In February 2014 the Spanish Government introduced new legislation (Royal Decree 3/2014) with the aim of promoting employment, in particular permanent contracts of employment, by offering significant reductions in employers’ social security contributions.

The new measures apply to all types of company (irrespective of size) that recruit part-time or full-time permanent staff between 25 February and 31 December 2014. There will be a new flat rate for social security contributions for such staff, ranging from €50 to €100 per month. These reduced contributions will be available for 24 months, with an additional 12 months available for companies with fewer than 10 employees provided they satisfy certain conditions. By way of an example, if an employee has an annual salary of €20,000, the employer will save approximately €7,000 over that 2-year period.

In order to benefit from these reduced rates, companies will have to satisfy certain conditions, including:

  1. be up-to-date with their social security and tax contributions;
  2. have genuinely increased the number of permanent contracts and employment levels in the company (i.e. not dismissed existing staff to make room); and
  3. maintain the increased number of permanent employees in the company for at least 36 months.

The new rates will not apply in certain circumstances, including where:

  1. a company has unfairly dismissed employees during the six-month period prior to entering into the new contracts or if there were any collective dismissals during this period. This would not apply to any dismissals which took place prior to 25 February 2014.
  2. there are special categories of employee, e.g. senior managers.
  3. the employees had previously worked for the same company on a permanent contract of employment during the six-month period prior to entering into the latest “cheap” contract.
  4. employees had previously worked for other group companies if the contracts were terminated for objective or disciplinary reasons.

This latest legislative change is an incentive for employers to hire permanent staff, and any employers considering recruitment during 2014 should consider whether they may be eligible for reduced social security contributions.