Severance pay in Spain: Guide to Termination of Employment
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Severance pay in Spain: Guide to Termination of Employment

Calculation of severance pay in Spain and types of employee dismissal

Navigating the intricacies of labor laws is a crucial aspect for businesses operating in Spain, particularly when it comes to the termination of employment relationships. Understanding severance pay in Spain is not only a matter of legal compliance but also an essential component of sound human resource management. Spanish employment law mandates that dismissals be substantiated on objective grounds and often necessitates adherence to notice periods coupled with severance pay provisions. For employers, gaining a comprehensive grasp of their duties and entitlements is vital to circumvent the pitfalls of unlawful dismissals. This article delves into the specifics of severance pay in Spain, ensuring that employers are well-equipped to manage employee terminations lawfully and effectively.

Ceo gives severance pay in spain to her employee

Severance Pay in Spain

Severance pay serves as a financial cushion for employees during the transition period following contract termination, reflecting the importance of ending employment relationships in accordance with local legislation.

For foreign employers operating in Spain, adhering to these legal stipulations is critical to maintain corporate integrity and uphold fair labor practices. Spanish labor law, governed by the Workers Statute and supplemented by various collective agreements, dictates stringent protocols for employment termination. Severance is typically disbursed when an employee’s contract concludes under specific circumstances prescribed by law.

In Spain, severance pay is not merely a customary practice but a fundamental right enshrined in labor regulations. It underscores the protection of workers and acts as a safeguard against abrupt income loss due to termination.

The law delineates different tiers of severance entitlements based on the nature of dismissal, with each tier reflecting the level of protection afforded to employees. Non-compliance with these provisions can lead to substantial compensation payouts, emphasizing the necessity for employers to meticulously navigate the complexities of Spanish severance pay laws.

If you are thinking about hiring employees in Spain you should get accustomed with severance pay and employment termination laws to ensure complying with local legislation.

Navigating the intricate terrain of severance pay and employment termination in Spain can be a delicate and complex process. Lawants stands ready to guide you through this challenging landscape. Our seasoned labor advisors and attorneys bring a wealth of expertise in Spanish employment law, ensuring that your termination procedures and severance packages are not only legally compliant but also strategically sound and fair. Contact us for a tailored legal assistance.

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How to Calculate Severance Pay in Spain

The calculation of severance pay in Spain is a structured process that correlates with the employee’s duration of service.

Generally, employees with an employment contract in Spain are entitled to receive severance pay equivalent to 20 calendar days of their salary for each year of service, with a limitation that caps the severance payments at an amount corresponding to 12 months’ pay.

Employers must be prepared to disburse this payment promptly upon delivering the written notice of termination.

However, nuances exist depending on the nature of the dismissal.

For justified objective dismissals or collective redundancies, the law stipulates a minimum severance of 20 days’ salary per year of service, subject to the same 12-month salary cap. In these instances, employees also have a right to a 15-day notice period, which employers can choose to honor either through continued employment or by offering payment in lieu of notice.

In contrast, an unfair dismissal incurs a higher severance obligation. Prior to February 12, 2012, the severance for an unfair dismissal was calculated at 45 days’ salary per year of service. Post this date, it has been adjusted to 33 days’ salary per year of service, with the total severance capped at either 24 months’ salary or the amount accrued as of February 12, 2012—whichever is higher—with an ultimate ceiling of 42 months’ salary. These variations underscore the importance of understanding specific dismissal circumstances when calculating severance in Spain.

Types of Employment Termination and Severance Pay in Spain

In Spain, the legal framework governing employment termination is multifaceted, recognizing various types of dismissal, each with its own criteria and implications for severance pay.

Unlike some jurisdictions where at-will termination is permissible, Spanish employment law requires that dismissals be substantiated by legitimate grounds. These grounds are broadly categorized into disciplinary reasons or objective reasons, and the applicable severance pay varies accordingly.

