Hiring Employees & Managing Payroll in Madrid – Legal Guide for Foreign Companies

🇪🇸 Can Foreign Companies Hire Employees in Madrid?

Yes — both Spanish SL companies and foreign branches operating in Madrid can legally employ staff.

✅ SL companies must register with the General Social Security Treasury (TGSS)
✅ You must designate an in-country legal representative
✅ Payroll is regulated by Spanish labor law — strict compliance is required
✅ All contracts must be filed with SEPE (public employment service)


📝 Labor Contracts in Madrid

Contract Type Description
Indefinido (Permanent) Default contract — unlimited duration
Temporal (Temporary) For seasonal or specific projects
Part-time Fewer hours, must specify schedule clearly
Internship / Trainee Linked to education programs or upskilling

💡 Spanish law discourages long-term temporary contracts — fines may apply if misused.


💶 Payroll Obligations for Employers in Madrid

Item Employer Obligation
Gross salary Must meet minimum wage (SMI)
Social security (Seguridad Social) ~30% employer contribution
IRPF withholding Deducted from employee salary (based on income)
Payslips Must be issued monthly in legal format
Bank transfer Employees must be paid by traceable means
Finiquito (termination pay) Mandatory for end of contract

📌 Employers must register each employee with TGSS and submit monthly contributions via Sistema RED.


📅 Hiring & Payroll Process Timeline

  1. Register your company as an employer with TGSS

  2. Sign contract and report it to SEPE

  3. Add employee to social security system

  4. Begin payroll, file IRPF and social security monthly

  5. Terminate contract with notice, severance, and final settlement (if applicable)

All filings in Madrid must be digital, with a firma digital (digital certificate).


📊 Payroll Tax Filing in Madrid

Tax Form Frequency Purpose
Modelo 111 Quarterly IRPF withheld from salaries
Modelo 190 Yearly (Jan) Annual summary of IRPF withholdings
Social Security (TC1, TC2 / RLC, RNT) Monthly Employee/employer contributions

We manage all Modelo filings + TGSS submissions for foreign companies.


🧑‍⚖️ Employment Law Protections in Madrid

Spain has one of Europe’s strongest labor protection systems. As an employer, you must:

✅ Justify any termination (cause or severance required)
✅ Track working hours (including remote work)
✅ Grant paid vacation (30 calendar days)
✅ Comply with collective agreements (convenios colectivos)
✅ Handle sick leave and maternity leave via social security

📎 Violations can result in labor court claims and fines from the Inspección de Trabajo.


❌ Common Mistakes to Avoid

⛔ Hiring without registering with TGSS
⛔ Using non-Spanish contracts (not enforceable)
⛔ Paying cash salaries (illegal)
⛔ Forgetting to file IRPF withholdings (Modelo 111)
⛔ Misclassifying freelancers as employees


🧑‍💼 Our Payroll & Hiring Services in Madrid

Borderless Lawyers provides:

✅ Employment contract drafting in Spanish
✅ Full payroll setup and monthly payslips
✅ Social security registration and filings
✅ Remote hiring via Power of Attorney
✅ Dismissal support and labor risk mitigation


📞 Hire Legally and Safely in Madrid

We help foreign businesses grow compliant teams in Madrid — with complete labor law and payroll support.

👉 Contact us to manage hiring and payroll in Madrid.

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