What are the key legal issues from an employment law perspective that Tech Start-ups should be thinking about, focusing on hiring, managing, and dismissing employees in different European countries under varying labour laws? To answer all of this and more, we asked Ignacio del Fraile and Borja González Elejabarrieta from Gómez-Acebo & Pombo.
Do I need a Spanish entity to hire people in Spain?
It is not a prerequisite for companies operating in Spain to have a legal entity there in order to employ people. It is possible to hire staff from a legal entity incorporated in other jurisdictions, as long as it is registered in Spain and appoints a legal representative.
Do I need to register as an employer?
From a legal perspective, if employees are going to provide services in Spain, even if they are working remotely for a foreign entity, the company would need to be registered with the Spanish Tax and Social Security Authorities and pay the relevant Social Security contributions and tax payments. To do so, there are two options, depending on whether the company intends to be established in Spain or not:
The company could appoint a legal representative in Spain. This would allow the foreign company to be registered and to hire employees in Spain without setting up a Spanish subsidiary or branch and without having to be established in Spain. The legal representative would act on the company's behalf, register it with the Spanish Tax and Social Security Authorities, enrol the Spanish employees with the Spanish Social Security and carry out the corresponding Social Security contributions and tax payments on account of the employees' personal income tax.
Alternatively, the company could set up an establishment in Spain by incorporating a branch or a subsidiary. In both cases, any of these entities would be the one registered with the Spanish Tax and Social Security Authorities, that would grant them the corresponding Social Security Code and Tax Identification number for carrying out the obligations derived from hiring employees in Spain.
What do I do about payroll?
As per Spanish legislation, Social Security contributions and tax withholdings will be made on the employee's salary, as must be stated on their pay slip. In any case, it is common practice in Spain to outsource the payroll service.
Do I need any insurances?
All companies are legally obliged to hold a series of insurances to protect their employees and their activity. Among them, and if stipulated in the applicable collective agreement, companies must have an accident insurance policy in the event of an accident, disability or death.
Are there different types of employees or workers?
Depending on the nature of the relationship between the person and the company:
Employees: individuals who provide personal labour under an employment relationship of
subordination or dependence to an employer, in exchange for a salary.
Freelancers: self-employed individuals who can have mercantile relationships with companies.
They work for themselves and are not employed by any one company. They are responsible for their own taxes, Social Security contributions, and healthcare coverage. Freelancers often have more flexibility but less job security and benefits.
Trainees: individuals with an employment relationship with the company that has a maximum duration of 12 months to acquire practical experience.
Interns: students who sign a study agreement with their educational institution and the company in order to put into practice what they have learnt at the institution, with a company employee acting as their tutor.
Depending on the duration of the employment relationship, they can be:
Permanent employees: employees are hired for an indefinite period of time.
Temporary employees: employees with employment contracts that are set to last for a specific period. Temporary employees can only be hired due to circumstances of production or due to the temporary substitution of an employee.
Fixed-discontinuous employees: employees hired with a fixed-discontinuous employment contract
render their services intermittently but in a stable manner.
Depending on working hours:
Full-time employees: an employee who works 40 hours per week (though this can vary depending
on the specific agreement, sector, or applicable collective bargaining agreement).
Part-time employees: an employee who works less than 40 hours per week or the alternative legal maximum. Despite working less time, they have the same benefits as a full-time employee, except
regarding their salary, which is paid proportionately.
Can I carry out background checks on a potential employee?
When it comes to background checks, in general, it is not legally permissible to request a job applicant's criminal background certificate in Spain, as inquiring about an applicant's criminal record or background is not permitted under European data protection regulations. There are only certain job positions that can require an applicant's criminal background check, such as jobs that require close interaction with minors, such as daycare workers, or positions in security, the police or the armed forces.
If a company wishes to request an applicant to provide references from a former employer, there is no legal impediment to do so. If the previous employer does provide a reference, it will have to be accurate and cannot breach the employee’s right to privacy or breach data protection regulations.
Do I need to provide a written contract? If so, what should it contain?
While it is not a legal requirement for most roles, it is both market practice and extremely advisable to formalise any employment contract in written. The written employment contract must include the following information: identification of the parties, duration, type of contract, professional group, working conditions remuneration and the collective bargaining agreement applicable to the employment relationship.
In any case, there are exceptions in which a written agreement is legally required, such as contracts for the acquisition of professional practice, for training in alternation, part-time, fixed-term and relief contracts, distance contracts, employees hired in Spain to work for Spanish companies abroad, fixed-term contracts lasting more than four weeks and fishermen's contracts.
Are non-competes enforceable?