The subsequent sections of this article will delve into the specific dismissal types, such as collective dismissal on objective grounds, individual dismissal on objective grounds, dismissal on disciplinary grounds, and two-party consent dismissal. We will explore the circumstances under which each type of dismissal may occur, the legal requirements for executing them, and the severance pay—if any—that must be provided.

Understanding these distinctions is critical for employers to ensure compliance with Spanish corporate and labor laws and to accurately calculate any severance owed to departing employees.

Collective Dismissal on Objective Grounds

Collective dismissal on objective grounds occurs when a company in Spain must terminate a significant number of employees due to technical, organizational, productivity, or economic reasons.

This form of dismissal is regulated under specific conditions, such as when:

  • At least 10 employees are let go in companies with fewer than 100 workers
  • 10% or more of the workforce in companies with 100 to 299 employees
  • At least 30 employees in companies with 300 or more.

To proceed with collective dismissals, employers are not required to demonstrate that the business would fail without the layoffs. However, they must provide evidence of declining sales or income, or show that such measures are necessary for restructuring to restore the company’s previous performance levels.

It’s essential for the employer to prove that all other options to avoid workforce reduction were exhausted before terminations can take place.

Employees affected by collective dismissal are legally entitled to severance pay. The process begins with a consultation period with employee representatives and notification to the Employment Authorities, detailing the reasons for redundancy and other pertinent information.

If no agreement is reached during the consultation, employers may implement dismissals but must compensate employees with severance pay of 20 days’ salary per year of service, capped at a maximum of 12 months. Employees retain the right to challenge their dismissal in Labour Courts.

Read also: Company dissolution and liquidation in Spain: guide to closing a spanish company

Individual Dismissal on Objective Grounds

An individual dismissal on objective grounds refers to the termination of an employment contract based on specific, justifiable reasons related to an employee’s performance or the employer’s operational needs. In Spain, such reasons may include the worker’s demonstrated lack of skills or incompetence, inability to adapt to significant changes in job responsibilities despite reasonable adjustments and proper training, or redundancy due to the company’s financial constraints, such as the end of a non-profit grant that funded the employee’s salary.

Employers must ensure that the dismissal is substantiated by clear evidence and is carried out in compliance with legal procedures. When an individual dismissal is executed on these objective grounds, the affected employee is entitled to severance pay. This compensation serves as a financial safeguard for the employee during their transition period following the termination of their employment.

In cases where an employee was hired under a permanent contract specifically for services connected to a public program, dismissal may occur due to a lack of funding for these programs. In such instances, as with other objective grounds, the employer is obliged to provide severance pay to the dismissed employee. This reflects the Spanish legal framework’s emphasis on protecting workers’ rights even in the face of necessary organizational changes or economic challenges faced by employers.

Dismissal on Disciplinary Grounds

Dismissal on disciplinary grounds occurs when an employee is terminated due to gross misconduct, which constitutes a severe and deliberate violation of their employment obligations.

Such misconduct may include: habitual absenteeism or tardiness, insubordination, offensive behavior towards colleagues or management, breaches of trust, consistent underperformance, or intoxication at work that impacts job performance. Additionally, any form of harassment based on race, ethnicity, religion, disability, age, or sexual orientation is grounds for disciplinary dismissal.

When executing a dismissal on disciplinary grounds, employers must provide a written notification detailing the specific reasons for the termination. Unlike dismissals on objective grounds, employees dismissed for disciplinary reasons are not entitled to severance pay in Spain.

However, employees have the right to contest a dismissal they consider unjust by filing a claim within 20 working days following their termination. Should the labor courts deem the dismissal unfair, the employer is then required to compensate the employee. This compensation is calculated at 33 days of salary per year of service with a cap of 24 months’ salary. For employees who joined the company before February 2012, the compensation rate is 45 days per year of service.

Furthermore, employees who have been wrongfully terminated have the option to request reinstatement in lieu of compensation. If reinstatement is chosen and granted by the court, it must be enacted immediately following the court’s decision.

It’s crucial to note that severance pay awarded for unfair dismissals is substantially higher than that for terminations based on objective grounds. In cases of unfair dismissal, the employee may be eligible for severance payment equivalent to 33 days of work for each year served up to a maximum of 24 months’ salary. This highlights the importance for employers to carefully adhere to legal standards when considering disciplinary dismissals to avoid costly repercussions.

