As an employer, you must issue your employees with complete payslips after being paid. The documents provide them with important information about how much wage tax and social security contributions you have paid to the tax office and the social security institutions.
Accordingly, the payroll statement is essential evidence of whether all tax requirements have been met correctly. In this article, you will learn what you need to pay attention to in the payroll and how you can prepare it correctly.
What is payroll?
Payroll is a system that businesses use to pay their employees. It involves keeping track of employee hours worked, calculating their wages, and then issuing payments. Payroll can be done manually or through software.
A payslip is basically a document that contains information on how an employee’s salary is made up over a certain period of time. Usually, therefore, payslips are issued on a monthly basis.
The form must break down in detail the payment made so that the wage can be accurately tracked by all parties involved:
- Tax office.
In order to meet these requirements, a payslip must contain all relevant figures relating to earnings as well as deductions and taxes.
Payroll legislation in Spain
Spanish labour legislation establishes that all workers have the right to receive a payslip containing, as a minimum, the following information:
- Name and surname of the worker.
- ID card or NIE of the worker.
- Professional category.
- Date of registration with the company.
- Gross salary.
- Social Security contributions.
- Personal income tax deductions.
- Other concepts (such as overtime, commissions, etc.).
In Spain, payroll legislation is governed by the National Institute of Social Security (Seguridad Social). The National Institute of Social Security is responsible for administering the social security system and ensuring that employers comply with the law.
Employers must register with the National Institute of Social Security and make monthly contributions to the social security system. Employees are also required to make contributions to the system a specific system called RED is used.
What data must a payslip contain?
A payslip must contain the employee’s name, the dates of the pay period, the employee’s identification number, the name of the company, the company’s address, the amount of pay, and any deductions.
Payments or Remunerations
In order to calculate the gross wage, various factors must be taken into account.
As a rule, gross earnings are made up of these components:
- the basic wage (Salario Base);
- variable, performance-related pay components, e.g. bonuses, allowances or non-cash benefits.
In addition to the basic wage, employees can often look forward to so-called supplements and bonuses. Taxes have to be paid on supplements, allowances are added to the gross salary and therefore also taxed – for example, holiday pay or Christmas bonuses.
Furthermore, employees can top up their basic salary with performance-related bonus payments from the employer:
- Bonuses or commissions (Plus Convenio);
- Benefits of monetary value and salaries in kind (e.g. company car, lunch allowance, etc.);
- Other special benefits (e.g. anniversary bonuses, bonus payments).
All the above-mentioned possibilities contribute to the fact that the basic wage can increase many times over, resulting in different gross wages at the end of the month. The exact composition of the gross wage is recorded in payroll lists for payroll accounting purposes.
As an employer, you are responsible for correctly calculating all social security contributions and income taxes for your employees’ monthly payslips. You then have the duty to transfer them to the relevant collection agencies and the tax office on time.
For this reason, you must keep a payroll account for each employee. In addition, as an employer, you must also pay contributions.
In Spain, social security contributions are made by both employees and employers. The social security system covers a wide range of benefits, including old-age, disability, and survivor pensions; health care; and unemployment benefits.
The social security contribution rate for employees is 6,35% of their gross salary, while the employer contribution rate is 29,3% of the employee’s gross salary.
The following is an example of how payroll works in Spain.
The employer withholds the following from the employee’s wages:
- Social security contributions paid by the employee
- Income tax:
In total, the cost of wages is 35,65 % of the gross salary of the employee.
When you prepare payslips, you should always work carefully and not allow yourself any carelessness. The reason: If you accidentally make incorrect entries, correcting them will not only cost you time. It can also be expensive for you.
It is important that you adhere to the current guidelines and provide the documents with all mandatory information when you prepare the payslip.
In Spain, the payslip preparation process generally includes the following steps:
- The employer calculates the gross salary of the employee, taking into account all forms of remuneration, including salary, bonuses, commissions, and allowances.
- The employer then deducts all mandatory deductions from the gross salary, including income tax, social security contributions, and health insurance contributions.
- The employer then calculates any additional deductions, such as for pension contributions or union dues.
- The employer then calculates the net salary, which is the employee’s take-home pay.
- The employer provides the employee with a payslip, which must include all relevant information about the employee’s salary and deductions.
- The employer files the Social Security forms and pay them monthly and the withholding tax forms and pay them monthly or quarterly depending on the case.
Outsourcing payroll accounting
As an employer, you have some demanding tasks and obligations in the area of payroll accounting:
- Paying wage tax and social security contributions to the relevant authorities in due time;
- Issue the appropriate certificates;
- Keeping payroll records and complying with the relevant retention periods;
- Carry out reporting obligations to the social insurance institutions and the tax office.
Most small and medium-sized enterprises do not have the necessary time or know-how to take care of their monthly payroll themselves. In this case, it may make sense to outsource the payroll accounting and thus also the payrolls.
You have an option to outsource these tasks to a tax consultant.
Outsourcing payroll accounting offers a number of advantages, especially for small and medium-sized enterprises:
- The time and financial effort are significantly lower.
- Since it is not necessary to hire an employee for this task, there are no personnel expenses.
- You do not have to constantly deal with changing tax laws.
The payrolls and the salaries questions are very sensitive and important field for a company so we recommend you to put this matter in the hands of a Labor expert in this fie with deep knowledge and experience in this area.
Contact our tax advisors in Barcelona by email or phone.