bill proceeds through the legislative process. However, the Ministry of Labour has indicated its intention for collective agreements to adapt to the 37.5-hour workweek by the end of 2025, suggesting that companies should begin preparing for compliance, even though the reform has not yet been definitively enacted.
- Similarly, the same draft legislation includes the requirement for mandatory digital timekeeping and enhanced controls over working hour registers. While these measures are expected to come into force before the end of 2025, businesses should note that the legal obligation will only become effective upon final parliamentary approval and publication in the Official State Gazette (Boletín Oficial del Estado).
- Temporary and freelance work arrangements are tightly regulated, and misclassification can trigger audits and penalties.
- Cross-border employment and data sharing between EU agencies have made foreign employers more visible and more vulnerable.
What are the risks for companies failing to comply with Spain’s employment laws?
Penalties for non-compliance with labor regulations are severe:
● Up to €187,515 in fines for major infractions, including wage violations or unauthorized employment
● Back pay claims for unpaid leave, incorrect contracts, or bonuses not aligned with CBAs may also include 20 days’ salary per year or 33 days’ salary per year, depending on the dismissal type and length of the year of employment.
● Retroactive tax obligations if your presence triggers Permanent Establishment (PE) status
● Legal reinstatement of employees if dismissal procedures are not followed
Compliance is not just an HR function. It is a reputational, operational, and financial imperative—especially for executives looking to scale responsibly.
2. Key Spanish Employment Law Principles Every Employer Must Understand
Spain’s employment law is among the most protective in Europe. It is governed by the Workers’ Statute and reinforced by collective bargaining agreements (CBAs), leaving little room for improvisation.
Overview of Spain’s Labor Laws and Workers’ Statute
The Estatuto de los Trabajadores sets out minimum protections:
- Types of employment contracts in Spain and termination rights
- Working hours in Spain, paid leave, and rest breaks
- Notice periods and severance rules
- Working conditions, anti-discrimination, and equal treatment obligations
Every employment contract due must comply with this statute, and where a CBA provides more favorable terms, those take precedence.
Understanding CBAs: Spain’s Sectoral Overlay
CBAs (convenios colectivos) apply to most industries and occupations in Spain. They often specify:
- Minimum salaries by role or seniority
- Sector-specific bonuses
- Working hour limits and scheduling
- Reimbursement policies for remote work
Executives must know which CBA applies to each function, such as hospitality, tech, and logistics, as these override company-wide policies.
Types of Employment Contracts in Spain
- Indefinite (permanent) – the default and safest option
- Fixed-term – must be justified and time-bound; misuse triggers automatic conversion to permanent
- Training/Internship – now capped at 20% of staff; requires proper compensation and task relevance
Working hours in Spain and Annual Leave
- Legal limit for a full-time employee in Spain: 37.5 hours/week (2025 reform)
- Rest: Nine hours daily rest and one 1.5-day weekly rest period
- Holidays: 30 calendar days of paid vacation, plus 14 public holidays
Time tracking procedures in Spain are now digital by law. Spreadsheets and paper records are no longer compliant. In Spain, most companies implement the jornada intensiva on Fridays, working from 9 am to 3 pm or from 8 am to 2 pm without a break, and often during July and August as well. The limit on hours in contracts is never stated per week but per year. The annual maximum depends on the collective agreement (for example, at ALTIOS it is: 1,765 hours/year).
Social Security Registration
All employees in Spain are entitled to be enrolled with the Tesorería General de la Seguridad Social (TGSS) before their first working day. Important: The employer’s contribution is capped. Above a salary of €50k, it remains the same, at approximately €1,640 per month in 2025. It covers:
- Pension (18.5%)
- Unemployment (3.5%)
- Occupational insurance and wage protection (1.6%)
To learn more or register online, visit the TGSS website.
3. Hiring Foreign Employees in Spain: Laws and Regulations
Hiring internationally in Spain requires selecting a compliant structure:
Legal Models
Direct Hiring through a Local Entity
Best suited for companies already incorporated in Spain or planning long-term investments.
When you have a registered company in Spain (for example, SL or SA), you can directly hire employees under Spanish law. You must :
- Register with the Spanish Social Security authority (TGSS)
- Process payroll in Spain and file local tax reports
- Draft Spanish employment contracts aligned with applicable CBAs. The contract template is mandatory and is called Modelo 030. To add clauses, an annex to the contract is established.
Key Benefits:
- Strong control over employment conditions
- Ability to offer local benefits, equity, or career tracks
- More attractive to top-tier candidates
Compliance Risks:
- Full employer liability
- Creation of a Permanent Establishment if operations exceed certain thresholds (see Section 6)
Subsidiary Incorporation – Full legal presence (Sociedad Limitada or Sociedad Anónima)
Best for companies committed to market expansion and local presence.