Post-contractual non-competition agreements are legally enforceable in Spain, provided that the company has a specific industrial or commercial interest. In addition, the duration is limited to a maximum of two years for technicians and six months for other employees, and the employee must receive adequate economic compensation. Although the law does not specify an exact amount that would be considered adequate, Spanish courts generally accept around 40-50% of the annual fixed salary during the non-competition period.
What pay and benefits do I need to provide?
Spain has an interprofessional minimum wage of EUR 1,134 paid in fourteen monthly instalments (alternatively, EUR 1,323 if paid in 12 monthly instalments) for full-time employees, which is set to be increased in 2025. In addition, collective bargaining agreements can improve on this amount, depending on the sector and the employee's job position. Employers are also obliged to deduct the corresponding tax and Social Security deductions from the employee's salary.
When it comes to time off, employers must respect the mandatory amounts set forth in the Workers’ Statute and the applicable collective bargaining agreement, which includes, among others, thirty calendar days of paid annual leave.
Regarding health and safety, it is the responsibility of employers to ensure that their employees' health is regularly monitored, in light of the risks inherent in the work. In order to guarantee this, companies must offer their employees an annual medical check-up, although they may refuse it if they so wish.
In addition, depending on the applicable collective bargaining agreement, employers may also be required to hire an insurance policy which will cover any accident, disability or death of an employee, as well as provide other benefits.
Will I be able to get a reference from the employee’s former employer?
If a company wishes to request an applicant to provide references from a former employer, there is no legal impediment to do so. If the previous employer does provide a reference, it will have to be accurate and cannot breach the employee’s right to privacy or breach data protection regulations.
Do I need to provide a written contract? If so, what should it contain?
While it is not a legal requirement for most roles, it is both market practice and extremely advisable to formalise any employment contract in written. The written employment contract must include the following information: identification of the parties, duration, type of contract, professional group, working conditions remuneration and the collective bargaining agreement applicable to the employment relationship.
In any case, there are exceptions in which a written agreement is legally required, such as contracts for the acquisition of professional practice, for training in alternation, part-time, fixed-term and relief contracts, distance contracts, employees hired in Spain to work for Spanish companies abroad, fixed-term contracts lasting more than four weeks and fishermen's contracts.
Are non-competes enforceable?
Post-contractual non-competition agreements are legally enforceable in Spain, provided that the company has a specific industrial or commercial interest. In addition, the duration is limited to a maximum of two years for technicians and six months for other employees, and the employee must receive adequate economic compensation. Although the law does not specify an exact amount that would be considered adequate, Spanish courts generally accept around 40-50% of the annual fixed salary during the non-competition period.
What pay and benefits do I need to provide?
Spain has an interprofessional minimum wage of EUR 1,134 paid in fourteen monthly instalments (alternatively, EUR 1,323 if paid in 12 monthly instalments) for full-time employees, which is set to be increased in 2025. In addition, collective bargaining agreements can improve on this amount, depending on the sector and the employee's job position. Employers are also obliged to deduct the corresponding tax and Social Security deductions from the employee's salary.
When it comes to time off, employers must respect the mandatory amounts set forth in the Workers’ Statute and the applicable collective bargaining agreement, which includes, among others, thirty calendar days of paid annual leave.
Regarding health and safety, it is the responsibility of employers to ensure that their employees' health is regularly monitored, in light of the risks inherent in the work. In order to guarantee this, companies must offer their employees an annual medical check-up, although they may refuse it if they so wish.
In addition, depending on the applicable collective bargaining agreement, employers may also be required to hire an insurance policy which will cover any accident, disability or death of an employee, as well as provide other benefits.
How much holiday are employees entitled to take?
In accordance with the Spanish Workers’ Statute, all employees are entitled to a minimum of 30 calendar days’ holiday per year, equivalent to 23 working days. However, it is important to note that collective agreements may establish a higher number of holidays.
And are there any rules around hours of work and overtime?
The maximum working hours per week is 40 hours, calculated on an annualised average basis, and it is common practice for the maximum annual working schedule to be established at 1,780 hours. In addition, the applicable collective bargaining agreement or individual agreement with an employee can set a lower amount, as well as establish an irregular distribution of working hours throughout the year. In the absence of specific provisions, the company is permitted to allocate 10% of working hours on an uneven basis, provided that the minimum daily and weekly rest periods are adhered to.
It should be noted that the Government has the intention to reduce the maximum working hours per week from 40 to 37.5 in 2025.
When it comes to rest, it is a legal requirement that a minimum of 12 hours must pass between the end of one working day and the beginning of the next. The general rule is that the number of effective hours of work per day cannot exceed 9 hours, unless the collective bargaining agreement or employment contract establishes a different working pattern, provided that the rest between working days is always respected. Employees are also entitled to a minimum weekly rest period of 1.5 uninterrupted days, which can be accumulated for periods of up to 14 days. Furthermore, when the duration of the continuous working day exceeds 6 hours, a rest period of not less than 15 minutes must be granted.
