How to Manage Payroll in Spain: A Complete Guide

Spain is one of Europe’s largest economies, known for its skilled workforce and comprehensive labor protections. It’s no wonder that so many businesses across the globe are looking to hire Spanish-based talent, especially as they expand into European markets.

But firms hiring Spanish employees are subject to the country’s unique payroll requirements. To maintain compliance, you’ll need to know the ins and outs of everything from national and regional rules to collective bargaining agreements to social security, taxes and more.

This guide is designed to give growing businesses an introduction to managing payroll in Spain, answering the most common questions faced by companies entering the Spanish market. Ensure compliance, avoid penalties and build trust with your employees using our comprehensive guide. We'll also talk about how BatchTransfer can help your team do international payroll.

Payroll in Spain: Key Terms and Core Components

Spanish payroll is governed by a combination of national laws, regional regulations and sector-specific CBAs.

Before getting started, it’s worth getting a sense of the key legislation, terms and concepts. Here’s a look at what every employer should know:

Workers’ Statute and Collective Bargaining Agreements

The foundation of Spanish employment law is the Workers’ Statute (Estatuto de los Trabajadores). This legislation sets minimum standards for contracts, working hours, overtime and dismissals, which all companies must follow. The Workers’ Statute is designed to provide a baseline of protection for every employee, regardless of their industry or region.

In addition, employers need to be aware of any relevant collective bargaining agreements, or CBAs. These operate at the regional or industry level, improving on national standards by setting sector-specific rules for wages, leave and working conditions. Since CBAs can have a significant impact on payroll calculations, employers will need to review them carefully for their sector and location to ensure full compliance.

Payroll Cycle and Salary Distribution

Most employees in Spain are paid monthly, with salary payments typically issued at the end of each month. It’s standard for Spanish workers to receive 14 salary payments per year: 12 monthly salaries plus two extra “pagas extraordinarias” in June and December.¹ These extra payments are deeply rooted in Spanish employment culture, and they’re often used to cover holiday and vacation expenses.

Some multinational companies choose to prorate these extra payments across 12 months, resulting in slightly higher monthly pay for their employees. This approach can simply budgeting and payroll management. Regardless of which method you choose, it’s important to make it clear to your employees within the employment contract.

Minimum Wage

The minimum wage (Salario Mínimo Interprofesional or SMI) is set annually by the Spanish government. For 2025, it stands at €1,184 per month, paid over 14 payments, totaling €16,576 per year.² All employees are entitled to at least this amount, but CBAs may set higher minimums for certain sectors.

The Spanish government reviews the minimum wage every year to reflect changes in the cost of living and economic conditions. Be sure to consult the latest information and stay alert for annual updates.

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Social Security Contributions

Both employees and employers need to make social security contributions. In 2025, the general contribution rate for employers is 30.57% of gross salary, while the general contribution rate for employees is 6.48%.³ These contributions fund healthcare, pensions, unemployment and other public benefits.

The Mecanismo de Equidad Intergeneracional (MEI), a new pension-supporting contribution, increases to 0.8% of the contribution base in 2025, with 0.67% paid by the employer and 0.13% by the employee.⁴

Income Tax (IRPF)

Spain’s income tax (Impuesto sobre la Renta de las Personas Físicas or IRPF) is progressive, with rates ranging from 19% to 47% depending on income and region.⁵ Employers need to withhold income tax from employee salaries and remit it to the Spanish tax agency throughout the year.

The amount withheld is based on the employee’s gross annual salary, personal and family circumstances, and any applicable deductions or allowances. Employees provide this information when completing Form 145, which we’ll discuss in more detail later in the article.

Payroll Taxes and Other Deducations

Aside from social security and income tax, employers also pay into unemployment insurance, the Wage Guarantee Fund (FOGASA) and professional training funds. Occupational insurance is also required, with rates varying by job risk category. These additional payroll taxes are mandatory, since they’re designed to provide workers with a safety net and support workforce development.

Paid Leave and Holidays

Finally, Spanish employees are entitled to at least 30 calendar days of paid annual leave, plus 14 public holidays. Maternity, paternity, adoption, and sick leave are all protected and typically funded by social security.⁶ CBAs may grant additional leave or benefits, so again, it’s important to review these to ensure compliance with statutory and negotiated entitlements.

