The determination of what must be considered salary does not merely have implications for the purpose of the monthly payment made to employees. As in other jurisdictions, the determination of what must be considered to be salary also has consequences for the calculation of severance payments.
Until several months ago, case law had considered that the amounts paid to employees as life insurance and accident insurance were not to be considered as part of the salary, and therefore, were not to be added to the calculation basis used to determine the amount of the severance payment. The Spanish Courts based their claim on the definition of ‘salary’ in the Workers’ Statute: ‘Salary shall mean the total amounts paid to employees, either in cash or in kind, as consideration for their employment, whether such amounts are intended as compensation for their actual work (in whichever form of remuneration) or for the rest periods counted as work time.’
For a long time, the Courts held that the amounts paid to employees as health insurance and life insurance were a voluntary enhancement offered by the company in addition to social security benefits, and as such, they were not included in the definition of ‘salary’, but were additional, non-salary accruals. They were to be excluded from the salary in terms of calculating the severance payment.
However, in October 2013, the Supreme Court issued a judgment whereby these two items were in fact considered to have salary status. The amounts paid as medical insurance and life insurance are payments made by the company arising from an employment relationship between the parties, as consideration for the employee’s obligations being met. The referred judgment considered those amounts as payment in kind, whether they are agreed upon on an individual basis, or on a company-wide basis. This interpretation increases the cost for the employer in the event of dismissal, since it raises the severance amount, sometimes substantially.
This decision is in addition to recent amendments to the law which also increase the cost for the employer as regards employees’ gross salary. In this sense, effective December 2013 (and including potential adjustments until March 2014), certain amounts previously excluded from the assessment basis are now included in it. These are: transport allowance and distance allowance, products being given at a reduced rate, certain insurance premiums, and benefits enjoyed in canteens or cafeterias, among others.
From a practical point of view, including those items in the assessment basis inevitably results in further social security costs for employers. What remains to be clarified is whether the inclusion of those items in the assessment basis may be a helpful argument to defend (either in the mid-term or in the long-term) that they might also be considered to be part of the salary. It can be concluded from the above that there is a clear tendency to expand the number of items considered to be part of the salary, and for increasingly higher social security contributions to be paid to the government.