Thanks to its connections to Latin America through its historical and linguistic links, and Europe through its European Union (EU) membership, Spain provides tons of global expansion opportunities to foreign businesses. With roughly 47 million residents, Spain is the fourth biggest EU state in terms of population. Since shifting from dictatorship to democracy (1975-1982), the country has seen rapid modernization. Despite all these, hiring employees in the country is an arduous task. Here are the 4 biggest challenges of hiring staff in Spain.
Overeducated Yet Underskilled Workforce
A 2016 study by Davia and other researchers found out that Spain had the most overeducated males in Europe. It also had the 4th most overeducated women, behind Italy, Greece, and Portugal. Surprisingly, various studies have also shown that most Spaniards don’t have the additional skills that their academic credentials imply they have. Employers must be aware of this challenge when hiring staff in Spain. They should consider implementing onboarding and training programs in their companies. That way, new hires would be equipped with the relevant skills to help them effectively do what they were hired for.
Complex Rules and Provisions around the Collective Bargaining Agreements (CBAs)
CBAs define many regulations regarding compensation and working conditions in Spain. And these CBAs are not just between unions and individual companies, but they also apply to certain sectors in some geographical areas. For instance, there is a sectoral CBA for the hospitality industry in the Malaga area that mainly covers employees in the restaurants, bars, and hotels on the Costa del Sol.
The typical working week in Spain is 40 hours, with a maximum of nine hours allowed per day and a maximum of 80 hours of overtime allowed per year. But employers can adjust these levels by putting a CBA in place.
There must be a break of 12 hours or more between the end of one working day and the beginning of the next. And this regulation is currently being thoroughly enforced. In fact, a law was enforced in May 2019 requiring businesses to document the daily working hours of their workers and to keep this documentation for four years.
Each new employee’s contract must be listed with social security before the commencement of employment and with the national employment service within the first ten days after the new employee officially starts working. Most new employees stay on probation for two months, except for companies with less than 25 workers (roughly three months) and skilled technical personnel (six months).
Employees in Spain must be paid every month or more often based on the employment contract and CBAs. On top of the mandatory 12 monthly payments, most CBAs demand two extra payments in July and December that are pro-rated and added to the usual monthly payrolls. Employers are required to make all payments to the employees through a direct bank deposit or by check. If an employer opts to make payments by check, they must issue a payslip that clearly indicates the amount of money paid and withholdings to be signed by the worker.
Tax and Withholding Requirements
Companies in Spain must subtract income tax from the salaries of their employees. The tax is split into two equivalent halves: regional tax and state tax. And the rates for this tax steadily increase as monthly earnings increase. For instance, a salary of €12,450 (around $14,100) will attract an income tax of 19 percent, while that of above €60,000 (around $67,900) will attract an income tax of 45 percent.
These deductions are submitted to Spain’s Tax Authority, except in Navarra and Basque regions where income taxes are submitted to local authorities. On top of that, some provisions define when employers must tender their tax payments – those with over €6,010, 121 (approximately $7,107,761) to pay in tax returns must make their payments every month, while all other companies must do so at the end of every quarter. Employers must also withhold social security contributions from their employees’ salaries and submit them to the country’s social security authority.
Multinational companies considering expanding their businesses to Spain should consider partnering with experienced professional employer organizations (PEOs) to help them navigate all the challenges that come with hiring staff in Spain. A global PEO will save them from the time-consuming and costly process of setting up a legal presence abroad. Given that the PEO is familiar with all the foreign labor laws, it’ll handle compliance management seamlessly. The PEO will also handle their Spain payroll functions, allowing them to concentrate on meeting their business goals.
Businesses looking to hire staff in Spain must be prepared to deal with a unique set of challenges and obstacles. And the biggest challenge they’ll face is complying with complex regulations around CBAs. Outsourcing the hiring function to a PEO is a great way to work through the challenges and hurdles of hiring employees in Spain.