Setting Up Payroll in Spain: A Step-by-Step Guide

Now that we’ve walked through the key components of payroll in Spain, it’s time to put them into action. Here’s a detailed look at the process, from registration to monthly processing to reporting, to help you avoid costly fines, payroll delays and even legal action when hiring employees abroad.

#1 - Register with Spanish Authorities

The first step for any business is registering your business with the Spanish tax agency, also known as the Agencia Estatal de la Administración Tributaria or AEAT. This registration provides your business with a tax identification number (NIF), which is required for all tax-related transactions, including payroll processing and reporting. Without a NIF, you can’t legally employ or pay workers in Spain.

You’ll also need to register with the General Treasury of Social Security (Tesorería General de la Seguridad Social) to get a Contribution Account Code (CCC). The CCC lets you enroll employees in the Spanish social security system and remit the required social security contributions. It’s mandatory, even if you’re a foreign company employing Spanish-based workers.⁷

Ultimately, these registrations are the foundation for all future payroll activities. You’ll need to handle them before any employment contracts are signed or work begins. Otherwise, you risk exposing your company to significant penalties and back payments.

#2 - Set Up Occupational Accident Insurance

Spanish law requires employers to provide occupational accident insurance for all employees. This insurance is arranged through a mutual insurance company and covers workplace injuries and illnesses. Premiums will vary depending on the risk profile of each job role, and coverage is mandatory from the first day of employment.⁸

Aside from the fact that it’s mandatory, occupational accident insurance is a key safeguard for any employer. It makes sure employees are protected in the event of a workplace accident, while also shielding you as the employer from direct liability for medical costs and compensation.

#3 - Draft and Register Employment Contracts

Every employee in Spain needs to have a written employment contract registered with the State Employment Office (SEPE) within 10 days of their start date. These contracts must specify everything from salary to working hours to leave, along with any sector-specific terms from CBAs.⁹

Employment contracts are legally binding documents that define the relationship between employer and employee. Again, it’s a key way to protect your rights, since it helps protect your business in the event of employment disputes. It’s also a requirement for accessing certain social security benefits.

#4 - Collect Employee Information

Accurate payroll processing depends on collecting comprehensive employee information. Employers need to gather each employee’s full name, address, tax identification number, social security number and job title. You’ll also need to have your employers complete Form 145, which provides personal and family information for accurate income tax withholding.¹⁰

This information isn’t just used for payroll calculations. It’s also essential for social security registration, tax filings and compliance with European data protection laws. With complete records on hand, you avoid payroll processing errors, overpayment of taxes and other potential legal issues.

#5 - Establish Payroll Processing

At this stage, you’ll determine your payroll cycle and decide whether to pay the 13th and 14th salaries as lump sums in June and December or prorate them over 12 months.

Monthly payments are the standard in Spain. Whether you choose to follow the standard to adhere to company policies, it’s important to clearly communicate your decision to your employees and set it in writing in their contracts.

Set up payroll software or work with a local provider to make sure calculations are accurate and payments are timely.

#6 - Calculate Gross to Net Salary

It takes multiple steps to calculate net salary in Spain.

You’ll start with the employee’s gross salary, as agreed in the contract. Then, deduct social security contributions (6.48% for employees) and withhold income tax based on the employee’s salary, family situation and region. As the employer, your share of social security contributions (30.57%) is calculated separately and paid directly to the social security authorities.

Employers also need to consider any additional deductions required by CBAs, such as union dues or sector-specific funds. Make sure the calculations are as precise as possible. Errors in deductions can result in underpayment or overpayment, both of which can have serious consequences for you as the employer.

#7 - Issue Payslips

Spanish law requires that employees receive a detailed payslip each pay period. This document needs to show gross and net pay, all deductions, employer information and the CCC. Aside from serving as proof of payment, payslips maintain transparency for tax filings and resolving disputes.¹¹

Payslips need to be retained for at least four years to avoid fines and increased scrutiny from labor inspectors.

