Employees form an essential element of many businesses, as without them, certain companies would simply not be able to function. Business owners have other responsibilities towards their employees besides payment of their salary, namely payment of Social Security on their behalf each month.
In order to register an employee on a contract, the business owner must have a special Code allocated to them at Social Security and all employees would be registered under that code. If the employee is set to work for the first time, they must be assigned a Social Security number.
The business owner must submit all the necessary information about the contract at Social Security such as the parties involved, the start date, contract type, duration etc (normally the Gestoría would take care of this).
The contract must then be registered at INEM (Spanish Employment Office) within ten days. In the same way the business owner pays Social Security each month, they must also pay an amount on their employees’ behalf and this payment is obligatory and non-negotiable. The resulting amount is paid by means of direct debit on the last working day of each month.
How much would a business owner be liable to pay?
This depends on the type of business activity, type of contract, duration, personal circumstances of the employee etc but costs are normally in the region of 40% of the gross salary to give you an idea. The below example shows the concepts involved and the amount the business owner must pay each month:
Administrative on a 40 hour/week contract and a monthly salary of 1.200 euros
Gross Salary: 1.418,45 euros
Net Salary: 1.200,00 euros
Employee Social (payable by the business owner): 556,75 euros
IRPF (Declarable Income Tax): 127,66 euros (payable at the end of the quarter so this amount would be multiplied by 3)
Total cost to business owner per month: 1.884,41 euros
If Employee Social is not paid within the stipulated deadline, penalties apply:
Social Security must advise in writing of the new payment period for the outstanding receipt. If the bill is paid within this deadline, a 20% penalty of the outstanding amount would apply. If however, the business owner fails to meet this new deadline, the penalty increases to 35%. On top of the penalty, they would also be liable for delayed payment interest, applicable if the debt is not paid within 15 days of the initial notification. Penalties and interest increases as time goes by so it is in the business owner’s best interests to ensure payment is made promptly.
There could also be consequences for the employee if these payments are not made if for example, they are due unemployment, the calculation would more than likely be made on minimum wage for their category instead of being based on their actual salary, however, this can be appealed with a court ruling.
Social Security has been granted sufficient faculties and authorization from the State to govern their payments, execute necessary measures in the event of non-payment and carry out Labour Inspections. This means that if the business owner does not fulfill their obligations in this regards, Social Security has the right to act in its own interest and recover any funds due within the confines of the law. Next article we will discuss the type of measures that can be taken and what you can do as a business owner if you find yourself in debt to Social Security.