How to Run International Payroll for Employees in Spain (2024)

If you’re running payroll for remote employees in Spain for the first time, you’ll want to follow specific steps to make sure your employees are paid on time and to make sure you remain compliant with Spanish employment laws, as outlined by the European Union, the Spanish Constitution, the Workers’ Statute (Estatuto de los Trabajadores), and collective bargaining agreements. 

Here’s a guide to running payroll in Spain, with everything you need to get it right every time. 

Table of Contents

• Step #1: Decide whether or not to create your own entity in Spain
• Step #2: Pick a global payroll software solution
• Step #3: Determine your workers’ employment status
• Step #4: Capture your new hires’ Spanish payroll information
• Step #5: Understand the implications of paying in euros
• Step #6: Run payroll
• Step #7: File your taxes in Spain annually
• Frequently asked questions about running payroll in Spain

Step #1: Decide whether or not to create your own entity in Spain or use an employer of record (EOR)

To hire and pay Spanish employees, you must establish a business entity in Spain. You may do this by creating your own local entity or using an employer of record (EOR). 

EORs allow you to hire and pay employees through their entity. The EOR is responsible for calculating and withholding the appropriate taxes on employee paychecks (more on that below), and for paying your taxes to the Spanish Tax Administration Agency (also known as Agencia Estatal de la Administración Tributaria or Agencia Tributaria).

When, why, and how do companies use an EOR? 

If companies expand operations to Spain or other countries around the world, they typically use EORs—including Deel, Papaya Global, and Rippling—to administer benefits, run payroll, and navigate international compliance issues. 

Why sign up for an EOR service rather than setting up your own EOR? Well, EORs can take up to six months to establish, depending on how you apply. Most small companies don’t have the time or resources for this administrative burden.

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When, why, and how do companies create their own entity?

If you decide to create your own entity, that would replace an EOR as the legal entity for hiring employees and running payroll. You might consider setting this up if you can save costs on your own entity versus using an EOR. 

Here are the steps to set up your own entity:

First, apply for a NIF tax ID code, which is typically the same as a foreign identity number (NIE). You can get this in Spain from the Directorate-General of the Police and Civil Guard or abroad at a Spanish diplomatic mission or consular office.

From there, you must go to the Entrepreneur Service Points (PAE), which facilitates the process of creating new companies and local entities. Through the PAE, you must submit the appropriate documents, including an application to reserve your company name and a deed of incorporation. 

After this, open an account at a Spanish bank; verify your documentation with a notary public; send a declaration of foreign investment to the Foreign Investment Registry (RIE) of the Ministry of Economy, Industry and Competitiveness; and notify the Regional Ministry of Labor of your operations.

Before you can make hires and start to run payroll, you’ll also need to register with the Spanish Tax Agency. That agency will give you a tax number as well as a contribution account code (CCC) for social security registration. From there, you’ll register with the National Social Security Institute (Seguridad Social). As a final step, it’s required in Spain to have occupational accident insurance, the cost of which may vary depending on your industry and coverage needs.

Note that this process can be timely and expensive; in many cases, it’s best to hire experienced legal help to navigate the ins and outs of these various systems.

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Step #2: Pick a global payroll software solution

There are two types of international payroll solutions, global payroll processors and global payroll aggregators.

• Global payroll processors process your payroll, transmit funds, calculate taxes, and file taxes in every country through their own software. Global payroll processors allow you to pay your international employees just as easily as your local employees—together in a single pay run.
• Global payroll aggregators aggregate local payroll providers in each country and manually transmit your payroll files to them.

Learn more about both types of services in our guide.

Step #3: Determine your workers’ employment status

Before onboarding, make sure that your new hires are considered employees rather than contractors in the eyes of Spanish labor law. Misclassifying employees may lead to fines. What’s more, employees require payroll deductions for income tax and the social security system (see the table below), whereas contractors are responsible for paying their own taxes.

Spain has a series of questions to determine whether a worker is an employee or a contractor:

• Is the worker dependent on you for organizing their work? Do you give them instructions on how to perform their work?
• What level of control do you have over the worker's activities? Does the worker control where and when they work?
• Who owns the worker’s tools and equipment?
• Does the worker ‎incur expenses for services performed?
• How exclusive is the service?
• How integrated is the worker into your company?

In Spain, there is also a middle ground between an employee and a contractor, known as a dependent self-employed worker. A worker in that category:

• Receives 75% or more of their earnings from one client.
• Doesn’t subcontract any of their activities to a third party.
• Carries out their work in a different way than full-time employees, often deciding the time and place in which they work.
• Has their own tools and equipment.
• Self-organizes their services.
• Takes on a degree of financial risk by only being paid if they deliver the services agreed upon in their contract. 

Spain has strict laws around misclassifying workers, with penalties for violating worker rights. It’s considered labor fraud to hire independent contractors but expect them to act as full-time employees. This could result in fines of EUR 3,000 to EUR 10,000, or even prison sentences of up to six years. You could be assessed for back taxes on wage withholdings or, if the freelancer chooses to sue, you may be required to pay back charges for benefits. Working with an EOR, such as Rippling, reduces the risk of misclassifying your employees and contractors.

Step #4: Capture your new hires’ Spanish payroll information

Before running payroll, you need specific information from your employees. Much of this can be handled in your employment contract process. This includes:

• Name (matching the account where you’ll deposit their pay).
• Date of birth and date of hire.
• Contact information, including their mailing address in Spain.
• Social security number (NAF).
• Bank account information.
• Amount to be paid in euros (including any bonuses).