Regarding overtime, hours worked by an employee that exceed the maximum working time are classified as overtime. In principle, overtime is voluntary. However, employees are not permitted to carry out more than 80 hours of overtime per year. The excess of hours worked to prevent or repair accidents and other extraordinary and urgent damages shall not be taken into account for the purposes of the maximum duration of the ordinary working day, as well as overtime compensated with rest within the 4 months following the overtime having been carried out.
In accordance with the applicable collective bargaining agreement or the employment contract, overtime shall be either paid in cash or compensated with equivalent time off. In the absence of a specific mention regarding the compensation method, overtime shall be compensated with equivalent rest within the 4 months following the overtime period.
Additionally, employees who perform more than 3 hours of night work, defined as work between 10:00 p.m. and 6:00 a.m., are not eligible for overtime.
Do employees have a right to work flexibly?
While employees do not have the right to work flexibly, they do have the right to request flexible working arrangements to the length and distribution of the working day, the organisation of working time and the manner in which it is provided, including the provision of remote working, in order to give effect to their right to reconcile family and working life. Such adjustments shall be reasonable and proportionate to the needs of the employee and the organisational or production requirements of the undertaking.
Do employees have any right to take time off for family friendly reasons?
Employees in Spain have several rights to take time off for family-related reasons. The Workers' Statute provides for the following:
16 paid weeks of paid maternity, paternity or adoption leave.
15 calendar days of paid time off when an employee gets married or registers their partnership.
5 paid days in cases of accident or hospitalization of a spouse, registered partner, relatives up to the second degree of consanguinity or affinity or cohabitants that require care.
2 paid days for the death of a spouse, registered partner or relative up to the second degree of consanguinity or affinity. If the employee needs to travel for this purpose, the period shall be extended by 2 days.
1 paid day for moving from the usual place of residence.
The time required for prenatal examinations and birth preparation techniques and, in cases of adoption or foster care, for attending the mandatory information and preparation sessions and for the completion of the mandatory psychological and social reports.
1 hour (or 2 half hours) of breastfeeding leave per day until the child reaches 9 months of age.
An unpaid leave of absence of no more than 3 years to care for each child, whether by birth, adoption or foster care for the purpose of adoption or permanent foster care, from the date of birth or, where appropriate, of the judicial or administrative decision.
An unpaid leave of absence of no more than 2 years to care for a spouse or registered partner, or for a family member up to the second degree of consanguinity and by affinity, who, for reasons of age, accident, illness or disability, is unable to look after themselves, and is not gainfully employed.
In any case, it is important to remember that collective bargaining agreements can improve on these rights.
What happens if my employee is sick?
In the case of “common illness” and “non-professional accident”, during the period between the fourth day of illness until the twentieth day, the subsidy consists of a payment of 60% of the employee's Social Security regulatory base; from the twenty-first day, the subsidy consists of 75% of the employee's Social Security regulatory base. The payment of the sick leave subsidy is supported by the company from day 4 to 15. From day 16 onwards, the payment of the sick leave subsidy is supported by the Social Security system.
In the case of “professional accidents” or “professional illness”, the subsidy amounts to 75% of the Social Security regulatory base from the first day of illness. The payment of the subsidy is supported by the Social Security system (Mutual) from day 1.
However, certain collective bargaining agreements stipulate the obligation for companies to supplement the public subsidy, increasing it to 100% of the employee's salary. The maximum period of sick leave is generally 12 months, which can be extended for a further 6 months.
What are the classes of protection under discrimination laws?
In accordance with the Worker’s Statute, employees have the right to not be discriminated against, directly or indirectly, during their employment or once employed, on the grounds of marital status, age, racial or ethnic origin, social status, religion or belief, political opinions, sexual orientation, sexual ide0ntity, gender expression, sexual characteristics, membership or non-membership of a trade union, language spoken, disability, as well as on the grounds of sex, including unfavourable treatment of women or men for exercising the right to reconcile family and working life.
These are further amplified by the Law for equal treatment and non-discrimination, which includes an employee’s birth, disease or health condition, serological status and/or genetic predisposition to pathologies and disorders, socio-economic status, or any other personal or social condition or circumstance as protected characteristics as well.
Actions taken by a company against an employee that are considered discriminatory will be null and void, with the associated compensation and administrative sanction for a very serious infringement, ranging from EUR 7,501 to EUR 225,018.
Are there any rules around whistleblowing?
Spain's Law on the Protection of Persons who Report Breaches of the Law and on Combating Corruption transposes European legislation, ensuring appropriate protection for individuals reporting acts or omissions that may constitute infringements under the law (including infringements of EU law, serious or very serious criminal or administrative infringements, among others).
