Most of us have some idea about how life between an employee and a self-employed person differs. We know that employees and freelancers in Spain enjoy different freedoms and rights. These differences can be due to the contract type, paid time-off, and these days, the physical location of the work.
But what about the less apparent scenarios?
Here we answer the questions that you may have. So, first of all, let’s understand the basics and why they matter!
(Note: Updates to original article made by Lexidy Staff April 28th, 2023)
Table of contents
- What is an Employee versus a Freelancer in Spain?
- What Constitutes a Freelancer as Opposed to an Employee in Spain?
- Types of self-employment in Spain
- Social Security Contributions for Employees and Freelancers
- Can I be Self-Employed and an Employee, simultaneously?
What is an Employee versus a Freelancer in Spain?
An employee is a person who decides to provide professional services to a company or an organisation. This is their employer, and they pay them a fixed salary in exchange for their time and work. This is the main difference between employees and freelancers in Spain.
An employee signs a contract which shows their employment terms, like salary and annual leave. They must also register as a company employee at least three days before the labour relationship starts.
Here are some of the things that apply to an employee:
- They have work hours, breaks and a workplace determined by its management.
- They are 100% dependent on their employer, so the latter provides them with the means to carry out their activities.
- However, they are not liable for its activity, so they receive the previously agreed salary.
The relationship between the employer and employee is usually set in a contract. The contract is typically full time but doesn’t usually give the worker an automatic choice to work from anywhere.
What Constitutes a Freelancer as Opposed to an Employee in Spain?
These individuals conduct their professional activity without a contract linking them to a specific company. Essentially, a self-employed person acts in their own name. Digital Nomads and other remote workers are often self-employed. This is a key difference between employees and freelancers in Spain.
Freelancers usually have unlimited liability, which means no difference or separation between their assets and their company. So, if they fail to comply with their responsibilities during their professional activity, their assets can be seized as compensation.
Self-employment comes with risks and responsibilities, which isn’t for everyone.
But, often, self-employed people are entrepreneurial and rely on their determined personalities and talent to build ideas into businesses. They develop their professional career without a boss, formal oversight or imposed guidelines. This is common for remote workers and Digital Nomads. In addition, they must file invoices and complete business accounts, so Freelancers must always separate their professional and personal expenses.
Types of self-employment in Spain
Several factors related to the type of activity, management, or contribution imply different types of self-employment. The following only applies for freelancers, not employees in Spain.
These professionals manage a small physical business or work in professional activities that are subject to certain tax codes. Freelancers make regular contributions to social security.
An example of a freelancer in Spain would be a freelance graphic designer who works with clients on a project-by-project basis. This person might work from home or from a co-working space. Often, they set their own hours and rates.
This freelance graphic designer from our example would be responsible for finding and securing their own clients, negotiating project terms and deadlines, and, of course, delivering the work. They would also be responsible for handling their own taxes and social security contributions, as they would be classified as self-employed.
In Spain, freelancing is quite common for professions like writing, translation, web development, photography, and consulting.
This typically refers to professional association members, like doctors, lawyers, or psychologists. However, it can also cover workers in non-membership groups, like writers or computer programmers.
An example of a liberal professional in Spain is a lawyer who works independently, providing legal services to clients on a fee-for-service basis. This person is subject to regulations that govern their professional conduct and require them to maintain a high standard of ethical behaviour. Additionally, this person has to be a member of professional organisations that oversee their practice and ensure compliance with these regulations.
In terms of taxation, liberal professionals in Spain are subject to a special tax regime known as the “Estimación Directa Simplificada.” This regime allows them to deduct business expenses such as office rent, professional liability insurance, and marketing costs from their taxable income. They withhold personal income tax from invoices if the invoice recipient is a legal entity.
This approach (called Autónomo Societari) is when the professional incorporates as a corporate entity and is self-employed for the company. They must register with social security officials when they have effective control of the company and perform its functions.
Corporate self-employed persons have limited liability, so they are not liable for their assets in the event of a debt. However, their personal income tax contribution base is higher than that of the freelancers as a “natural person”.
An example of a company freelancer in Spain would be a software developer who works on a project basis for a company. In this case, the software developer would work independently and provide specialised services to the company, such as developing custom software applications.
The company would contract with the freelancer for the specific project, setting out the scope of work, deadlines, and payment terms. The freelancer is responsible for delivering the project to the company’s specifications. They receive compensation for their services on an agreed-upon basis.
In many cases, company freelancers in Spain work with multiple clients, allowing them to maintain a flexible schedule and choose projects that align with their skills and interests.
Oftentimes they work from their own home or a co-working space, rather than at the typical office. Company Freelancers find themselves with challenges like client acquisition, project management, and income stability, as their income is mostly dependent on the successful completion of individual projects.
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TRADE or Economically Dependent Self-Employed Workers
Economically dependent self-employed workers are those whose turnover is at least 75% dependent on a single client. This has given rise to controversial situations such as “false self-employment”, which some companies use to avoid social security costs.
Since March 2021, the Spanish government has taken steps to crack down on false self-employment. The law now aims to improve the rights of workers who are falsely classified as self-employed. It has strict criteria to determine whether a worker is actually self-employed or an employee. And employers who misclassify their workers now face a penalty.
The misclassification of an employee as “self-employed” is typically done by employers to avoid paying the employer’s social security contributions (in addition to benefits and protections required for employees) under Spanish labour law.
In sectors like freelancing and gig work, many workers are classified as self-employed despite being dependent on a single employer for their income and work assignments. Unfortunately, this misclassification hurts the worker. They are not entitled to the same benefits and protections as an employee would be. They often don’t have access to the same paid vacation, sick leave, or unemployment benefits.
It also means that they are responsible for paying their own social security contributions, which can be a significant financial burden.
While the issue of false self-employment remains controversial, make sure that you are part of the process on how you will be labelled for the Spanish taxes, and why.
Social Security Contributions for Employees and Freelancers
One of the main differences between freelancers and employees in Spain is paying Social Security contributions.
Employees contribute to social security together with their employer. The amount depends on salary, overtime, maternity leave and illness at work, to name a few variables.
The self-employed contribute to Social Security through the Special Regime for Self-Employed Workers or RETA.
Can I be Self-Employed and an Employee, simultaneously?
Some people work under this arrangement, known as “pluriactivity”. They must register with the General Social Security Scheme and RETA if the work is ongoing and happening concurrently.
Don’t confuse this with “moonlighting”. A worker performs activities for two or more companies simultaneously but is only part of the General Social Security Scheme. This is important to remember when deciding between being an employee or freelancer in Spain
A freelancer has more legal obligations than an employee in Spain. A self-employed person must register with social security to pay their contributions and register with the tax authorities to pay taxes.
On an emotional level, being a freelancer is incomparable as you conduct your own project, which is very satisfying. Conversely, an employee brings greater peace of mind on a day-to-day basis, but regular supervision isn’t for everyone.
To lower the stress of being a freelancer and enhance the opportunity, we recommend having a good plan and working with experts. More information gives you more confidence, so research your business model and double down on your talents.
Getting started can feel like an uphill battle. However, the Spanish government makes life more simple by giving freelancers rights to unemployment benefits, bonuses for new registrations with social security and the flexibility to register and deregister several times a year.
Speak with us today to understand how to structure your freelance life and understand your rights and benefits. Be your own boss and do it in sunny Spain. Register below for more on the differences between Employees and Freelancers in Spain, and what’s best for you.