How to Manage and Pay Contractors in Spain
In this guide, we’ll give you a background on independent contractors in Spain, and insight into how to onboard, pay, and manage them compliantly.
Janelle Watson provides content marketing for the international team at Justworks. With a background in higher education and journalism, Janelle helps tell stories that make international expansion and EOR accessible.
Many businesses consider onboarding contractors in Spain, because the country ranks as the 14th largest economy in the world with major economies in tourism, manufacturing, agriculture, and energy.
The country's wide range of industries and close relationship with European powerhouses like the United Kingdom makes it the perfect place to find independent contractors to help complete projects and grow your business.
Businesses of all sizes, both inside and outside of the country, want to work with contractors in Spain. For businesses based in countries like the United States or other parts of North America, this also means finding an effective way to make payments across borders without having to deal with transaction fees for wire, digital, and other money transfers when paying contractors.
What is the difference between an independent contractor and full-time employee in Spain?
When you hire anyone in Spain, you’ll need to understand the difference between a full-time employee and independent contractor.
Some general distinctions between employees and contractors are:
Employees are on payroll while contractors are paid per project
Contractors file and deduct their own taxes
Employees are entitled to benefits while contractors are not
Contractors are not entitled to notice or severance
Contractors set their own hours and completion of projects while employees have a set schedule
Dependent self-employed
In Spain, there is a further classification of employment beyond full-time employee and contractor called “dependent self-employed.”
In order to be classified as “dependent self-employed”, you must meet the following requirements:
You must receive 75% or more of your annual earnings from one client or business
You can not have employees or subcontract your work to a third partyYou must carry out your work in a different location than where the employer is located
You must own your own equipment
There is no general difference between a contractor and “dependent self-employed” as they are both acting as their own employers. The distinction is merely to show that the contractor is receiving most of their work from one client. Dependent self-employed contractors are still responsible for all the same taxes and liabilities as regular independent contractors.
How to determine if you need a contractor in Spain
Hiring a contractor in Spain will depend on the scope of the project you want completed and the amount of time you need to employ the contractor.
Ask yourself these questions to help determine whether the worker should be classified as an independent contractor:
Will this person need to be on my payroll or will they be responsible for their own taxes?
Is this person going to be working enough hours to be entitled to benefits and other compensations from my company?
What qualifications does this person have that make them specialized to complete a specific project?
Do they need to put in bids to compete for these projects or can I assign them everyday tasks like an employee?
Can I give this person independence to complete this project without inserting managerial opinion along the way?
How long will it take to complete this project?
Where to find contractors in Spain
If you already do business in Spain and have a professional network there, you can use networking and word-of-mouth referrals to find the best contractors to fit your project needs.
Until then, if you’re just staring out in Spain, you can use job boards like:
How to onboard contractors in Spain
Creating a clear and detailed independent contractor agreement protects both you and the contractor, as well as helps to mitigate any future misclassification or liability problems.
Independent contractor agreements outline important details between the contractor and client, including:
Description of the services being provided
Length of the project or service
Payment and other billing details
Dispute resolutions
Although contracts are not legally required in Spain and can be a written or verbal agreement, having one in writing is the best way to settle disputes or problems with compliance.
How to pay contractors in Spain
After you’ve onboarded your contractor in Spain, you’ll need to know exactly how to pay them.
You should avoid putting your contractors on your payroll in Spain, as it causes problems with compliance and classification. One of the easiest ways to avoid payment and transaction fees when paying contractors is to use Justworks International Contractor Payments. We take the headache out of paying contractors abroad.
You have a few options to legally pay independent contractors in Spain:
Use a third-party payroll service or EOR. If you are a PEO or EOR customer at Justworks, you can make international contractor payments to workers in Spain.
Set up a bank account. You can set up a Spanish bank account to pay your contractors. However, you’ll normally need to set up an entity within the country and register with the proper organizations (a process that can take months and is overall costly).
International money order. One of the common ways to pay a Spanish contractor without an entity is to set up an international money order. They can take awhile to process, and the contractor will have to physically deposit them. This is a good option when you’re only paying someone once.
Digital wallets. You can set up a digital wallet through multinational peer-to-peer lending companies like PayPal that help you deposit and transfer money into your contractors accounts. This is one of the quickest ways to pay contractors without partnering with an EOR service like Justworks. Most of these services do charge fees for digital wallets, so be aware of that before choosing this option.
Money transfer services. Another popular option for employers looking to send large amounts of money across borders is using a money transfer service like Payoneer. This option has a high transfer limit, quick transfer time, and different options for sending money. These transfers can occur relatively fast and usually ensure a prompt payment. But, if you transfer money in a different currency besides Euros, there usually is a conversion fee. Payoneer, for example, charges $1.50 for domestic transfers and a 2% fee for non-currency transfers.
Converting Spanish contractors to full-time employees
If you have a good working relationship with your Spanish contractor, you may want to bring them on as full-time employees to reward their hard work and loyalty.
When you want to convert workers in Spain, you have two main options for hiring:
PEO or co-employment service, if you have an entity in the country
Global EOR management service like Justworks, if you don’t have a Spanish entity
Determine new hourly rate or annual salary
Contractors normally charge more for their services in Spain because they are required to pay self-employment taxes. The rate they charge may not easily match up with someone who’s performing similar tasks as an employee at your company.
Using an EOR like Justworks can easily help you figure out the contractors hourly rate as an employee. Setting a new payment rate might be the most difficult step when deciding how to transition contractors to full-time employees, since you will need to consider Spain’s Social Security System, additional benefits, and paid time off.
Employment taxes
After you determine their new salary rate as a full-time employee, you’ll need to figure out exactly what employment taxes to take out of their paychecks every month.
Payroll taxes for employees in Spain:
6.4% for Social Security
19% income withholding for EU and EEA citizens
24% income withholding for non-EU citizens
Determine benefits and bonuses
You’ll also need to determine exactly what benefit and bonuses to give to your employees as part of their compensation.
In Spain there is a large amount of mandatory benefits employers must offer including:
Social Security
13th-month salary and holiday pay
Paid leave
Overtime
Tapping into experts in Spain (like those available through an EOR) can help you figure out a competitive salary to offer contractors once you convert them to full-time employees.
How Justworks Provides International EOR Services for Small Business
Through Justworks, you can now expand the boundaries of your talent search without setting up a local entity. Focus on building your team, and leave worrying about the nitty-gritty of HR and international compliance to us.
Our team of local labor lawyers and experts ensure that your small business always remains compliant while expanding internationally. We handle the responsibility side of things so you can focus on what matters: managing your team.
Learn more about how you can expand your international business through Justworks, and get started today.
FAQ
What is an independent contractor in Spain?
An independent contractor in Spain is someone who is self-employed and offering services to a business to complete projects. Businesses normally work with independent contractors to complete projects that require specialized knowledge or skills. Independent contractors in Spain are responsible for their own taxes, benefits, and tools.
Can you work with independent contractors in Spain?
Yes, you can work with independent contractors in Spain. However, you’ll need to make sure you’re properly classifying them, which means not treating contractors as full-time employees. Make sure that hiring the contractor is a necessity and that you’re following all labor and tax laws to avoid lawsuits and fines.
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