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ECONOMY

Spain to subsidise the hiring of young unskilled workers

In a bid to bolster its recent labour reforms and stabilise the job market, the Spanish government is set to subsidise the hiring of young unskilled workers.

Published: 11 January 2023 16:52 CET
Spain to subsidise the hiring of young unskilled workers
Photo: Josep LAGO/AFP

Spain’s Ministry of Labour is set to subsidise the permanent hiring of unskilled and unqualified young people with a bonus of €275 per month for up to three years.

The new measure, approved on January 10th, will come into effect by September 2023 and builds on Spain’s landmark labour reform passed back in early 2022. It includes several new bonuses and subsidies created to incentivise the hiring and stable employment of vulnerable groups such as the long-term unemployed, young people, women and people with disabilities. 

At a press conference following the Council of Ministers meeting, the Second Vice-President and Minister of Employment, Yolanda Díaz, emphasised that the measures only provide incentives for permanent job contracts, a major thrust of the recent labour reform that attempts to shift the Spanish employment market away from an insecure model based on temporary contracts. 

The wide-ranging reforms were introduced to rectify the prevalence of temporary jobs in the Spanish labour market and avoid the more exploitative elements of the practice.

Before the labour reform came into force in 2022, fixed-term contracts represented the vast majority of those signed month on month in Spain, many of which were lined up one after another and some contratos temporales could last just hours.

In fact, in 2021 Spain had the highest number of temporary contracts anywhere in Europe. Fortunately, however, the reforms seem to be having the intended consequences: around a third of employees hired in the first four months of 2022 were been given permanent contracts, and by April 48 percent of new contracts signed were permanent. 

The measures, Díaz said, are geared towards promoting employment stability and constructed in a way that temporary hiring will no longer be “rewarded.”

READ ALSO: UPDATED: Spain approves new €600 per month unemployment benefit for artists

Along with the government-backed bonus for hiring young unskilled workers, two other incentives will be introduced. One will be €138 per month contribution (also for three years or for the duration of the contract) to support the hiring of people with disabilities and people undertaking internship training within companies.

Additionally, there will be other incentives (€55 a month, as per reports in the Spanish press) for companies that convert temporary contracts into fixed contracts within Spain’s agricultural system.

For companies receiving these recruitment incentives, they must agree to a continuous employment period of three years. The bonus currently provided for the indefinite hiring of people in a situation of ‘social exclusion’ has also been raised from €55 to €128 per month, putting it on par with the pre-existing bonus incentive established for the indefinite hiring of other vulnerable groups. 

Spain’s labour reforms haven’t completely outlawed temporary contracts, however. Temporary workers may still be hired to fill a position, but for a maximum of 90 days a year and not consecutively, as is often the case for large employers trying to save on costs and who effectively employ temporary workers full-time but don’t recognise their pay or protection as such.

Likewise, in the last quarter of each year, companies must give workers some kind of forecast of what type and how much work they will need for the coming year. 

Recovery plan

The introduction of these new hiring incentives rules forms part of Spain’s so-called ‘Recovery, Transformation and Resilience Plan’, which is backed financially by Brussels to the tune of €69.5 billion, of which it is thought ten out of a total of eleven reforms promised to Brussels have been satisfied. 

Hiring incentive bonuses make up around a quarter of the total public spending for active labour market policies in Spain. 

The new measures, approved on Tuesday, also state that companies that transfer their industrial, productive or business activity outside the European Union or the European Economic Area (EEA) must return all bonuses to Spain’s Social Security system from which they have benefited during the four years immediately prior to said relocation, with a surcharge and the corresponding interest.

Likewise, the companies will have to return any subsidies obtained via recruitment and employment incentives.

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AMERICANS IN SPAIN

EXCLUSIVE: What the new Spain-US social security deal means for Americans

The Local speaks to the Spanish government and tax experts to understand what the new social security and pensions agreement between the United States and Spain means for American workers, digital nomads and pensioners in Spain.

