How to Manage and Pay Contractors in Spain

Spain ranks as the 14th largest economy in the world with major economies in tourism, manufacturing, agriculture, and energy, which makes it an excellent place to hire contractors.

Both small and large businesses, inside and outside the country, want to hire contractors and other remote workers living in Spain. For companies 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 you hire contractors in Spain, you’ll need to understand how to: 

• Pay 

• Manage 

• Maintain compliance

• Hire and recruit 

In this guide, we’ll give you a background on independent contractors in Spain, and insight into how to hire, pay, and manage them compliantly. 

What is the difference between an independent contractor and full-time employee in Spain? 

When you hire workers 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 

• Contractors have more freedom with the projects they take on and how they complete these projects, while employees have less liberty with their everyday schedule

• Employees are subject to regulations by their employer everyday and have taxes deducted for them

In Spain, there is a further classification of employment beyond full-time employee and contractor called “dependent self-employed.” 

Classifications for “dependent self-employed” include: 

• Receiving 75% or more of their annual earnings from one client or business 

• Not having any employees or sub-contracting any activities to a third-party

• Carrying out their work in a different than the client’s employees

• Having their own employment equipment 

• Taking a degree of financial risk by agreeing to receive fees only if the contractually agreed goals are achieved 

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

To decide whether you need to hire a contractor in Spain will depend 1) on the scope of the project you want completed and 2) the amount of time you need the contractor for. 

Ask yourself these questions before you decide to hire an independent contractor: 

• Do I want to put this person on my payroll, or should they be responsible for their own taxes? 

• Is this person going to be working enough to where they are 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? 

Once you go through these questions and determine that you’ll need an independent contractor (instead of hiring a full-time employee), then you can begin your search.

Where to find contractors in Spain

Once you establish a stronger business presence in Spain, 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: 

• Indeed

• Trabajos

• Ticjob

• Tecnoempleo

How to onboard contractors in Spain

To avoid any problems when hiring independent contractors in Spain, create a strong agreement that details the exact stipulations of the relationship. 

Putting a clear and detailed independent contractor agreement in place protects both you and the contractor, as well as helps you avoid 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 and hired your Spanish contractor, 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 a global contractor payment service like Via. We take the headache out of paying contractors abroad. 

You have a few options to legally pay independent contractors in Spain: 

1. Use a third-party payroll service or EOR. You can however use a third-party payroll processing service or hire a global employer-of-record service like Via that can help you properly manage and pay your independent contractors. 

2. 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 bureaucratic organizations (which can take months). 

3. 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 the money order. This is a good option when you’re only paying someone one time. 

4. 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 Via. Most of these services do charge fees for digital wallets, so be aware of that before choosing this option. 

5. Money transfer services. Another popular option for companies 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 than Euros (the currency in Spain), there usually is a conversion fee. Payoneer, for example, charges $1.50 for domestic transfers and a 2% fee for non-currency transfers. 

How can Via convert 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 or hire workers in Spain, you have two main options for hiring:

• PEO or co-employment service

• Global EOR management service like Via 

Determine new hourly rate/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 a full-time employee at your company. 

Using an EOR like Via 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. 

Employers take on a lot more expenses for their full-time employees. At Via, we can help you figure out exactly how to convert your contractors to employees. 

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 include:

• 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

Our experts in Spain can help you figure out a competitive salary to offer contractors once you convert them to full-time employees. 

Why companies partner with Via

Hiring in Spain can be confusing and lead to a lot of compliance problems without proper guidance. To understand the latest compliance and labor laws, you may want to get in touch with a global EOR like Via. 

Once you make the choice to convert a contractor to a full-time employee, you’ll need to understand local salary benchmarks, localized benefits, payroll processes, and taxes associated with the transfer. 

At Via, we make understanding this transition seamless. You can start by paying workers as a contractor on the Via platform and transition them to full-time employees with benefits if they become a more integrated member of your team. We have on-the-ground legal and tax experts that can guide you through the conversion process and make sure that you’re compliant with all local Spanish laws.