How to hire and pay independent contractors in Spain

If your company is looking to expand quickly, hiring independent contractors abroad can be an ideal choice. Hiring independent contractors in Spain means that you’ll have access to highly trained, skilled workers who are familiar with the European market. 

Of course, hiring Spanish workers and complying with Spanish laws is not easy. Figuring out how to handle payroll, taxes, and labor laws can be daunting. These concerns could stop many companies from hiring Spanish workers.

But there’s good news. This guide is designed to help you navigate Spanish labor practices. We’ve covered key elements of what you need to know — how to comply with local laws, handle payroll and taxes, and make sure workers are classified correctly.

Ready? Let’s dive in. 

Unique considerations of managing contractors in Spain

The most important items to keep in mind while hiring from Spain are:

• Spain’s unique business culture

• Understanding Spanish laws

• Avoiding misclassification of workers

It’s worth remembering that Spain’s business culture is different from “mainstream” business culture. Spanish workers typically work far later in the evening, often staying at work until 8 or 9 pm. However, they may also take a leisurely two-hour lunch break. Some Spanish workers still go home for a siesta or a midday nap. This is becoming a rarity in big cities, but it’s still a common practice in provincial areas.

The long working hours and extended lunch breaks may be behind Spain’s relatively low productivity. Some people have suggested that the way to increase productivity may be to shift Spain’s working culture towards a more modern system, replacing the long working days and lunch breaks with part-time or flexible ways of working.

How can you, as an employer, get around the problem of low productivity and unconventional working hours? Hiring independent contractors instead of traditional employees may be the solution. If you hire contractors to work on specific projects with well-defined benchmarks, the specific working hours may not matter. 

Reports may indicate low work productivity in Spain, but this can be offset by the increased productivity levels seen in remote workers, as found in our Remote Workforce Report 2023.

Employment laws in Spain are complex, which can create challenges when hiring local workers. Handling payroll, taxes, and benefits can be complex, especially for businesses that lack experience with Spanish employment law.  If you choose to work with independent contractors rather than regular employees, you may bypass many of these issues. However, it's important to be aware that there are risks associated with misclassifying employees.

Spain offers different protections to employees than it does to independent contractors. For that reason, businesses sometimes misclassify their workers as contractors when they are, in fact, employees. If you misclassify your workers, you could face stiff fines and other penalties. 

That's one reason many businesses decide to work with a global contractor management system, like Remote, to handle complex matters like worker classification, payroll, and taxes.

How do I pay an independent contractor in Spain?

If you're managing just one or two contractors, then you can simply transfer money into their bank accounts using a wire transfer. You can choose to make payments via online payment platforms like Wise or PayPal. You can even pay your international contractors using Bitcoin or some other form of digital currency.

However, if you are paying more than a few contractors, things can quickly get more complicated. You may also incur transfer fees on international payments and lose money on currency exchange rates. You also may run into problems if you misclassify one of your workers. 

Remote’s contractor management solution can handle contractor payments for you quickly and easily. With Remote, you can pay contractors in multiple currencies without bank fees or conversion costs. You can also manage invoices and set up automatic payments within one platform, saving you the time and the hassle of making multiple contractor payments.

What are the risks of misclassifying independent contractors as employees? 

Employers have different obligations to contractors than they do to employees. 

Spanish law offers many protections to employees, such as extensive paid time off, sick leave, and lengthy maternity leave. Employers are also required to file tax forms and withhold taxes from their employees' paychecks.

Employers are not required to offer any of these benefits to their independent contractors. For this reason, it can be tempting for companies to classify their workers as independent contractors.

However, Spanish law also has protections in place for workers who are misclassified. If one of your contractors claims that they are, in fact, an employee and the law agrees, then you could be subject to penalties. You may be liable to offer that worker costly benefits, like paid sick leave and vacation time. 

But that’s not all. You could be subject to paying stiff fines if you misclassify your workers. In some cases, your business could be penalized, and it could become difficult for you to carry out your everyday functions. 

Misclassification can also lead to intellectual property (IP) protection issues. In some cases, independent contractors retain the rights to their own work, even if they produced that work for your company. This means that your company may not legally own the IP produced if the classification is challenged. 

It helps to have a well-crafted contract in place, which spells out the duties and responsibilities of the work carried out by the contractor. However, even the most airtight contract may be challenged in court. If this takes place, it could lead to costly and damaging legal proceedings.

If you’re concerned about this, read our comprehensive guide to employee and contractor misclassification to determine whether you’re misclassifying your workers in Spain. Working with an international contractor management platform like Remote can help you minimize misclassification risks in an effective, scalable, and secure way.

What are the labor laws in Spain?

Spanish labor laws offer significant protection to employees. Employees are entitled to benefits such as paid time off and sick days, overtime pay, and other annual benefits. 

Employers are obliged to make deductions from their employees’ paychecks for income tax and social security. Employees are also protected from unfair and illegal practices, like mistreatment in the workplace.

If you’re hiring independent contractors in Spain, most of these labor laws don’t apply to you. That’s why it’s so important to correctly classify your employees to avoid unnecessary complications and legal obligations. 

Tax and compliance practices for hiring independent contractors from Spain

Unlike employees, contractors must pay their own income taxes. They are also obliged to pay for their own health insurance and life insurance. Employers, on their part, must keep track of payments and report them when tax season comes around. 

Understanding the tax laws in Spain can be difficult for overseas businesses. US-based firms have to fill out paperwork to meet Internal Revenue Service (IRS) reporting requirements. For instance, US-based employers are required to fill out Form W-8 BEN when they hire overseas workers. US-based employers may also need to file Form 1096 if they're hiring contractors in Spain who are US citizens or residents.

Remote makes it simple for US companies to comply with tax laws. Our system makes it easy to collect tax forms from your contractors and report the necessary information to the IRS so that you can avoid fines and penalties.

How do I convert an independent contractor in Spain into an employee?

Often, businesses prefer to hire contractors instead of full-time employees because they don’t have to worry about paying taxes or offering benefits. But there are times when it does make sense to hire Spanish nationals as employees instead of contractors.

Sometimes, the business may want its workers to take on more responsibility and become valued members of the team. Hiring employees instead of contractors can also help the company stay compliant and avoid penalties for incorrectly classifying contractors. 

Unsure whether you should convert your contractor to an employee? Our guide on how to convert a contractor to an employee has some useful pointers that can help you decide what’s best for your business.

The best way to hire independent contractors in Spain

Hiring independent contractors in Spain can give your business access to highly skilled workers in the heart of Europe without the obligation of full-time employment.

Of course, working with remote contractors does come with challenges. You’ll have to stay on top of local labor laws and tax practices, organize contractor payments, and avoid misclassification. 

It’s a lot to handle, but it doesn’t have to be an ordeal. Remote’s contractor management system was built to eliminate the stress that sometimes goes along with managing a distributed workforce. Remote allows you to onboard, pay, and manage your independent contractors in Spain with ease.

With Remote, you’ll be able to:

• Onboard contractors in minutes with localized contracts

• Handle payroll for your global team of contractors

• Automate invoice approvals and payments 

• Stay compliant with Spanish law and avoid misclassification risks

Does this sound too good to be true? It isn't! Check out our global contractor management platform to learn more about our services today. If you’re ready, sign up for Remote and start onboarding your team in Spain right away!