Setting up a subsidiary allows full employment autonomy. Setting up an SL or SA takes around one month, but if it is a subsidiary of a foreign company, it takes at least three months and involves :
- Legal incorporation (for example, Sociedad Limitada)
- Local tax and accounting registration
- Office address, bank accounts, and director appointment
- Sign the constitution before a Spanish notary, then register the company with the Commercial Registry (Registro Mercantil) to obtain the escrituras de constitución.
Visa and Work Authorization
1. EU Blue Card
- For highly skilled non-EU professionals
- Salary: 1.5× national average or 1.2× in shortage sectors
- Renewable up to 4 years
2. Highly Qualified Professional Visa
- For technical or management roles
- Two-year renewable visa
3. Startup Visa
- For founders in innovation sectors
- 3-year permit, ENISA business plan required
Social Security Registration and NIE: Two Mandatory Steps
- NIE (Foreign ID) is mandatory for contracts, payroll, and residence
- TGSS registration confirms the employee is enrolled for healthcare and pensions
NIE numbers are obtained via the Dirección General de la Policía or local consulates. For the detailed procedures, visit the Ministry of Interior website.
4. Compensation, Benefits & Payroll: What are the Labor Law regulations in Spain?
When hiring in Spain, compensation and benefits are more than just contractual—they are legal obligations. Spanish law mandates minimum salary levels, specific payment structures, and a wide range of statutory benefits. Failing to meet these requirements can lead to fines, employee claims, or challenges from labor inspectors.
Minimum Wage in Spain and 14-Month Salary
- According to the WageIndicator Foundation, Spain’s minimum wage is: €1,184/month (×14 months = €16,576/year)
- Split between 12 monthly payments
- Sector CBAs may require higher salaries or bonuses
When offering a competitive package, benchmark against both national minimums and the applicable sector-specific convenio colectivo.
Health and Safety: Paid Leave & Benefits
- Sick Leave: The rules governing sick pay also depend on the collective agreement, which may improve on those set by the Social Security. The minimum is as follows:
- Common illnesses and non-work-related accidents: 60% of the contribution base from the 4th to the 20th day inclusive, then 75% from the 21st day onwards.
- Occupational illnesses or accidents at work: 75% of the contribution base from the day after the sick leave begins.
- Secondary incapacitating menstruation: from the 1st to the 20th day: 60%, then 75% from the 21st day onwards.
- Termination of pregnancy and leave from the 39th week of gestation: 1st day paid at 100% of salary, from the 2nd to the 20th day: 60%, then 75% from the 21st day onwards. For more information, check the Seguridad Social website
However, a convenio may require the company to pay the first three days at 100% (i.e., at its own expense). The convenio will define whether and how the company supplements the portion of the salary not covered by Social Security.
- Vacation: 30 calendar days/year
- Maternity and paternity leave: 16 weeks fully paid (first 6 mandatory)
- New in 2025 Parental Leave: 8 weeks usable until the child turns 8
Use centralized absence-tracking tools to document leave usage, especially when working with remote or hybrid teams.
Social Contributions: Employer and Employee Share
It varies greatly depending on the position and the agreement. In addition, the employee’s social security contribution is very low, but income tax is very high and depends on age, number of children, level of education, etc.
- Employer: ~23.6% of gross salary
- Employee: ~6.35% withholding
Tip: Missed payments can result in automatic late interest, disqualification from grants, and personal liability for directors in extreme cases.
Payroll Cycles and Payslip Compliance
Payroll must be processed monthly, and each employee must receive a legally formatted payslip (nómina) with the following elements:
- Base salary
- Variable compensation (e.g., commissions, bonuses)
- Social contributions
- Over time, allowances, or in-kind benefits
- Withholding for personal income tax (IRPF)
Inaccurate or incomplete payslips are a red flag during labor inspections and may result in fines or claims for back pay.
Best Practice: Use a certified payroll provider or local accountant with experience in CBA-specific structures, particularly for multi-role teams.
Remote Work and Digital Disconnection Rights in Spain
- Remote work reimbursement: For equipment, internet, etc…
- Digital disconnection: No after-hours emails or calls; enforceable policy required
5. Termination and Dismissal Rules in Spain: Avoiding Costly Mistakes
It is easier to dismiss someone in Spain than in France or Germany, but more complicated than in the United States or Latin America. The notice period is generally only two weeks in most cases. However, dismissing an employee without meeting all requirements can lead not only to costly severance, but also to court-ordered reinstatement, reputational damage, and financial penalties.