#8 - Remit Payroll Taxes and Contributions

As an employer, you’re responsible for paying all payroll taxes and social security contributions to the relevant authorities by the required deadlines. Income tax withholdings are reported monthly or quarterly, depending on company size and turnover. Social security contributions are due by the end of the following month.¹²

Employers will need to ensure all payments are made in euros and all remittances are accurately referenced with the NIF and CCC. By staying on top of deadlines and reporting payroll accurately, you avoid interest charges, penalties and increasing your risk of an audit. A separate business bank account for payroll transactions can help streamline this process and provide a clear audit trail.

#9 - File Required Reports

Employers also need to file monthly or quarterly tax declarations with the Spanish tax agency. Annual summaries for income tax (Form 190 for residents, Form 296 for non-residents) are due by January 31st of the following year.¹³ You can submit social security filings through the SILTRA platform, the Spanish government’s official electronic reporting system.

Accurate and timely reporting is the bare minimum when it comes to compliance. Employers need to maintain organized payroll processing and review filings before submission to avoid costly errors and mistakes. Expert help can help growing businesses stay on the right side of the law.

#10 - Stay Up to Date

Spanish payroll rules change frequently, especially when it comes to minimum wage, local tax rates and social security thresholds. Employers should regularly monitor updates from government sources, consult with payroll experts and review their payroll processes at least annually.

Ultimately, a continuous compliance strategy isn’t just about avoiding penalties. It’s also a way to demonstrate to your employees that your company is committed to fair and lawful employment practices. Aside from enhancing your short-term reputation, these practices improve employee retention, supporting your business’s long-term success in the Spanish market.

Learn More: What is Oyster HR?

The Bottom Line

Payroll in Spain may be complex, but as long as you have a clear understanding of the key terms, core components and major legislation, you can take advantage of its talented workforce to take your company to the next level.

Staying up to date on Spain payroll taxes, income tax, social security contributions, and the latest requirements from the Spanish tax agency is essential for smooth operations. By following these guidelines, your business will be well-positioned to succeed in one of Europe’s most dynamic economies.

Frequently Asked Questions: Payroll in Spain

What are the main Spanish payroll taxes?

Employers and employees pay social security contributions, income tax, unemployment insurance, and contributions to FOGASA and professional training funds. Employers must also provide occupational accident insurance.

How is income tax calculated?

Income tax is progressive, ranging from 19% to 47%. The amount withheld depends on salary, family circumstances and region. Employers use Form 145 to gather employee information for accurate withholding.

What is the minimum wage in Spain?

For 2025, the minimum wage is €1,184 per month, paid over 14 payments, totaling €16,576 per year.

How do the 13th and 14th salaries work?

Most employees expect two extra salary payments in June and December. Some companies prorate these across 12 months. These payments are subject to the same payroll taxes and withholdings as regular salary.

What are the current social security contribution rates?

Employers pay 30.57% and employees pay 6.48% of gross salary in social security contributions. The MEI pension contribution rises to 0.8% in 2025, with 0.67% paid by employers and 0.13% by employees.

What documents must be provided to employees?

Employees receive a payslip each pay period and an annual income tax certificate showing total tax withheld.

When are payroll taxes due?

Income tax withholdings are remitted monthly or quarterly. Social security contributions are due by the end of the following month. Annual income tax summaries are due by January 31st.

How do collective bargaining agreements affect payroll?

CBAs can set higher minimum wages, additional benefits, and specific rules for overtime and leave. Employers must comply with both CBAs and national law.

What are the penalties for non-compliance?

Fines, penalties, and legal action can result from non-compliance with Spanish payroll regulations. Accurate record-keeping and timely filings are essential to avoid issues with tax authorities.

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Sources:

1. Running Payroll in Spain - Lano
2. El BOE publica el SMI para 2025 que se establece en 1.184 euros - Sepe
3. Worldwide Tax Summaries | Spain - PWC
4. Employment Spain Newsletter December - Ashurst
5. Tabla de tramos del IRPF en 2025: ¿cuánto IRPF retener este año? - Holded
6. Employee benefits in Spain - Legal Global
7. Running Payroll in Spain - Lano
8. Employee benefits in Spain - Legal Global
9. Employer of Record - Spain - Mercans
10. Employer of Record - Spain - Mercans
11. Employer of Record - Spain - Mercans
12. Employee benefits in Spain - Legal Global
13. Taxpayer Calendar 2025 - Agencia Tributeria