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Just as in the UK and most European countries, taking on staff in Spain means a sharp increase in the amount of risk and bureaucracy involved in the business. In general Spain has lower wages but more bureaucracy and non-wage costs. The risks and costs must be understood and minimised prior to taking on staff to avoid nasty surprises and burdens which can threaten the success of the whole enterprise. This article looks at the main features of employment law and hiring staff in Spain and discusses some of the ways of mitigating the risks.Employment law – the basicso Employees must have employment contracts from their first day of employment. If you are using British expat staff they should have their NIE and residency documents (for advice on how to get a NIE number see below)o Minimum wages and employment conditions such as disciplinary procedures and holiday entitlement are set by “Convenios Colectivos” in different sectors and regions e.g. hotel and catering trade works in Malaga province.o There are a variety of contract types but essentially the choice is between offering a fixed term contract or a permanent contract. Contracts can also be tiempo completo (full time being usually 40 hours) or parcial (part time). In the latter case wages are scaled down according to a weekly number of hours stated in the contract. There are some special contracts with government tax incentives to take on for example unemployed workers or women in sectors where they are underrepresented.o Redundancy pay is payable once an employee has served a year and can be up to 3 ½ year’s salary (it goes up 45 days a year served, although this can be less on the incentivised contracts).o Expect to pay approximately 40% of the basic wage in non-wage costs, mainly being employer’s social security contributions which are very high in Spain though some incentivised contracts reduce this cost by up to 75%.o The employer is responsible for deducting employee national insurance contributions (approximately 6% of pay) and income tax, similar to UK PAYE, from the monthly wage or “nomina”. A full analysis of the employee’s wages and deductions for the month must be presented to them and a signed copy kept by the employer.o Other employee rights: normally 23 days a year holiday entitlement plus national and local fiestas (depends on the Convenio as employees in certain sectors expect to work holidays but are compensated elsewhere). The employee can chose to have pay spread over 14 instead of 12 times a year with additional pay days in July and December. Maternity leave is 4 months and there is other time off built in for marriage, deaths, births and moving house. Sick pay is usually paid by the social security system.Employing staff – the risksBreaking the lawAs a foreigner setting up a business in Spain it is important to understand the rules and regulations governing employment and attempt to stay within them. Falling foul of the law can lead to heavy fines and the authorities are strict because they know abuse is widespread. For example if you have an uncontracted worker helping you out during an unscheduled visit from government inspectors do not expect to be able to use an excuse even if the “helper” is a spouse.Under-appreciating employee rightsAs we have seen the main effect of the heavy regulatory framework, the tax laws and the Covenios is to protect and promote the rights of the employee. It is the employer that pays the price for this, perhaps not in terms of basic wages which are still lower than in many European countries, but in terms of non-wage costs and employee rights to severance pay and other benefits. Possibly the biggest risk to a small business is taking on staff on the basis of a headline wage and not appreciating the additional burdens of being a Spanish employer, particularly when offering full time permanent contracts.Cashflow and profitability implicationsIf you fail to understand and then budget for paying all associated employment costs at the right time, there is a real danger of cashflow difficulties or profits being eroded. Salaries are paid monthly in arrears and national insurance a month later. Income tax withheld from employees is payable at the end of each quarter which can be a nasty shock for the uninitiated. As has been mentioned severance pay can be substantial.Risk mitigation: smart staffingThe most important thing to do is to think before you take on potentially expensive commitments and take professional advice. Many firms including mine will give new businesses some free advice before they begin operating and offer comprehensive payroll and employment services when they do.Many businesses in Spain avoid some of the costs and burdens of employment law by going “black” and paying workers cash in hand. This is of course risky as it is fairly easily detected by government agencies particularly if the “employee” has no contract whatsoever. If an employer gives a part time contract to staff actually working full-time and then tops up the wages in cash this is harder to detect but still carries a risk.A smarter approach is to take advice on the different contracts available and match the commitments you are making to staff with how definite you are about future income levels. Use can be made of temporary contracts or those that attract government subsidy. Another option is to make some of your “employees” actually self-employed, where they register independently for social security and tax but work solely for your business. For details see of social security implications see: