Understanding Employee Compensation: Salary Structures & Regulations
Item 9: Salary
9.1 Concept
Salary is the total economic compensation received by workers, in cash or in kind, for professional labor services, including work and rest periods. It excludes amounts received as compensation for work-related expenses or Social Security benefits. Wages are typically determined by collective agreements or employer-employee negotiations.
Factors influencing wage determination:
- Position held
- Skills, expertise, and responsibilities
- Employee loyalty and availability
- Company performance
- Individual and group objectives
- Skill assessment
- Labor market supply and demand
- Country’s economic level
Variable remuneration based on tasks or functions is common. Wage systems can be fixed or variable.
9.2 Salary Payment Methods
Payment in cash: Legal tender (cash, check, or transfer).
Payment in kind: Goods or services (products, housing, car, meals, etc.), capped at 30% of salary (50% for senior officers, 45% for domestic workers). Must comply with tax laws (e.g., housing use taxed at 10% of rateable value). The 2011 reform mandates cash payment at least equal to the International Monthly Minimum Wage (Spain: €641.40).
9.3 Calculation Methods
- Per unit of work: Fixed amount per task (e.g., “€10 per piece”).
- Per unit of time: Based on service duration (hourly, weekly, monthly, yearly).
- Based on personal characteristics: Qualifications, experience, language skills, etc.
- Based on work performed: Supplements for toxicity, danger, night shifts, flexibility, quality, incentives, etc.
- Based on company results: Profit sharing, productivity bonuses.
- Based on location: Supplements for island communities and Ceuta and Melilla.
9.4 Overtime and Bonuses
Overtime and bonuses are considered part of the salary.
9.5 Non-Wage Benefits
These are amounts received by the worker that are not considered salary:
- Compensation for relocation, suspension, or dismissal: Not part of the contribution base.
- Social Security benefits: Payments for accidents and occupational diseases.
- Other non-wage benefits: Pension plans, social assistance premiums, life/accident insurance.
- Expense reimbursements: Currency devaluation compensation, tool wear, work clothing, transport costs, travel allowances, etc. (if exceeding 20% of IPREM).
9.6 Minimum Wage (SMI)
The minimum wage is the lowest legal compensation for workers. It’s set annually by the government, considering the Consumer Price Index (CPI), national productivity, labor’s share in national income, and general economic conditions. In 2011, the SMI was €38.21/day, €641.40/month, or €8,979.60/year. Special rates apply for casual/seasonal workers (€30.39/day) and domestic workers (€5.02/hour).
9.7 IPREM (Public Income Indicator with Multiple Effects)
Introduced in 2004, IPREM is a reference index for aid, scholarships, and grants. It’s set annually by the state budget law. In 2011, the daily IPREM was €17.75, monthly €532.51, or €6,390.13/year (12 payments) / €7,455.14/year (14 payments).
9.8 Convention-Established Salary
Many sectors have collective agreements setting wages above the minimum wage, specifying amounts by professional category, annual reviews, contract types, and wage adjustment clauses.
9.9 Salary Guarantees
Undistrainable wage: The SMI is protected from seizure, except for alimony. Amounts above the SMI are subject to a sliding scale of seizure.
Preference for wage claims: Wages have priority over other debts in case of employer insolvency.
FOGASA (Wage Guarantee Fund): Guarantees payment of outstanding wages and compensation in case of employer insolvency, up to certain limits.
9.10 Compensation and Absorption of Wages
If total annual wages exceed the SMI or agreement, compensation and absorption apply. The employer is not obligated to raise wages above these levels.
9.11 Overtime Rewards (Art. 31 ET)
Workers are entitled to two special bonuses per year (Christmas and another month specified in collective agreements).
9.12 Deductions from Salary
Social Security contributions: Employer deducts the employee’s share.
Income tax withholding: Employer withholds tax payments.
Other deductions: Court orders, advances, etc.
9.13 Calculation and Payment of Wages
Wages must be paid timely and documented (payslip). Regular payments should not exceed one month. Advances are allowed. Delayed payments incur interest (10% annually) and may allow contract termination with compensation.
9.14 Settlement and Final Payment
Upon employment termination, outstanding payments are settled in a final payment document (finiquito). It includes unused vacation days and proportional pay. Disputes can be noted as “received non-compliant.” Failure to provide a settlement is a serious administrative offense.