Companies with 50 or more employees must establish an internal reporting channel and a management and protection system for whistleblowers, ensuring they are not subjected to retaliation. Failure to implement the required whistleblowing channel constitutes a very serious infringement, and companies may be subject to penalties, including fines ranging from EUR 600,001 to EUR 1,000,000.
Do I need to give notice to terminate the employees’ employment?
Depending on the reason for the dismissal, companies may be required to give their employees notice prior to terminating their employment.
In the event of an objective dismissal/redundancy, which occurs when the reason for termination is based on economic, technical, organisational or productive reasons, employers are required to provide a 15-day notice or pay the equivalent in lieu.
In the case of a disciplinary dismissal, which occurs when there is a very serious contractual breach by the employee, there is no need to provide any notice.
Note that the collective bargaining agreements and the employment contracts can establish different rules in this respect.
Do I have to allow the employee to work their notice?
The company has the option to pay the notice in lieu.
Do I need to follow a process before dismissing an employee?
Regardless of the cause for the dismissal, employers must draft a detailed dismissal letter setting out the specific reasons for which the employee is being dismissed. Additionally, depending on the reason for the dismissal, there are specific procedures to be followed.
In the event of an objective dismissal, apart from the aforementioned 15-day notice or payment of the equivalent in lieu, employers must pay the relevant severance compensation equivalent to 20 days' salary for each year of service, up to a maximum of 12 months' salary, on the same day the dismissal letter is given to the employee.
In the case of a disciplinary dismissal, which occurs when there is a very serious contractual breach by the employee, employers must carry out a disciplinary proceeding. During this process, the employee is given a statement of charges, which details the reasons for the termination, and the employee is given the opportunity to defend themselves. Depending on the applicable collective agreement, there may be additional steps that need to be taken, particularly if the person being disciplined is a legal representative of the employees, such as a member of the works council.
Apart from the abovementioned causes for individual dismissals, there is also a specific process to be followed in case the employer wishes to carry out a collective dismissal, which occurs when the termination of employment contract is based on economic, technological, organisational or production grounds and it affects multiple employees within a period of 90 days. Depending on the number of employees in the company, the procedure for collective redundancies must be followed if it concerns:
10 employees, for companies with less than 100 employees.
10% of the company's employees, for companies with between 100 and 300 employees.
30 employees, for companies with more than 300 employees.
A collective dismissal would also be considered to take place when the abovementioned thresholds are exceeded in respect of a work centre, when such work centre has more than 20 employees.
One of the peculiarities of collective dismissals, apart from the payment of the minimum severance compensation equivalent to 20 days' salary for each year of service, up to a maximum of 12 months' salary, is the employer's obligation to initiate a formal collective procedure, which involves a negotiation with the employees’ legal representatives, lasting between 15 to 30 days, and the intervention of the Spanish Employment Authorities.
When the termination decision is notified to the employees’ legal representatives, the company will individually notify the affected employees of the termination decision, which will have to be carried out under the requirements and formalities concerning the individual dismissal for redundancy/objective dismissals.
In the event that an agreement is not reached and the company decides to carry out the dismissals regardless, the company’s decision could be challenged collectively by the employees. In any case, even if an agreement is reached, employees will still be legally entitled to individually challenge the dismissal.
Do I need to pay any severance on termination of employment?
In the event of termination of employment, the employer may be obliged to pay severance compensation to the employee depending on the cause of said termination. In the event of objective dismissal, the employee is entitled to a severance payout equivalent to 20 days' salary for each year of service, up to a maximum of 12 months' salary.
In the event of a disciplinary dismissal, no severance is payable. However, if a dismissal is deemed unfair by a court of law (regardless of whether the dismissal is objective or disciplinary), the company will have to choose between reinstating the employee, along with paying the accrued salaries, or paying an increased severance compensation for unfair dismissal equivalent to 33 days' salary for each year worked, up to a maximum of 24 months' salary, assuming there is no reason for the dismissal to be declared null and void, in which case, the company would have to reinstate the employee with backpay, as well as pay a damages compensation, if applicable.
For collective dismissals, the legal minimum severance compensation is 20 days of salary per year of service, up to a maximum of 12 monthly instalments. However, it is usually higher because the parties are obliged to negotiate in good faith and the 20 days' compensation is the starting point, as it is the minimum to which the employees are legally entitled.
Is it possible to settle employment claims?
Employment claims can be settled under a settlement agreement. The terms of said agreement must then be ratified before the Conciliation, Mediation and Arbitration Service or the employment court dealing with the proceeding.
Ignacio del Fraile
Partner, Employment ifraile@ga-p.com (+34) 915 829 100
Borja González Elejabarrieta
Counsel, Employment bgelejabarrieta@ga-p.com (+34) 915 829 100
Comments