Cost of Employment in Spain, Portugal, and France

Calculating the actual employment cost can be complex. Furthermore, managing personnel in multiple countries can make an already difficult process seem overwhelming. The true cost of employment is determined not only by discussions about wages but also by complicated calculations and hidden costs that are not evident on the payslip. In this blog, we will look at the actual costs of labor for an employer in Spain, Portugal, and France. What are the essential elements of total labor costs? That's exactly what we will find out.

The cost of compliance, mandatory insurances, taxes, and hidden fees must all be accounted for in order for proper payroll management to be maintained. This blog will explore the true cost of employment in Spain, Portugal, and France. 

Spain Spain flag png

Spain is the second most visited European country in the world, after France. In Spain, the minimum benefits and pensions are fixed by law and are covered by the Social Security Scheme. The total mandatory minimum benefits and pensions (also called Social Security Contributions for an employer or Mandatory Employer Payroll Contributions) are equal to +/- 29.90% of the gross base salary.

Below is an illustration of the actual employment cost for an employee with a gross monthly salary of €5.000 in Spain.

Description of Cost Component

Amount

Monthly Gross Base Salary

€5.000

Total Mandatory Employer Payroll Contributions (29.90%)

            €1.495

  - Social Contribution in (23.60%)

            €1.180

   - Unemployment (5.50%)

€275

   - Salary Guarantee Fund (0.2%)

  €10

   - Professional Training (0.60%)

€30

Total Employment Costs excluding benefits

€6.495


It is also good to understand that there are two kinds of personal income taxes in Spain: Spanish personal income tax (PIT), for Spanish residents and Spanish non-resident income tax (NRIT). Personal income tax (PIT) rates for the various salary ranges:

Income in €

Tax Rate

6.000 or less

19%

6.0001-50.000                  21%
50.001-200.000

23%

+200.001                  26%


Please note tax liability may differ from one autonomous community to another. For non-resident income tax (NRIT) the general rate is 24%. For residents in other EU member states or European Economic Area (EEA) countries with which there is an effective exchange of tax information, the rate is 19%. 

Portugal Flag_of_Portugal.svg

In Portugal, employees receive mandatory 13th and 14th payments. These additional salary installments are paid in June and December. The employee and the employer both need to contribute to the Portuguese social security system. For the employer, the costs are 26,5% of the employee's gross salary and for the employee, it is 11%.

Below is an illustration of the actual employment cost for an employee with a gross salary of €5.000.   

Description of Cost Component

Amount

Monthly Gross Base Salary

€5.000

Total Mandatory Employer Payroll Contributions (26.50%)

1.325

  - Social Contribution in (23.75%)

€1.187,5

   - Labor Accident Insurance (1.75%)

€87.5

   - Wage Guarantee Fund (1.00%)

€50

  Total Employment Costs excluding benefits                       

   €6.325 


Income tax in Portugal is assessed on a progressive scale. The tax depends on the annual income of the employee. The rates: Personal income tax (PIT) rates for the various salary ranges:

Income in €

Tax Rate

7.112 or less

14,5%

7.113 - 10.732            23%
10.733 - 20.322            35%
25.076 - 36.967             37%
36.968 - 80.822          45%
80.823 and above            48%


Please note tax liability may differ from one autonomous community to another. Non-residents are taxed at a flat rate of 25% on their taxable income.

France Flag_of_France

France is the most visited European country. For foreign employers, France is also a popular country to expand to. In France, employers must offer healthcare insurance coverage to all employees as well as social security, welfare, and pension coverage. Looking at these mandatory social contributions for an employer, it can be said that France is one of the, if not the, most expensive countries to employ in. The total primary social security contribution in France can total up to 50% for employers and 28% for employees. On average the social contribution for employers is 45%. The primary social security contributions include:

  • Family Benefits
  • Health and Sickness
  • Social Charges
  • Accident at Work
  • Unemployment Benefit
  • Main Pension
  • Complementary Pension

Below is an illustration of the actual employment cost for an employee with a gross monthly salary of €5.000 in Spain.

Description of Cost Component

Amount

Monthly Gross Base Salary

€5.000

Total Mandatory Employer Payroll Contributions (45%)

            €2.250

Total Employment Costs excluding benefits

€7.250


Conclusion

As this blog details, the basic employment costs and expenses can become very complex especially for foreign employers who do not have experience in managing payroll in different countries. While this blog assumed the same salary across the three countries, it does not adjust for aspects such as the cost of living or industry and country norms.

Frequent changes based on the needs of the time, such as during the covid-pandemic also means that all of the information provided above can change with short-to-no notice. International businesses need a trusted partner who can assist them in the successful management of payroll costs and taxes, as a failure to abide by these requirements can have massive financial and legal implications.

Professional Employer Organizations (PEOs) such as EuroDev European Business Development Group can provide invaluable assistance in navigating these complex requirements in a fully compliant manner which allows companies to focus their attention, time, and resources on the core of their business operations.

More information

In case you would like to have more information, do not hesitate to connect with Monique Ramondt-Sanders - Executive Vice President of Human Resource Outsourcing at EuroDev. Interested in more information concerning our HR Outsourcing services? Please have a look at our HR Outsourcing page

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About EuroDev

EuroDev, established in 1996 with offices in The Netherlands and France, has a single, defined purpose to help mid-sized North American companies expand their business in Europe. We have created a proven, successful business development model and since our founding, have partnered with over 300 companies to help them define and meet their European business goals. Services provided include Sales Outsourcing, HR Outsourcing, and Digital Marketing.

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