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How much severance pay will I get if I'm sacked in Spain?

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The Local ([email protected])
How much severance pay will I get if I'm sacked in Spain?
(Photo by ludovic MARIN / AFP)

There could be changes on the way for Spain's redundancy pay system. But if you are sacked in Spain, how much are you entitled to, and can you claim extra compensation?


It's something nobody wants, but if you're let go from your job in Spain, you'll need to know about two things: redundancy payments (el finiquito) which everyone is entitled to, and possible compensation payments (indemnización por despido) that depend on a variety of factors such as seniority, salary and the reason why the work relationship ended.

El finiquito

In Spain, el finiquito refers to the financial settlement an employee receives when their contract is finalised.

This redundancy pay, often accompanied by an official dismissal letter stating the end of a worker's contract, is a lump sum of money that a company must pay to an employee.

El finiquito is always paid when you lose your job, but how much you are paid depends on various factors, including how much salary you have outstanding, how many days you’ve worked that month, and any unused holiday days you have accrued.

El finiquito can include compensation payment, which depends on whether the employee was fired and the type of dismissal. Companies can carry out three types of dismissals: objetivo (the worker has no blame), disciplinario (the worker is at fault) and colectivo (objective dismissal of a significant number of workers). But if the employee doesn't agree with the reasons for being fired by their employer, they can raise the matter with a judge to determine whether their dismissal was justified (procedente) or wrongful (improcedente).


Unpaid salary

In Spain, redundancy pay is proportional to the time worked in the current month - as in the month you have been sacked, so far. That is to say, if you are sacked the number of days you’ve worked in the month until that day is included in the redundancy settlement.

Let’s look at an example.

Say you’re an employee in Spain who earns €1,300 a month. For whatever reason, you are laid off. Once you get over the shock, you should begin to calculate - how many days have I worked this month?

Say it was 17 - you had worked 17 days in the month you were fired. Well, your redundancy payment would work like this:

€1,300 / 30 days a month = €43.33 per day

Your daily salary would then be multiplied by the days worked in that month: €43.33 x 17 = €736.61.

That would mean you’re entitled to €736.61 of redundancy payment.


Extra payments

As many of you may know, in Spain employees generally receive fourteen payments a year. They get the twelve monthly payments, but also two extra payments known as pagas extraordinarias (literally meaning, extraordinary payments).

These are basically like bonuses, and usually come in the summer and winter period at a time negotiated between employers and employees, according to Article 31 of Spain's Workers' Statue Law.

To continue with our example from above, if you're sacked on the 17th of November you'd have already received your summer bonus but not the Christmas one. In that case, it would be factored into your redundancy payment.

Let say your pago extraordinario was a bonus worth €1,500. If we divide €1,500 by 365 days = approximately €4.11 extra pay per day. Subsequently, at this amount, €4.11 must be multiplied by the days worked in the entire year - if you were sacked on the 17th of November, that'd be 317 - which would give you a nice Christmas bonus payment of €1,302.87 added to your redundancy payment package.

Unused holidays

If you have accrued holiday days but haven't taken advantage of them before you're sacked, you are entitled to have any outstanding holiday days owed to you paid into your redundancy package.

The calculation is proportional, and you must first calculate how many vacation days correspond to you for each month worked. Continuing our example from above (sacked on November 17th), to know how many holiday days you are entitled to you should calculate holiday days for the days worked per year so far, and divide the result by 365:

(30 x 317) / 365 = 26 days.

Say you've taken advantage of 15 of your annual holiday leave. That would mean you are entitled to 11 days of unused holiday accrued. At your daily rate of €43.33, 11 x €43.33 = €476.63 in unused holiday days to be added to your redundancy payment.


Compensation pay (Indemnización por despido) 

Though the vast majority of contract workers are entitled to redundancy pay, you may also qualify for compensation payment, known in Spain as indemnización por despido.

However, unlike a redundancy payment that is uniform and everyone receives, for compensation there are some other key factors that determine if and how much you could be entitled to.

Annual salary - including overtime payments, commissions, bonuses and other supplements, the average year of overtime, productivity pay and other bonuses such a car or house owned by the employer. Tax allowances, cash tips and social security contributions are exempt from calculations.

Seniority - The number of months and years you've worked for the company. Generally speaking, if you're fired without being at fault you're entitled to 20 days of wages for every year you worked for the company, with the lump sum limit set at 12 monthly wage payments. For wrongful dismissals, this amount can be 33 days for every year worked (a lump sum limit of 24 monthly payments) and for job contracts signed before 2012 it is 45 days of wages for every year worked (a maximum of 42 monthly wages).  

Type of contract termination - was it voluntary redundancy? Non-voluntary? Were you sacked for inappropriate behaviour? When a sacking is considered just or appropriate, there is no right to compensation, but you will still receive the redundancy payment. How exactly you were sacked can determine your compensation claim as only workers with despidos objetivos and improcedentes have the right to claim this type of compensation.

So for example, an employee who has worked for two years and three months for a company and has an annual gross salary of €14,000 is sacked and a labour court finds it was a wrongful dismissal. They were hired after 2012 so 33 days of wages correspond for every year worked (max 24 monthly payments). 

The calculation would be:

33 days x 2 years = 66 days

3 extra months = (33 x 3)/12 = 8.25 days

66 + 8.25 = 75 days of compensation pay

€14,000 gross annual salary/365 = €38.3 daily wages

€38.3 daily wages x 75 days of compensation = €2,887.5 of compensation pay for unfair dismissal


Changes coming?

An ongoing claim at the European level by one of Spain's biggest trade unions, the UGT, could force some changes to the Spanish compensation and severance payment systems in the near future. The European Committee on Social Rights, the body processing the UGT claim on dismissal pay settlements, has stated that the claim has a 'high probability' of winning because Spanish legislation could be found to contravene Article 24 of the European Social Charter.

If successful, the UGT's claim could force changes to the law that would result in a more personalised system of redundancy payments intended to benefit workers on an individual level, but some experts warn that it risks increasing inequality in the workplace and employment market. Bernardo Pérez-Navas, partner of Laboral de Garrigues, explained to Spanish newspaper El Mundo that "The current compensation calculation system is based on the application of an objective scale through two criteria linked to the employment relationship: salary and seniority. This provides unquestionable legal certainty and frees the worker from having to prove the damages suffered, their quantification and the causal relationship. In addition, it guarantees the equality of all workers."

Some employment experts believe that if the UGT's claim is successful and compensation payments are made more personalised, it would create a legal maze for claimants and result in more uncertainty and even possible litigation between employers and employees because the onus would be on the employee to prove their rights and any damages suffered. "It cannot be directly concluded that such a change will necessarily be beneficial for workers," Pérez-Navas said.



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