Compliantly Engage Contractors in Spain

Any business hiring in Spain should understand the important legal distinction between who classifies as an independent contractor and who can be hired as an employee. Fines or penalties, including the payment of up to four years of missing social security contributions, may be imposed on businesses that are hiring contractors under the guise of employment. 

In Spain, there is no clear definition of what constitutes employment. However, the Workers’ Statute (Estatuto de los Trabajadores) outlines the typical characteristics of employment and five key factors (dependence, alienation, personal nature of relationship, payment, and exclusivity and assiduity) that help to differentiate between employees and independent contractors. Understanding these distinctions  is both challenging and critical to compliantly engaging workers in Spain.

It is important to work with a partner like Worksuite to ensure you have an engagement framework that properly classifies freelancers able to work as independent contractors. Alternatively, Worksuite can automatically alert you when freelance talent must be engaged directly as employees, or contractors on payroll.

Self-employment as an independent contractor is a popular income model for many individuals. However, Spanish law does not definitively identify what constitutes an employment contract. The Workers’ Statute (Estatuto de los Trabajadores) is the closest thing to a formal guide. It gives employment a “statutory assumption” status, with independent contractors having to clearly show their status (through separate contracts) to avoid being assumed to be employees.

In Spain, independent contractors are self-employed workers who operate outside of the traditional system whereby salaries or wages are directly withheld by the employer. Because their income is received from invoicing their clients, rather than in the form of a salary or wage, all independent contractors must file their own individual tax income returns, register for VAT, and make their own social security contributions. Spanish courts have developed five factors that help to determine whether a worker is an employee or a contractor.

1. Dependence. Does the worker operate within the organization and receive direct instructions, and ongoing monitoring, from a superior? A typical measure of this might be if the worker is subject to the company’s disciplinary procedures. If so, they are likely to be an employee rather than an independent contractor. Other factors include whether the worker is subject to a timetable imposed by the company, and whether the worker operates their financial and contractual relationship with the company through their own business.
2. Alienation. Does the worker retain ownership of the outcome of their work? If not, they are likely to be an employee. If the worker is exempt from risk, they are also likely to be an employee. This can be demonstrated by the employer assuming labor costs and incorporating assets produced by the employee into the business, and workers not being exposed to any kind of economic risk by completing their work.
3. The personal nature of the relationship. If the worker was only hired because of their specific skills, and cannot be easily replaced or exchanged, then they are likely to be an employee.
4. Payment. Does the worker receive a set and regular salary? If so, they are likely to be an employee. Independent contractors are paid one-off fees by their clients.
5. Exclusivity and assiduity. If a worker has been engaged exclusively with a single company for a prolonged period, and a master/subordinate relationship exists, they are likely to be classed as an employee. In contrast, an independent contractor maintains a level of distance between them and the company that uses their services, and can make a profit or a loss during the process of completing their work.

Independent contractors in Spain work under one of two main categories: sole trader or limited company.

• Sole trader: Independent contractors operating as sole traders (autonomos) can quickly begin to accept work as an independent contractor. Sole traders must register for VAT (Impuesto de Valor Añadido, or IVA) and file annual VAT and income tax returns. They must also make social security contributions.
  

• Limited company: Independent contractors can set up a company by incorporating it with the Mercantile Registry (Registro Mercantil Central, or RMC). This process costs €3,000. As well as VAT and income tax returns, limited companies must also file a corporation tax (impuesto de sociedades) return.

There are two primary engagement models for working with independent contractors in Spain:

A. Direct engagement of the independent contractor, either under their personal name (if operating as a sole trader or autonomo) or under the company’s name (if operating as a limited company). Under these arrangements, the contractor agrees to provide a set service for a specified fee. They invoice the client when the work is complete and normally receive payment within 30 days.

B. Umbrella company. A contractor can also be hired through an umbrella company, which formally acts as the contractor’s employer. The client pays the umbrella company for the completed work, and the umbrella company deducts its fees and any necessary tax and social security deductions before paying the contractor.

In the vast majority of cases, independent contractors in Spain are paid directly (without deductions) once they have completed their work and issued a relevant invoice. The fee is fixed in the agreed contract between the two parties. Standard payment terms in Spain are typically 30 days, stretching to a maximum of 60 days. Late payment interest and penalty fees are automatically due if an invoice is not paid within the specified deadline.

Independent contractors hired on a direct engagement are not on a company’s payroll. Their fees are paid without any deductions at source towards tax or other benefits. In Spain, the responsibility for reporting and paying taxes, and for making social security contributions, lies entirely with the independent contractor.

Independent contractors must file an annual personal income tax form (Modelo 100) and register for VAT (Impuesto de Valor Añadido, or IVA). If the contractor operates through a limited company, they are also responsible for filing a corporation tax (impuesto de sociedades) return.

Finally, independent contractors must also register for Spanish business tax (Impuesto de Actividades Económicas, or IAE), even if they will not meet the minimum earnings threshold of €1m per annum.

We can simplify hiring full-time workers in Spain by acting as the Employer of Record (EOR) on your behalf, handling everything from contracts, onboarding, documentation, payroll, benefits, and workforce management. Reduce your time-to-hire by 90%, slash your overheads, and remain fully compliant.

• Quickly find, hire, and onboard talent in Spain without setting up your entity
• Prevent expensive legal, contractual, or tax mistakes
• Manage contracts, payroll, and global tax forms all in one Worksuite