Two-Party Consent Dismissal

A two-party consent dismissal is a termination of the employment contract that occurs when both the employer and employee mutually agree to part ways.

In such an arrangement, the employer is not obligated to provide severance pay or unemployment benefits, as it is not considered a dismissal but rather a consensual contract termination.

The only requirement for this type of termination is a straightforward agreement that effectively ends the employment relationship. This method of contract cessation can be a harmonious solution that serves the interests of both parties without the complexities of involuntary termination procedures.

Dealing with employment termination involves more than just understanding legal obligations; it’s about safeguarding your business’s reputation and maintaining a positive workplace environment. At Lawants, we help you manage these sensitive situations with the utmost professionalism and care.

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Employment Termination in Spain: Severance Pay and Notice Period

In Spain, the termination of employment is governed by stringent regulations that offer substantial protection to workers. This protection is typically provided in the form of severance pay, which we have already covered, and notice periods, designed to ensure a fair transition for employees leaving a company.

A notice period is a legally mandated timeframe within which an employee is informed of their impending dismissal, allowing them time to prepare for their departure and seek new employment.

Notice periods vary depending on the nature of the dismissal. For instance, in cases of economic redundancies, employers are required to provide 15 days’ notice. However, no notice period or severance pay is necessary for dismissals due to disciplinary issues or during probationary periods.

In collective dismissals, employers must enter a negotiation period with employee representatives before any dismissals take effect. This period spans 30 days for larger companies and 15 days for smaller businesses. Following negotiations, individual notifications with a 7-to-15-day notice must be provided to each affected employee.

Moreover, Spanish law stipulates specific procedures for different types of dismissals.

For disciplinary dismissals, written notification detailing the misconduct and effective termination date is required without any notice period. Conversely, objective dismissals call for a 15-calendar-day notice period (or payment in lieu of notice) and delivery of a written notification that outlines the reasons for termination and severance pay equivalent to 20 days’ salary per year of service, capped at 12 months’ salary.

Failing to comply with these procedures can lead to legal repercussions, as Spanish labor courts tend to side with employees. Therefore, it’s imperative for employers to familiarize themselves with these regulations to ensure lawful and smooth employment terminations.

If you plan to move to Spain you might be interested in understanding the tax benefits of the Beckham Law.

employee puts severance pay in a box with his things after being fired from a company in spain

Taxation of Severance Pay in Spain

The taxation of severance pay in Spain presents a significant consideration for both employers and employees during the process of employment termination.

For employees, the financial impact of severance pay is mitigated by favorable tax treatment: severance payments are exempt from personal income tax up to the first €180,000. This exemption provides a cushion for employees, ensuring that a substantial portion of their severance benefits remains intact to support them during their transition.

Employers must be aware of these tax implications as they calculate the severance packages.

It’s important to note that any severance amount exceeding the €180,000 threshold is subject to standard taxation under personal income tax regulations. This differentiation in tax treatment underscores the need for careful financial planning and legal compliance when structuring severance pay in Spain.

Read also: What is the cost of an employee in Spain?

Ensure Compliance with Spanish Employment Termination and Severance Pay Laws

For global employers, comprehending and adhering to the diverse employment termination requirements across different jurisdictions can be a daunting task. It is imperative to be conversant with the specific conditions that justify a lawful termination, as well as the varying notice periods and severance pay laws that are unique to each country. In Spain, these complexities are heightened by the stringent Workers Statute and collective agreements that govern employment relationships.

Navigating this labyrinth of legal stipulations need not be overwhelming. Lawants offers specialized services designed to assist employers in maintaining compliance with Spanish labor laws. By leveraging our expertise, businesses can ensure that they meet all legal obligations related to employment termination and severance pay in Spain, thereby safeguarding against potential legal challenges and financial liabilities. Trust Lawants to provide the guidance necessary to manage your workforce in Spain with confidence and legal certainty.

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