One of the important, although sometimes unpleasant, tasks of running a company is terminating a work contract with an employee. When you determine which employees to let go of, you must ensure you terminate the contract and correctly provide severance pay in Spain in full legal compliance.
There are strict laws in Spain for the correct way to handle contract termination. The Workers Statute (Estatuto de los Trabajadores) is the workers statute in Spain that oversees both individual and collective employment relationships. A worker’s collective agreement may also impact the way their contract is terminated depending on the industry they work in. Failing to comply with the laws can result in you having to pay a large amount of compensation.
To help you avoid legal pitfalls, we’ve outlined the regulations concerning safely and securely terminating an employee’s contract in Spain.
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Which Types of Contract Termination Require Severance Pay in Spain?
There are two kinds of employee dismissals in Spain:
1. Collective Dismissal
When at least 10% of the workforce in a company is dismissed in a 90-day period, usually on economic or productivity grounds.
In this case, it will be necessary to prove that the company is not able to continue without ending these contracts. It will also be necessary to show how the company has made every effort to improve business without reducing the workforce before terminations can proceed.
2. Individual Dismissal
The termination of an individual employee. This kind of dismissal must have either objective or disciplinary grounds for contract termination.
Severance Pay and Notice Periods in Spain
Dismissal on objective grounds could mean termination based on a lack of required skills, or for economic reasons. Employees dismissed this way are entitled to receive 20 days of salary per years of service with the company. This increases up to a maximum of 12 months of pay.
Severance pay like this applies to both individual and collective dismissals in Spain.
However, in the case of collective dismissals, employers must first enter a period of negotiations before dismissing the employees affected. This negotiation period is 30 days for companies with over 50 employees and 15 days for those with less than that.
During this period, the affected staff can request their legal or union employees representatives to be present at all meetings between employees and employer.
After the negotiation period, the employer must individually inform each employee of their dismissal, with a 7-to-15-day notice.
Terminating Employment on Disciplinary Grounds
Employees who are dismissed for misconduct or disregard for company regulations, are not entitled to any severance pay or workers compensation in Spain. In writing, employers must clearly express the reasons for dismissing an employee on these disciplinary grounds.
Employees can challenge any dismissal they deem unfair within 20 working days of being dismissed.
The employer must pay the employee compensation if a dismissal is ruled unfair by labor courts. This amount is 33 days of salary for each year of service, to a maximum of 24 months of pay.
If the employee was in service to the company before February 2012, they must be paid 45 days for each year of service.
At the same time, the wrongfully terminated employees can also choose to be reinstated with the company instead of receiving compensation.
Severance Pay and Taxation
Severance pay is not taxed as personal income for the first 180,000 euros.
Any amount beyond that is taxed accordingly.
In Brief
- Severance pay is 20 days of salary for each year the employee has worked with the company.
- Termination notices must be given 7 to 15 days before dismissal.
- Employees dismissed for disciplinary reasons receive no severance pay.
- Within 20 days, an employee can challenge the dismissal in a labor court.
- If a dismissal is ruled unfair, the compensation is 33 days of salary for each year with the company.
Which Types of Contract Termination Require Severance Pay in Spain?
It is not easy to terminate employment, especially in an overseas country. Spain’s employment laws are challenging for employers, and the legislation around workers’ compensation is designed to benefit the employee.
Should your dismissal be ruled unfair by the labor court, compensation will be more expensive than the average severance pay.
That’s why INS Global offers PEO and EOR services in Spain to employ staff in the country quickly and safely. A Spanish PEO (Professional Employer Organization) provides a way to hire staff in the country with limited employer liability. It can also improve the way you manage HR functions overseas.
When you partner with INS Global’s PEO in Spain, you can drastically reduce the possibility of dismissal complications. Our expertise can ensure you’re managing your staff in full legal compliance without costing you a good deal of money.
Our INS Global mobility legal advisors are experts in local labor laws and will keep you up to date with all changes as they happen. Their constant vigilance will ensure that you are always in line with all requirements for employee termination.
With our innovative HR and payroll services, you can have all your needs met efficiently for a single monthly fee. We will help you form strong employment contracts with all necessary provisions. These include compliant working hours, and management of benefits or legal necessities such as health and safety or public holidays. We can also help you easily recruit, transfer, and onboard new workers.
Contact us today to learn more about how we can help with your employment needs in Spain.
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