The Spanish government has recently introduced drastic changes to employment regulations which also affect compensation and benefits by broadly reducing the cost burden on employers. In particular:
- Severance pay on termination: the maximum severance pay has been reduced from 45 days' salary per year of service (subject to a maximum amount equivalent to 42 months' pay) to 33 days' salary (subject to a maximum amount equivalent to 24 months' pay). However, the biggest change introduced by the reform is to bring most terminations into the category of so-called "objective dismissals", where the maximum severance amount payable is 20 days' salary per year of service (subject to a maximum amount equivalent to 12 months' pay).
- An employee can no longer claim for payment of salary accrued during dismissal proceedings, which had to be paid if the dismissal was declared unfair by a Labour Court. As these proceedings could take up to six months, that reduces the cash risk for the employer significantly in the case of litigation.
- Employers are now entitled to reduce employees' salaries and benefits without reducing working hours if the company is in financial difficulties. This was not permitted before the reform.
- Employees of banking entities which have been bailed out by the government or received public funds cannot receive severance pay over certain specified amounts.
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