Published: 15 May 2024 11:10 CEST
EXCLUSIVE: What the new Spain-US social security deal means for Americans

In early April, the United States and Spain announced a new social security and pension agreement.

The first update to the bilateral agreement between the two countries since 1986 was announced by US Ambassador to Spain, Julissa Reynoso, and Spain’s Minister of Inclusion, Social Security, and Migration, Elma Saiz.

The official agreement is unpublished so The Local spoke with a representative from Spain’s Ministry of Inclusion, Social Security, and Migration as well as international tax experts to understand the agreement in more detail.

Key aspects of the agreement

The Ministry told The Local Spain that the agreement is a step towards, bolstering mobility between Spain and the United States by improving pension calculations and social security protections.

The agreement has to do with the accumulation of benefits and affects working Americans living in Spain. There are two main components; the first affects which system people pay into (Spanish or American) and the second maximises the amount people can collect from social security.
 
Regarding paying into social security, the new agreement extends the “posting period” from three years to five years, with the possibility of extending it to seven years.

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This is meaningful for US employees who are working in Spain and means that they can now pay into the US social security system, rather than the Spanish social security system for longer.

Whereas the employee contributions in Spain and the United States are similar, 6.4 percent in Spain and 6.2 percent in the United States, the rate that employers pay differs greatly. In the United States the employer pays 6.2 percent into social security, whereas in Spain they pay 31 percent.
 
Why does this matter? “Previously when Americans moved to Spain, US employers were cutting the amount that they paid in salary because the cost of employment went up so much”, Louis Williams, Co-Founder and CEO of Entre Trámites, told The Local Spain.

It’s also made employers hesitant to grant digital nomads an Employer of Record (EOR) which would allow American workers to be on a Spanish contract.

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In terms of collecting benefits, the representative from Spain’s Ministry of Inclusion, Social Security, and Migration says, “In the calculation of the Spanish pension there have been technical modifications that will benefit especially those people who developed their last working life in the United States, without this harming those who have worked in Spain immediately before requesting the benefit.”

In other words, under the new agreement, after calculating a person’s benefits under each country’s system, the recipient will be awarded the most beneficial of those two calculations.

Impacts for self-employed workers and digital nomads

According to the Ministry, “The agreement allows self-employed workers to temporarily move to the other State while maintaining their legislation, a possibility that was previously restricted only to employed workers.”
 
This has big implications for people who avoid moving to Spain because of the complicated social security contributions scheme, as they’ll now be able to continue paying US social security taxes (rather than Spanish) for up to seven years.
 
“The interesting thing is if this is extended to digital nomads because it would make the digital nomad visa more attractive,” says Williams.

“Why? Because if you’re posted by an employer (who can now avoid high Spanish social security taxes) you’re eligible for Beckham’s Law.” The law, which does not extend to autonomous works, can cap tax liabilities at 24 percent.
 
Being posted could make life much simpler, according to Elliott Locke, ACSI, co-founder of abroaden, a financial wellbeing and education start-up for people living abroad headquartered in Barcelona.

“The calculus is harder for freelancers given the different legal structures and methods for freelancing between the two countries. In many ways, if an American moves here to work remotely, it could be beneficial for them to have their US-based employer hire them on a local contract through an employer-of-record,” Locke told The Local.
 
In short, the new agreement could make it more attractive for U.S. companies to post employees in Spain, making them eligible for Beckham’s law and allowing autonomous workers to pay into the U.S. social security system, making it more beneficial and easier to be a digital nomad in Spain.

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Who benefits from the new agreement?
 
The people who will feel this new agreement the most are employers, digital nomads, retirees who have paid into both systems over the years, and finally, civil servants. “Spain has incorporated as possible beneficiaries of the Agreement those people who have contributed to the civil servant’s regime (passive class regime), who were excluded in the previous Agreement,” says the Ministry.
 
When can we expect the new agreement to come into force?

Don’t hold your breath; this is Spain after all, but we can expect the agreement to come into force within the next two years.

The deal has to pass through Congress before approval, which is likely why it has not yet been published. If things move quickly, people could expect to benefit within a year.

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