For companies looking to tap into the European market, Spain seems like an obvious choice. Beyond its strategic location and vibrant culture, Spain boasts a deep and diverse talent pool - but accessing this talent compliantly isn't always as straightforward as it appears.
In fact, it was over two years ago that we, after an in-depth exploration of Spanish employment law, came to a somewhat unconventional conclusion: we wouldn't be offering our employment services in Spain.
This wasn't about sidestepping a challenge; it was about a commitment to understanding the nuances of each market we enter. We're all about doing employment the right way, and for us, compliance is non-negotiable.
Yet, even today, many businesses remain unaware of these risks, and we're frequently asked why we don't offer our services in Spain when so many of our competitors do.
To address this confusion directly, we recently partnered with Juan Carlos Lombardia of Bartolome & Briones, a leading Spanish employment law expert, for a webinar dedicated to this exact topic.
This blog post recaps that discussion, explaining why EORs put your business at risk in Spain, the potential repercussions of non-compliance, as well as some legally compliant alternatives for hiring employees long-term.
Watch the full webinar here: Why Using an EOR in Spain is a Bad Idea
To understand why the typical EOR model is non-compliant in Spain, it's essential to grasp a few key concepts about employment in Spain and its unique view on outsourcing employment, which may not exist in other jurisdictions. For that, we need to introduce the concepts of "Real Employer" and "Formal Employer," and how these are viewed in the eyes of Spanish employment legislators.
The Real Employer: This is the entity that directs and controls the employee's work. They define the employee's tasks, set deadlines, provide day-to-day supervision, and manage performance.
The Formal Employer: This is the entity legally responsible for the administrative aspects of employment. They handle payroll, taxes, social security contributions, benefits administration, and other HR-related tasks.
In most typical business arrangements, the Real Employer and the Formal Employer are the same entity. One company manages the employee and handles their employment administration. However they also can be two separate entities, as is the case when an Employer of Record comes in acting as the legal employer, while a separate company is responsible for the performance management.
However, Spanish labour law places a very strong emphasis on the unity of these roles. This means that in Spain, the entity that controls the work is generally required to also be the entity that handles the employment administration. Having two separate entities is not possible as this distinction constitutes illegal labour leasing in Spain
As we talk about the concepts of Real and Formal Employer, it is important to note that it does not mean that outsourcing is altogether impossible in Spain. But the use of EORs cannot be confused with legitimate outsourcing, as they're fundamentally different.
True outsourcing (Subcontratación de Servicios) can exist in Spain but only when one company contracts another company to perform a specific task or project. The crucial distinction is that the contracted outsourcing company retains full control over its employees. They manage their work, provide direction, and handle all employment-related matters.
Another way to understand it is that the ultimate goal of contracting is to achieve a certain outcome, not directly managing individuals.
For example, if you hire a web development agency to build your website, that's outsourcing. The agency manages its developers. On the other hand, if you use an EOR to hire a web developer who works directly under your supervision, that's not outsourcing. You're managing the individual, making you the Real Employer and therefore using a Formal Employer such as an EOR for employing this individual isn’t possible.
The core issue with using an EOR in Spain comes down to this fundamental principle of Spanish labour law: the Real and Formal Employer must be the same entity and their duties cannot be split between two companies.
This means that the company directing the employee's work should also be the company handling their employment administration. When you use an EOR, this principle is violated.
The EOR becomes the Formal Employer, taking care of things like payroll, taxes, and benefits. But because your company is the one managing the employee's day-to-day work, you become the de facto Real Employer. This separation is considered an illegal assignment of employees (cesión ilegal de trabajadores) under Spanish law.
As pointed out by Juan Carlos in the webinar, it's worth noting that Spain's labour laws date back to 1995, and they haven't been significantly updated since. This means they don't typically account for modern global employment practices like EORs, which have become much more common in recent years.
A common (but problematic) tactic used by EOR providers in Spain is to register their businesses as consultancy companies. This allows them to enter into commercial agreements with clients, which they then try to frame as legitimate outsourcing contracts.
