The Spanish social security system is funded by contributions from employers and employees, calculated on the basis of the employee’s salary. There are minimum and maximum contribution bases, which are updated annually, and that vary according to occupational category. Historically, social security contributions have been capped as a percentage of the maximum base amount, no matter how high the salary was.
Starting in 2025, this will change. The Spanish government introduced a new “Solidarity Contribution” earlier this year, which will come into force starting January 2025. While the minimum and maximum social security contribution bases will remain unaltered, and will continue to be upwardly revised every year, a new contribution targeting salaries above the maximum contribution base (as of today, any gross annual salary above EUR 57,000) will be added. This new contribution will gradually and moderately tax the salary that exceeds the maximum contribution base, as calculated yearly by the Spanish government. There will be three tranches in the new contribution: the first set at 5.5%, the second at 6%, and the third at 7%. These rates will not come into effect immediately – instead there will be a transitory period, meaning that these new rates will only be reached in 2045.
The Spanish government introduced the Solidarity Contribution in order to preserve the re-distributive nature of the public pay-as-you-go pension system.
The cost of the Solidarity Contribution will be borne by both employers and employees in the same proportion as the contributions for common contingencies (i.e., 83.4% of the cost will be borne by the company and the remaining 16.6% by the employee).
As contributions will not exceed single digits in percentage terms, the cost of social security for each employee will not skyrocket immediately, although the Solidarity Contribution will be an additional cost that companies with high earners will have to count on from 2025 onwards. For example, for a gross annual salary of EUR 500,000, the solidarity contribution would be just over EUR 5,000 for the whole of 2025. Of this amount, the employer would bear about EUR 4,300, while the contributions payable by the employee would come to about EUR 850. This amount will increase annually, as the rates of contribution increase.
If you would like to discuss in further detail any of the points raised in this blog post, please get in touch with your usual Freshfields contact.