Types of Dismissal in Spain
There are three primary dismissal categories under Spanish law, each with different processes and consequences:
1. Objective Dismissal (Despido objetivo)
Used for: Economic, organizational, or technical reasons
Objective dismissals must be thoroughly documented and aligned with the company’s financials.
2. Disciplinary Dismissal (Despido disciplinario)
Used for: Employee misconduct ( for example, fraud, repeated lateness, disobedience)
If the disciplinary dismissal is later deemed unjustified by a labor court, the company must either reinstate the employee or pay a higher severance.
3. Unjustified or Improper Dismissal (Despido improcedente)
This occurs when the legal or procedural requirements of dismissal are not met.
Consequences:
Employer must offer reinstatement with back pay or pay compensatory severance: 33 days’ salary per year of service (if contract post-2012) or 20 days’ salary per year in cases of economic dismissal. May be increased in accordance with the agreement, and is capped at one year’s salary (i.e. a maximum of 12 years’ seniority taken into account).
Process Requirements for terminating the employment
To legally terminate an employee, employers must:
- Issue a written notice with justification
- Provide final payment within 48 hours
- File deregistration with the Spanish Social Security System
Required when dismissing:
- 10+ employees (companies <100)
- 10% of the workforce (100–300)
- 30+ employees (companies >300)
Must include consultation period, redundancy plan, and filing with labor authorities
For more information on termination protocols, visit the SEPE official portal, managed by the Servicio Público de Empleo Estatal (SEPE)
6. Permanent Establishment Risk and Employer Liabilities
Hiring employees in Spain, especially before setting up a local company, can inadvertently trigger Permanent Establishment (PE) status. For growing midcaps and SMEs, this is one of the most overlooked and expensive risks in business in Spain.
Establishing a PE means that Spain may legally treat your foreign company as having a taxable local presence, with all the corporate and employment liabilities that entail.
What Triggers PE in Spain?
| Scenario | PE Risk Level | Explanation |
| Hiring a sales representative in Spain | High | Employee negotiating or closing deals locally is a classic PE trigger |
| Using coworking spaces for regular work | Medium | Frequent use may be seen as a “fixed place of business.” |
| Holding client meetings in Spain | Medium | Not a trigger on its own, but risk increases with frequency or formalization |
| Invoicing Spanish clients from abroad | Low–Medium | Depends on the level of local activity and visibility |
Risks of Creating a PE
- 25% corporate tax on income attributable to Spain
- Local payroll obligations
- Backdated registration with fines and interest
Mitigation Strategies
- Restrict the contract authority of Spain-based staff
- Avoid using local addresses for formal business activity
- Separate Invoicing and Sales Channels
7. Strategic HR Compliance Tips for Midcaps and SMEs in Spain
Before Hiring:
- Run a Certified Bank Auditor (CBA), audit
- Validate contracts under local law
- Budget for 12-month salary and contributions
During Operations:
- Use a Spain-specific HR handbook
- Automate payroll and digital time tracking
- Train local managers in employment norms
Strategic Triggers for HR Review:
- Fundraising rounds
- Market entry or exit
- Executive hiring or termination
- Workforce scaling
For example, firing a mid-level manager without aligning the dismissal to the CBA could result in court-ordered reinstatement or back pay.
8. What’s Changing in 2025: Spain Labor Laws Reforms Summary
Spain’s labor framework is in a period of transition, with significant reforms under parliamentary consideration in 2025. The most notable proposed changes include:
- Reduction of the standard workweek to 37.5 hours (with no reduction in salary)
- Mandatory digital time tracking for all companies
- Expansion of parental leave
- Stricter regulation of temporary and intern contracts
- New requirements for ESG and labor metrics reporting
While these reforms have advanced through government and union negotiations and have been approved as draft legislation, they are not yet fully enacted. Companies should monitor the legislative process closely and begin internal preparations, but must continue to comply with the current legal framework until the new local labor laws are officially published and take effect.
9. Conclusion: A Proactive Approach to HR Management and Employment Law in Spain
Spain offers an exceptional platform for international expansion. With its strategic location, skilled talent pool, and access to European markets, it’s no surprise that growing midcaps and SMEs continue to prioritize Spain in their go-global strategies.
But 2025 is not business as usual. Legal reforms, digital enforcement mechanisms, and rising employee expectations mean employment compliance is now a strategic priority, not just an HR function.
If your company is hiring in Spain—whether it’s one remote specialist or a full sales team—success depends on how well you integrate labor law into your planning, governance, and day-to-day operations.
C-level action points:
- Engage legal review before hiring
- Choose the right legal hiring model (Entity or hybrid)
- Implement scalable systems for payroll, timekeeping, and leave
- Train internal teams on 2025 requirements
By doing so, you will protect your brand, attract the best talent, and build a durable foundation for European growth.