The problem is that simply calling it "consultancy" doesn't change the underlying employment relationship. If the client company is directing the individual's work, the legal reality is still one of employment, not outsourcing, and the prohibited separation between Real and Formal Employer remains.
It's also important to distinguish this clearly from Temporary Employment Agencies (ETTs). ETTs are legally authorised to provide temporary staff in Spain. They are designed for short-term assignments, not indefinite employment. This is another way the concept of EOR may be misused by disguising long-term fulltime work as work under ETTs..
We've established that EORs, as they're commonly used, aren't compliant with Spanish law. But what does that actually mean for your business? What are the real-world consequences of using an EOR in Spain?
The most immediate and significant consequence of non-compliance is the potential for substantial financial liabilities. These liabilities can arise in several ways:
Here are a few concrete examples of how this joint liability could play out:
Beyond financial liabilities, using non-compliant EOR services can significantly disrupt your business.
While less common, Bartolome & Briones noted that in certain extreme circumstances, criminal liability could also be pursued. This typically involves cases of deliberate and repeated violations of labour law or situations involving fraud.
If EORs aren't a compliant solution in Spain, what are your options for hiring compliantly? Here are three key alternatives:
If you need specialised, project-based work and the individual operates with significant autonomy and control over how they perform the work, engaging an independent contractor might be suitable. However, proper worker classification is crucial.
Misclassifying an employee as an independent contractor is a serious offense in Spain and can result in significant penalties. Ensure the working relationship truly reflects an independent contractor arrangement.
A non-permanent establishment allows a foreign company to operate in Spain for tax and social security purposes without forming a full legal entity. This involves registering with the Spanish tax authorities and social security.
Generally, a non-permanent establishment isn't subject to corporate income tax in Spain unless the employee has the authority to enter into contracts or conduct core business activities. This option might be more suitable for companies testing the Spanish market or with a limited number of employees without significant decision-making power.
Setting up a Spanish legal entity, such as a "Sociedad Limitada" (SL) or "Sociedad Anónima" (SA), is the most compliant option for a long-term presence in Spain.
This involves registering with the Mercantile Registry, obtaining a tax identification number (NIF), and registering with social security. A Spanish legal entity is subject to corporate income tax and other relevant taxes. This is the best option for companies planning significant, ongoing business activities in Spain with multiple employees.
Given the apparent legal issues, why do some EOR providers still offer employment services in Spain? There are a couple of likely explanations. Some providers may genuinely misinterpret the intricacies of Spanish labour law, particularly the crucial distinction between the Real and Formal Employer.
It's also possible that some marketing materials emphasise the convenience of EORs without fully explaining the potential legal complexities and details.
While the law is pretty clear cut on its emphasis on Real and Formal Employer and how they need to be the same entity in Spain, some EORs may view this as a "grey area" by relying on specific contractual structures or interpretations of the law. Regardless of these potential reasons, the fundamental legal issue remains: using an EOR in Spain in this manner exposes businesses to significant legal risk.
So, while it is very tempting to trust one of these EORs and hire people in Spain through them, we cannot emphasise enough how important it is to exercise absolute caution here.
So over two years after we published that initial blog post signalling our decision not to offer employment services in Spain, our stance remains firm. That is because everything we’ve learned since has only reinforced that decision.
As we stated in that original post, if what we’re selling is a compliance product, then what we’re doing needs to be compliant. It’s as simple as that. This means sometimes saying "no," even when it's difficult or means missing out on potential opportunities.
For us, it’s a matter of principle: there are no shades of grey when it comes to doing things the right way. While others in the industry may prioritise speed or convenience over compliance, we believe that long-term success is built on a foundation of integrity and adherence to local regulations.
If you have any questions about hiring across borders, just get in touch. We’re happy to help you build a global team the right way. You can rewatch the entire webinar we ran with Juan Carlos Lombardia here.
