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WORKING IN SPAIN

The changes to job contracts in Spain in September 2023

Important changes regarding incentives employers receive for hiring certain types of workers come into force in September 1st and will impact any contracts signed after that date.

Published: 28 August 2023 10:18 CEST
job contracts spain
A new incentives system for job contracts in Spain begins on September 1st 2023. Photo: Christof STACHE / AFP

These changes introduce a new system of incentives for hiring, with a special focus on permanent contracts and hiring vulnerable groups, particularly women and the long-term unemployed, the over 45s, and young people under 30.

From September, a new law (Royal Decree-Law 1/2023 to be specific) will create incentives for employment contracts and improving social protections for Spanish workers.

Regardless of when, how or if a new government that comes in, these new measures will be implemented with a view to favouring indefinite-term contracts and vulnerable groups.

One of the major pieces of the legislation concerns benefits that some companies will receive when hiring certain employees.

Rewarding permanent contracts

One of the main objectives of the new law is creating stable employment, as well as promoting the hiring of groups considered vulnerable and the long-term unemployed.

As such, companies that take on people like this will receive certain fixed tax deductions:

Long-term unemployed men under 45: €110 per month for three years.

Long-term unemployed women: €128 per month for three years.

Long-term unemployed and aged 45 or over: €128 per month for three years.

Hiring people with a certificate of social exclusion: €128 per month for four years.

Hiring victims of terrorism: €128 per month for four years.

Hiring women who are victims of gender violence: €128 per month for four years.

People with intellectual disabilities: €128 per month for four years.

People with permanent or absolute disability: €138 per month for two years.

Young people under 30 with low qualifications: €275 per month for three years.

READ ALSO: How a spike in permanent contracts is improving job security in Spain

Benefits coming to an end

As of September 1st, a series of benefits that are currently in force will also come to an end. One of these to go will be benefits for hiring family members (except for people with disabilities).

The hiring bonuses will also disappear for workers who have been in the same company for the last 12 months with a permanent contract, as well as for those who have been in the same company for the previous six months with a temporary or training contract.

In addition, the total rebate for contracts with unemployed workers for the replacement of workers due to maternity, fostering and adoption will end.

This benefit will be reduced from 100 percent to a flat €336 rate in two cases:

– For fixed-term contracts made to unemployed people under 30 years of age, to replace workers receiving economic benefits for risk during pregnancy or risk during breastfeeding.

– For fixed-term contracts for unemployed persons under 30 years of age, to replace workers receiving economic benefits for childbirth and childcare.

Other benefits to companies that will be reduced are those related to part-time contracts. In these cases, the amount of the bonuses will be reduced proportionally, while part-time contracts of less than 50 percent of the full-time working day will not be incentivised, except in cases of work-life balance leave.

READ ALSO: What are the types of work contracts in Spain and which one is the best?

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For members

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.

READ ALSO:

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.

READ ALSO:

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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