Hire in Spain without a costly legal entity setup mistake

EOR vs branch vs subsidiary: which structure to use when hiring in Spain

Foreign companies considering their first Spanish hire face a structural decision with lasting cost, tax, and liability implications. Here is an honest comparison of the three main options:

Employer of Record (EOR): A third-party EOR legally employs the worker in Spain on your behalf. You direct the work; the EOR handles payroll, Social Security, and compliance. Speed is the main advantage — operational in days rather than weeks, with no entity setup required. The costs are substantial: EOR fees typically add 15-25% on top of total employment cost, meaning you pay a significant premium indefinitely. The model also creates a triangular employment relationship that can complicate IP ownership, management control, and employee loyalty. EORs make sense for one to three hires while validating the Spanish market, or for genuinely short-term assignments (under 12 months).

Branch office (sucursal): A branch is an extension of the foreign parent company, not a separate legal entity. It is faster and cheaper to set up than a subsidiary, but the parent retains unlimited liability for all branch obligations. More critically, a branch almost always creates a permanent establishment for corporate tax purposes in Spain, meaning Spanish Corporation Tax applies to profits attributable to the branch. Useful for very limited, defined activities; problematic for building a real team.

Spanish subsidiary (SL — Sociedad Limitada): The most common vehicle for foreign companies building a permanent presence. Minimum share capital is 3,000 euros. It provides full liability separation from the parent, is the structure Spanish employees and customers recognise, and offers maximum flexibility for growth. Setup takes 10-20 working days. An SL may still create a permanent establishment for the parent under certain conditions — but it gives you much cleaner control over the Spanish tax perimeter.

The practical rule: EOR for 1-3 employees or market testing under 12 months; subsidiary for anything intended to be permanent or involving 4+ hires.

Spanish employment law essentials: what every foreign employer needs to know

Spain’s labour framework is anchored in the Estatuto de los Trabajadores (Real Decreto Legislativo 2/2015), which sets absolute minimums: 40 hours per week (1,826 per year), 30 calendar days of paid holiday (equivalent to 22 working days), and defined dismissal rights. These floors cannot be contracted away regardless of what the employment agreement says.

On top of the Estatuto sit the convenios colectivos — collective bargaining agreements negotiated by sector. There are approximately 250 active sector-level convenios in Spain. The IT sector convenio, the consulting sector convenio, and the retail sector convenio each prescribe different minimum salaries by professional category, different holiday entitlements, and different rules on overtime and notice. A foreign employer who ignores the applicable convenio often inadvertently underpays Spanish employees, creating a growing unpaid liability that can surface in a labour inspection years later.

Since the 2022 labour reform, the default employment contract is indefinite (indefinido). Fixed-term contracts are now restricted to genuinely temporary circumstances: a specific project with a defined end date, a production peak of up to 90 days per year, or substitution of an absent employee. Misuse of fixed-term contracts is the most common compliance failure by foreign employers and results in the employee being deemed to have an indefinite contract with full termination rights.

The national minimum wage (Salario Mínimo Interprofesional) for 2026 is 1,184 euros per month in 14 payments (16,576 euros per year). Many convenios set higher sector minimums for specific professional categories.

Employer cost breakdown: the real numbers

The single most common surprise for foreign companies is the true cost of a Spanish employee. Using a gross monthly salary of 4,000 euros as an example:

The 14 pay periods arise from two extra salary payments — typically June and December — required by most convenios. These are not discretionary bonuses; they are statutory minimum entitlements. Employer Social Security contributions cover: general contingencies (23.6%), unemployment (5.5%), FOGASA — the wage guarantee fund (0.2%), and professional training (0.6%), plus additional amounts for certain contract types. The practical rule: budget 145% of gross monthly salary as the true annual employer cost per head.

Employment contract types and termination costs

The post-2022 reform created a cleaner but stricter contract landscape:

• Indefinido (permanent): The default. No fixed end date. Termination requires cause and carries specific severance obligations.
• Temporal por circunstancias de la producción: For genuine production peaks, limited to 90 days per calendar year per employee.
• Temporal por sustitución: To cover an absent employee, tied to the duration of the absence.
• Formación en alternancia: For employees under 30 with no prior qualification in the relevant field. Lower Social Security contributions.
• Prácticas: For recent graduates within three years of obtaining their qualification.

Termination costs depend on the type of dismissal. Objective dismissal (economic, organisational, or production reasons): 20 days of gross salary per year of service, maximum 12 months’ salary, plus 15 days’ written notice. Unfair dismissal — where the employer cannot legally justify the termination: 33 days per year of service, capped at 24 months’ salary. Disciplinary dismissal with sufficient cause costs nothing, but the bar under Spanish law is high and courts tend to favour the employee on ambiguous facts.

FOGASA (the wage guarantee fund) covers up to a defined limit of wages and severance in the event of company insolvency, providing employees with a backstop that does not come directly from the employer.

Remote work obligations under the Ley de Trabajo a Distancia

Spain’s Ley de Trabajo a Distancia (Ley 10/2021) applies to any employee working remotely for more than 30% of their time over a three-month reference period. The obligations apply regardless of where the employer is based:

• A written remote work agreement must be signed before the arrangement begins, covering: work schedule, place of work, cost reimbursement, and health and safety provisions.
• The employer must provide the necessary equipment (laptop, screens, connectivity) or compensate the employee for using their own. The compensation amount must be agreed in writing.
• The employee retains the right to request a return to office work; remote arrangements cannot be imposed unilaterally.

For foreign companies with Spanish remote workers, failure to comply is a labour infraction that can result in fines and back payments. The agreement must be in writing and filed with the relevant labour authority.

Why BMC’s entity-setup-plus-HR-advisory approach works better than pure EOR for serious operations

An EOR solves the immediate problem of getting someone on payroll. It does not solve the strategic problem of building a real Spanish operation. When you use an EOR, you do not build a local legal entity, you do not establish your company’s credit and registration history with Spanish Social Security, and you do not have direct employment relationships with your Spanish team — the EOR does. If you later decide to establish your own entity and bring those employees across, you face a legal transfer process that can be commercially disruptive and involves renegotiating terms under Spanish law.

BMC’s approach is different. We assess your situation honestly: if an EOR is genuinely the right answer for your immediate need, we will say so and refer you to reputable providers. If you are planning a real Spanish presence with more than two or three employees, we set up the entity correctly from the start — registered with the AEAT and Seguridad Social, with the right corporate structure for your group, and with employment contracts that comply with the applicable convenio colectivo. We then run payroll, manage HR compliance, advise on compensation structures, and handle employment issues as they arise.

The result is that you are the employer: you have full IP and management control, and you are not paying a 15-25% EOR premium every month indefinitely. For companies serious about Spain, the entity setup cost typically pays back within six to nine months compared to a continuing EOR arrangement — and you own the relationship with your team from day one.