Give your new employee an indefinite contract!

If you are thinking of hiring a new member of staff, did you know that by giving them an indefinite contract from the start you not only save yourself money but can still fire that person within one year of hiring without having to pay severance?

Many employers give new hires temporary contracts in order to see “how it goes” and not have to worry about severance pay if it doesn’t work out. A new type of contract looks to put an end to all that.

If you have fewer than 50 workers in your firm then give new hires a contrato indefinido de apoyo a los emprendedores. With this new indefinite contract you can fire the employee for any reason during the first year without having to pay severance and you will also save yourself money on taxes. Let’s look at the two cases:

  • Temporary contract. If you sign a temporary contract, at the end of the contract you have to pay severance of 12 days per year worked. For example, a six month temporary contract for a worker earning €2.000 means a severance pay of €400 if you don’t renew the contract.
  • Indefinite contract. If you gave that same worker an indefinite contract, you have an automatic 12 months “trial period” built in. Which means you can dismiss him/her after six months for whatever reason with no severance pay. Nor do you need to justify the dismissal or give any notice.

Tax breaks

If the majority of your workers are on indefinite contracts you can apply for the following tax breaks on this type of indefinite contract:

  • If the employee is between 16 and 30 years of age you can ask for a tax rebate on your social security payments of between €1.000 and €1.200 a year for the first three years, or €1,300 if aged over 45 years.
  • If this is your first or only employee and is under 30 years of age, you can ask for a deduction of €3.000 on your Impuesto sobre sociedades, company tax. And if the new hire has been claiming the dole for at least three months before the contract you can ask for a further deduction equal to 50% of the dole the employee had left to claim (with a maximum of 12 months).

Important!

If you fire the employee before three years have elapsed, you will have to return the above tax breaks.

Maria Luisa

María Luisa Cervantes is a chartered accountant who graduated from the University of Granada in 2002. Founder of Cervantes Alarcón Consulting, she is an experienced accountant and financial advisor who is a member of the Almería guild of economists. With more than 15 years of experience in business administration and international trade, she is also a subject matter expert in the UK - Spanish bilateral agreements which cover the rights of expats to live, work and retire in Spain.