Remember: Report all new hires to the Spanish government through an electronic hiring declaration. This allows you to withhold taxes and make social security contributions. More on that below.

Step #5: Choose to pay in your local currency or euros (EUR) 

You have to pay Spain-based employees in euros (the official currency of Spain) unless you’ve specifically obtained their written permission to pay them in another currency.

If you’re based outside of the European Union (EU), you may encounter complications when paying in euros. The exchange rate between your local or preferred currency and the euro may vary. If the rate is unfavorable, you’ll pay more to cover your worker’s wages. What’s more, you may need to account for exchange rate fluctuations when calculating financial statements. This can complicate accounting.

Step #6: Run payroll

Now that you’re operating under an EOR or your own entity, have set up a global payroll system, and have correctly classified your employees, it’s time to run payroll.

Here’s a preview of how Rippling’s global payroll system works:

Step #7: File your taxes in Spain

Once you’ve begun running payroll for Spanish employees, you must pay taxes to the Spanish Tax Administration Agency.

Taxes. Spanish workers are taxed on the national and regional level through a single income tax rate. As the employer, you must withhold income tax from your employee’s monthly paycheck and declare that amount to the Spanish Tax Administration Agency and any applicable local authorities.

You may not have to submit the withheld tax every month:

• If your company makes more than EUR 6 million annually, you must make monthly payments.
• If your company makes less than EUR 6 million annually, you must make quarterly payments with deadlines on April 20, July 20, October 20, and January 20.

File a tax declaration every month or quarter, depending on the frequency of your payments, which states the total amount you’ve paid your Spanish workforce and how much you withheld from their paychecks. Resident employees require a 111 Form, while non-resident employees require a 216 Form, both of which may be filed electronically.

Tax rates for individuals are as follows (note that there may be some variations among regions):

Other required payments include:

Social security contributions are made by both employees and employers, and must be made monthly. 

Occupational accident insurance. These premiums are paid separately and your rate may vary depending on your industry. 

Other costs include unemployment insurance, vocational training for your employees, and contributions to the wage guarantee fund.
Collective bargaining is very common in Spain and may impact the terms of what you’re required to cover. Collective bargaining agreements (CBA) can be made at the workplace, company, industry, regional, or national levels.

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Frequently asked questions about running payroll in Spain

What are the employer costs for full-time employees in Spain?

Employers must deduct the following from their full-time employees’ paychecks. Note that there may be additional costs depending on collective bargaining agreements for the industry or region:

Average monthly salaries in some of Spain’s major industries:

What are the minimum wages in Spain?

As of 2024, the minimum wage in Spain is €1,134 per month. 

What information is needed from employees to run payroll in Spain?

Here’s the information you need from salaried employees for payroll processing:

• Name (matching the account where you’ll deposit their pay).
• Date of birth and date of hire.
• Contact information, including their mailing address in Spain.
• Social security number (NAF).
• Bank account information.
• Amount to be paid in euros (including any bonuses).

How much does it cost to run payroll in Spain?

Most payroll software is priced on a per-employee basis, or per pay run. Payroll service pricing varies according to:

• Payroll frequency.
• The number of employees on your payroll.
• How often you add and remove payees.
• Any additional services you need, such as year-end processing or mailing out pay stubs.

Can I manually run payroll for workers in Spain?

In some cases, small business owners choose to run their own payroll by using a payroll calculator and directly depositing funds into employee accounts. While this may be done in an attempt to cut costs, running payroll can be time consuming, especially for those inexperienced with running payroll. The difficulty rises as your business grows. If you choose to run your own payroll, there are some risks to keep in mind:

• Compliance: Running payroll manually in Spain without using native global payroll software puts you at risk of manual errors and omissions.
• Security: Processing payroll manually can pose security risks, especially if you are using spreadsheets or paper records. This increases the risk of sensitive employee information being lost, stolen, or misused.

What are payroll taxes in Spain?

It’s critical to deduct certain costs from your employees’ paychecks, including income tax and social security contributions—see more in our employer cost tables. 

What are the late tax filing penalties in Spain?

In Spain, the tax authorities have a department that verifies whether taxpayers have complied with taxes. If necessary, this department will issue tax assessments and request tax adjustments.

Should you fail to file taxes on time, you may be penalized:

• Failure to file penalty: If you don’t file taxes, penalties are on a sliding scale and you may pay fines between 50% and 150% of the taxes owed.
• Late payment penalty: Penalties are on a sliding scale and you may pay between 5% and 20% of taxes owed.

How do you pay contractors in Spain?

• First, ensure you’re correctly classifying your workers as a contractor (you can use Rippling’s free Worker Classification Analyzer).
• Next, agree on the payment terms with the contractor. That includes whether you’ll do an hourly or per-project rate, payment cadence, and payment method.
• Collect their payroll information, including their name, date of birth, contact information, bank account information, and social security number.
• Use payroll software to pay the contractor in euros. With Rippling, you can pay contractors in euros, all in a single pay run without waiting for transfers or conversion.

Remember, when hiring Spanish freelancers, the contractor is responsible for paying income taxes to the Spanish government, not the employer. Still, employers must keep an accurate record of employment and payroll information for each worker. 

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Rippling and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any related activities or transactions.