Non-Payment of Social Security Contributions

All business owners know that the last working day of the month is Social Security’s big payday and

All business owners know that the last working day of the month is Social Security’s big payday and like clockwork, a chunk of their earnings disappear from their bank accounts. Every single one of my clients has heard me say the words, “if there is ever any bill you cannot pay, make sure your Social Security contribution is not one of them”. Why do I make a point of highlighting the importance of paying Social Security contributions on time? Well, simply put, because the consequences are quite harsh if you incur a debt with the Administration.

OK, so you’re wondering why the featured image? Well I can assure it was not just an excuse to look at a gorgeous looking guy (ahem!), I can see the concern in his eyes, look carefully and you’ll see it too! Anyway, moving on with the point of this post, as self-employed persons, we react in one of two ways, we either cry or pretend not to notice the money leave our account each month but if we think the regular fee is painful, non-payment turns it into a excruciating experience. Social Security has no sympathy for the struggles self-employed people go through each month and enforces a strict protocol to recover any unpaid contributions as well as additional penalties if we are ever late in stumping up the fee. This new series will discuss non-payment of self-employed contributions, non-payment of employee social, how to resolve a debt with the Administration and what happens when the situation becomes critical and the Administration proceeds to embargo the business owner in question.

Under normal circumstances, if a standing order is sent to your bank for payment and there are insufficient funds, the bill is either automatically bounced back and left unpaid or the bank pays it for you and may charge you a certain amount of money later for that service but you wouldn’t expect the supplier to then charge an excessive amount of money if the bill is returned and you can usually contact them and arrange payment another way. Social Security, however, operates in a completely different way. There are no second chances and even if you deposit funds in your bank account on the same day, you would most likely be too late and liable to pay penalties. Say for example, you are on a 53 euro flat rate as a first time registered self-employed person and you miss the deadline, you would be automatically penalized in the following way:

General contribution: 267,04 euros/month

20% penalty: 53,41 euros

Total to pay: 320,45 euros


Note that the 20% penalty is not based on the reduced flat rate you would have been paying up until then, rather it is calculated on the general rate which is currently set at 267,04 euros a month. Why is it calculated in that way? Well, one of the conditions to receive the reduced rate is to be up-to-date in all obligations so from the moment in which you miss a deadline, you are in breach of that condition and would lose the right to the flat rate that month but once the outstanding payment has been settled, the reduced rate would apply again.

Social Security does not resend the bill to your bank once you have missed the deadline so it is up to you to ensure payment is made as swiftly as possible so as not to incur further penalties. Up until recently, the only way to do this was to make an appointment at their offices to retrieve a copy of the bill to include the penalty which would then be paid in at a collaborating bank. However, now it is also possible to pay by credit card via Social Security’s website. In any case, make sure you keep receipts of any payments you make just in case.

If payment is not made within the new deadline established on the document, the penalty increases from 20% to 35% so it is in your best interest to ensure payment is made as quickly as possible. If the Administration were not to receive payment even after this period, they would enforce additional delayed payment penalties and you would be advised by means of a letter sent to the address they have for you in their database (always important to make sure this information is current). This letter is called “Providencia de Apremio” (Action of Debt) and is usually sent between two to three months later and establishes the interest rate applicable on the accumulated debt. The delayed payment interest rate is based on the legal interest, which can vary each time depending on the real value of money applicable at the end of each period, which is subsequently increased by 25% unless the National Budget establishes a different rate. For the year 2016, the National Budget establishes a rate of 3,75%. Note however, that the initial 20% penalty will still apply so defaulting on even one payment can have very costly consequences.


The next article will discuss the obligation to pay Social Security on behalf of your employees.



About Sabrina L. Williams

Although I was born in the UK, I moved to the Canary Islands, Spain at a young age and I haven't looked back. The Canaries is a fantastic place to live, I mean you can do all types of outdoor activities practically all year round because of the great weather. Horses are my poison but the islands are also a superb spot for water sports so they do attract a lot of attention from people around the world. Anyway, enough about that. Back in 2011, I made one of the biggest, scariest yet best decisions I'd ever made and set-up my own business in the middle of a recession. I love what I do as no two days are the same, plus Spanish law keeps me on my toes as it is constantly changing (often without warning!) so there is always something new to learn. As I've branched out in the world of Administrative Consultancy, I decided to create a blog to discuss topics of interest to others in my industry and my clients, share tips and experiences, to see what new ideas people have for improving their businesses and the like so I hope you'll find the time to join me on this venture...

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