Hiring Your First Employee in Spain: A Guide for Foreign Business Owners

Hiring your first person is the leap that separates working alone from running a business. In Spain, it also means dealing with several government bodies, procedures and deadlines that a foreign business owner is rarely familiar with in advance. This guide explains, from scratch, what registering your first employee involves in 2026 and which mistakes to avoid.

The real cost: the salary is only the beginning

The first surprise is that what an employee costs the company is not the same as the salary in the contract. On top of the gross salary (what the employee earns before taxes), the company pays its own Social Security contributions every month. Social Security is the public system that covers pensions, unemployment, sick leave and other benefits. These contributions include common contingencies, unemployment, vocational training, the Wage Guarantee Fund and work accidents, among other items. As a rule of thumb, they add roughly a third to the gross salary, although the exact percentage depends on the activity and on the contribution bases and rates set each year.

As an illustrative order of magnitude, a gross annual salary of €24,000 can come close to a total cost of between €31,000 and €32,000. And you still need to add occupational risk prevention, the administrative agent’s fees and, if it comes to that, possible severance pay. Note that the Social Security share paid by the employee and the tax withholding are deducted from their gross salary, so they are not an additional cost to you.

Before setting the salary, check the collective bargaining agreement for your sector: an agreement that sets minimum salaries, working hours, vacation and job categories, and that is mandatory even if the contract says otherwise.

Social Security registration and the contract: the order matters

Before the person starts work, the company must be registered with the General Treasury of Social Security (TGSS) and the employee must be signed up. If you are self-employed, you already pay contributions under the RETA (the Special Regime for the Self-Employed), but that is not enough: as an employer you also need a contribution account code for your employees. Starting work without prior registration is an offense that can lead to significant penalties, and it can’t be fixed “afterwards”.

Almost everything is handled electronically, so you will need a tax identifier (your company’s NIF or your NIE, the foreigner identification number) and a digital certificate, or else you can authorize a professional to act on your behalf.

Since the 2021 labor reform, the general rule is the permanent contract; fixed-term contracts are only allowed for specific reasons, such as an unforeseeable increase in production or the replacement of another employee. The contract must be reported to the Public Employment Service (SEPE) within the deadline. If the employee is a foreigner from outside the European Union, first check that they hold a work permit for Spain: the responsibility for verifying this is yours.

Withholdings, Modelo 111 and who to hire for what

On every payslip, the company withholds part of the salary as an advance payment of the employee’s IRPF (personal income tax) and pays it to the AEAT, the Spanish Tax Agency. This payment is reported every quarter on Modelo 111, and at the start of the following year an annual summary, Modelo 190, is filed. The withholding percentage depends on the salary and on the employee’s personal and family situation, which they report to the company using Modelo 145. In addition, your entry in the AEAT census must show that you are a withholding agent, meaning that you are obliged to withhold; if it does not, this is corrected with a census declaration.

A common mistake is to think that it is enough to “do the payroll”. In reality there are two separate fronts. The labor advisory handles contracts, registrations and terminations, payslips, monthly Social Security contributions and the applicable collective agreement. The tax and accounting advisory files Modelos 111 and 190, records payroll expenses in the books and assesses how they affect your Corporate Income Tax or your IRPF as a self-employed person. Both must speak the same language: the withholdings shown on the payslips have to match what you pay to the tax authorities and what appears in your books, and discrepancies are exactly what inspections tend to uncover.

At Zythos Business we support freelancers and small businesses, including those arriving from abroad, at the moment they hire: we review the real cost before you sign, coordinate the labor side with the tax side, and make sure that withholdings, filings and accounting add up from the very first payslip. That way you can focus on growing your business instead of deciphering the bureaucracy.