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Spanish Social Security overcharge thousands of self-employed

Thousands of autónomos in Spain have been mistakenly overcharged hundreds of euros in social security contributions after a system error.

Published: 2 February 2023 14:36 CET
Spanish Social Security overcharge thousands of self-employed
Spain's Minister of Social Security Jose Luis Escrivá. Photo: chema moya / POOL / AFP

Thousands of self-employed people in Spain (autónomos) had a nasty surprise to start 2023.

Checking their bank balances this week, many will have realised that Spain’s Social Security accidentally overcharged them, along with thousands of other people.

For some, they have been left hundreds of euros out of pocket. 

READ ALSO: Everything that changes for self-employed people in Spain this year

Spain’s Ministerio de Inclusión, Seguridad Social y Migraciones, which charges self-employed people every month, mistakenly charged the normal minimum fee to the newly self-employed, who are offered a special €80 flat rate. The error, which has been described as an “incident in the system” in the Spanish press, affected self-employed people who had registered between January 1st and 9th.

According to the Asociación de Trabajadores Autónomos (ATA), newly-registered self-employed people were charged the normal minimum monthly fee, which is €299, instead of the reduced €80 flat rate those who are self-employed start out by paying. 

The mistake, which meant this new cohort of autónomos paid €220 more than expected, affected around 8,000 people. Sources from the Ministry of Inclusion, Social Security and Migrations say those workers accidentally overcharged will be contacted in the coming weeks by email, and it is thought that refunds will be sent by March if not before, according to Europa Press.

Contributory bases

In addition to the system error, many self-employed people (and their accountants) were surprised to see that their contribution base had been automatically updated by Social Security and they were also overcharged as a result.

From the start of 2023, self-employed can decide whether or not to update their so-called ‘contribution base’ – their estimated net income from which social security contributions are calculated – based on their changing income.

But at the end of January, many who had neither updated their base or made more money were charged 8.6 percent more than they should have been.

José Luis Perea, General Secretary of the ATA, insists that both errors had nothing to do with the new contribution system based on real income that entered into force in 2023, the Special Regime for Self-Employed Workers (RETA).

Freelance changes

In fact, Perea claims that with the new system, “practically 70 percent of the self-employed will benefit”. 

From 2023, Spain’s autónomos will pay monthly social security fees based on how much they earn, instead of a fixed rate. Previously, freelancers have had to pay a minimum contribution base of €294 per month after they have been registered as self-employed for two years, regardless of how much they earnt.

With this new system, self-employed people in Spain have the ability to change their income bracket every two months, with a maximum total of six changes throughout the year, in order to be to adapt their social security contributions to their projected income as it changes.

Instead of there being a fixed rate of €294, the fee will go down progressively to €200 a month for lower earners and progressively higher – up to €590 a month – for higher earners. This means that some self-employed workers will see their social security payments reduced, however, for anyone earning over €1,700 per month, they will increase.

Refunds

Though those new self-employed workers accidentally overcharged by €220 should be refunded in the coming weeks, those who had their contribution base increased will have to wait until the end of the 2023 fiscal year to get their money back.

The new self-employed contribution system will have a transition period of nine years, until 2032, and came into force on January 1st, 2023, with 15 different levels of contributions ranging from €230 to €590 depending on the net income of self-employed workers.

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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
Updated: 19 May 2024 08:20 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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