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WORKING IN SPAIN

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

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?

How much severance pay will I get if I'm sacked in Spain?
Though most contract workers are entitled to redundancy pay, you may also qualify for compensation payment, known in Spain as indemnización por despido. (Photo by ludovic MARIN / AFP)

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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WORKING IN SPAIN

Your questions answered about Spain’s digital nomad visa

Spain's long-awaited digital nomad visa is finally available, but there is still much confusion about it, so we've answered all your burning questions.

Your questions answered about Spain's digital nomad visa

Spain’s Startups Law, which also introduced a new digital nomad visa, was approved at the end of 2022, but didn’t come into force until January 2023 and all the details are only just now being revealed. 

From how much money you need to your tax obligations and if you can bring family, members, here are all your questions answered. 

READ ALSO – REVEALED: Everything you need to know about applying for Spain’s digital nomad visa

What are the financial requirements to apply for the visa?

You must prove that you earn 200 percent of the SMI or Minimum Interprofessional Salary. The current minimum wage in Spain is €1,000 per month (across 14 payments) or €1,166.67 across 12 payments.

Keep in mind though that the minimum wage is currently being re-evaluated and is likely to go up to €1,082 (across 14 payments) per month in the near future.

This means that currently, you must be able to show that you will have an income of at least €2,333.34 per month or €28,000 per year, but it is likely this will increase. You can prove this amount either with job contracts, invoices or bank statements.

Can I bring family members with me on the visa?

Yes, you are permitted to bring partners and children with you to Spain on the digital nomad visa.

In order to add a family member, however, you must prove that you have an extra 75 percent of the SMI or minimum wage. This currently equates to an extra €875. For each additional family member after this, such as children, you will have to prove you have an extra 25 percent of the SMI, currently €291.66.

READ ALSO: Ten of the best cities for digital nomads to move to in Spain

Do I need private health care?

You must also make sure that you have either private or public health insurance, simply getting travel insurance with health coverage is not enough.

The Spanish government mentions the option of getting public health insurance instead of private cover, but it is not yet clear whether this means that you will have to contribute to the social security system or be eligible for the convenio especial – the public pay-in scheme.

Do I have to have any professional qualifications? 

You must prove that you either have professional qualifications or a degree relating to your job or that you have at least 3 years’ experience working in your field. 

How long is the visa valid for?

The visa will be valid for an initial period of one year, however, it can be renewed for up to five years. After that, if you want to continue living in Spain, you will be able to apply for permanent residency.

Does the visa give me access to travel around the EU?

Yes, once you have your visa and you’re in Spain, you will be able to apply for a residency card. This will allow you to travel throughout the EU during the time that you’re living in Spain.

Keep in mind though, it won’t give you the right to work or live in other EU countries, but you will be able to go for short breaks. 

How long do I have to stay in Spain for the visa to be valid?

Many digital nomads choose to split their time between different countries. If this is your case, and you want to split your time between back home in the US or the UK for example, you must make sure you stay in Spain for a maximum of 6 months per year for your visa to remain valid.

Do I have to pay tax in Spain?

Yes. If you stay longer than 183 days, then you will be considered a tax resident in Spain. This means that any money you earn while working in Spain, even if it comes from clients or companies abroad will be taxable.

However, the digital nomad visa grants you tax benefits, such as being able to pay the Non-Residents Tax Rate (IRNR) rather than the regular progressive income tax (IRPF) that Spain’s resident workers pay.

Non-Resident Tax was previously only applicable to non-residents such as second-home owners, but an exception has been made for digital nomad visa holders even if they spend more than 183 days a year in Spain and are therefore technically fiscal residents.

IRNR is generally 24 percent in Spain and digital nomads will be able to pay this instead of the more progressive rates, as long as they earn below €600,000 a year.

This favourable tax rate will be available for four years, if you choose to renew your visa. 

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