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WORKING IN SPAIN

How Spain will allow workers to keep claiming unemployment benefits

Following an agreement with trade unions the Spanish government is seeking to reform unemployment benefits, including paying unemployed people more and allowing some workers who find a job to keep claiming benefits.

Published: 9 May 2024 11:22 CEST
How Spain will allow workers to keep claiming unemployment benefits
Unemployed people in Spain will receive up to €570 a month under the new reforms. Photo: Dominique Faget/AFP

Spain’s Ministry of Labour signed an agreement with trade union leaders on Wednesday to reform unemployment benefits, known as el paro in Spain.

This comes amid ongoing government attempts to reform unemployment protections in the country. The first proposal was voted down in January in Spain’s Congress of Deputies by right-wing opposition parties the Partido Popular and Vox, as well as far-left, former government coalition member Podemos.

Political pundits in the Spanish press believe this second attempt, especially with the new reforms agreed with unions, will be enough to get Podemos on board and therefore through Congress.

The agreement was made without the input of employers’ groups, however. Among many new measures the deal increases the amount of unemployment payment available, broadens the groups that benefit it and even makes it possible to claim unemployment benefits while in work for a short period.

“This is not a little payment, this is a right,” said Spain’s Labour Minister, Yolanda Díaz, at the signing ceremony together with the general secretaries of Spain’s two major trade unions, the CCOO and UGT. The reform, Díaz stated, is intended to help “the lives of those who are having the hardest time” in Spanish society. The reforms were a requirement for Spain to receive its next tranche of European funds.

The key reforms

Benefit increase

Unemployment benefits are being increased. Like with other types of state aid, it is calculated as a percentage of the public indicator of multiple effects income (IPREM).

The draft bill raises the amount to 95 percent of the IPREM in the first six months (around €570 per month) and to 90 percent (€540 per month) in the following six months and, finally, maintains the current 80 percent (€480 per month) or the period thereafter.

Another important change is that the benefit will be the same whether the applicant was previously in part-time or full-time work, something intended to benefit women because the majority in part-time work in Spain are women.

Benefits become compatible with employment

Perhaps the most eye-catching aspect of the draft reform is that it is now technically possible to be both claiming el paro and be employed if you earn less than €1,350 gross per month.

By making the two compatible, it will be possible to receive a salary and unemployment benefit for a maximum of 180 days (6 months), regardless of whether the employment is full-time or part-time. In practice, this will be only available to those who have previously worked and paid taxes for three and half years.

The aim of the work and benefits compatibility, sources from the Labour Ministry say, is to encourage workers’ reintroduction into the labour market.

The amount of unemployment aid will depend on the length of the working day and also on how long the benefit has been received, so that the longer you have been receiving it, the lower the amount, which is also calculated as a percentage of the IPREM. It will range from €480 a month to €180.

Though some details still need to be confirmed, according to the reform, it will not be possible to combine work and unemployment benefits before April 2025.

The benefit will be lost if the gross monthly salary is higher than 225 percent of the IPREM, €16,200 gross per year in 12 payments, or €1,350 per month.

Speeding up processes

The reforms also try to speed up the procedures when claiming unemployment benefits.

The Ministry wants to get rid of the one-month waiting period after unemployment benefits run out, but will also tighten up the deadlines: if you apply for benefit six months after the benefit has run out, your application will now be rejected.

Widening the scope

The reform proposal also extends the groups of people who can access unemployment benefits. It will also now be paid to those without dependents who have paid social security contributions for less than six months, and to temporary workers in the agricultural sector.

Equally, whereas before it was necessary to prove a lack of income in order to be eligible, this required evidence of both personal and family unit income, with this reform only one will be required.

Workers over 52

The agreement also maintains the retirement contribution for recipients over 52 years of age at 125 percent of the minimum base in force at any given time.

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AMERICANS IN SPAIN

EXCLUSIVE: What the new Spain-US social security deal means for Americans

The Local speaks to the Spanish government and tax experts to understand what the new social security and pensions agreement between the United States and Spain means for American workers, digital nomads and pensioners in Spain.

Published: 15 May 2024 11:10 CEST
Updated: 19 May 2024 08:20 CEST
EXCLUSIVE: What the new Spain-US social security deal means for Americans

In early April, the United States and Spain announced a new social security and pension agreement.

The first update to the bilateral agreement between the two countries since 1986 was announced by US Ambassador to Spain, Julissa Reynoso, and Spain’s Minister of Inclusion, Social Security, and Migration, Elma Saiz.

The official agreement is unpublished so The Local spoke with a representative from Spain’s Ministry of Inclusion, Social Security, and Migration as well as international tax experts to understand the agreement in more detail.

Key aspects of the agreement

The Ministry told The Local Spain that the agreement is a step towards, bolstering mobility between Spain and the United States by improving pension calculations and social security protections.

The agreement has to do with the accumulation of benefits and affects working Americans living in Spain. There are two main components; the first affects which system people pay into (Spanish or American) and the second maximises the amount people can collect from social security.
 
Regarding paying into social security, the new agreement extends the “posting period” from three years to five years, with the possibility of extending it to seven years.

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This is meaningful for US employees who are working in Spain and means that they can now pay into the US social security system, rather than the Spanish social security system for longer.

Whereas the employee contributions in Spain and the United States are similar, 6.4 percent in Spain and 6.2 percent in the United States, the rate that employers pay differs greatly. In the United States the employer pays 6.2 percent into social security, whereas in Spain they pay 31 percent.
 
Why does this matter? “Previously when Americans moved to Spain, US employers were cutting the amount that they paid in salary because the cost of employment went up so much”, Louis Williams, Co-Founder and CEO of Entre Trámites, told The Local Spain.

It’s also made employers hesitant to grant digital nomads an Employer of Record (EOR) which would allow American workers to be on a Spanish contract.

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In terms of collecting benefits, the representative from Spain’s Ministry of Inclusion, Social Security, and Migration says, “In the calculation of the Spanish pension there have been technical modifications that will benefit especially those people who developed their last working life in the United States, without this harming those who have worked in Spain immediately before requesting the benefit.”

In other words, under the new agreement, after calculating a person’s benefits under each country’s system, the recipient will be awarded the most beneficial of those two calculations.

Impacts for self-employed workers and digital nomads

According to the Ministry, “The agreement allows self-employed workers to temporarily move to the other State while maintaining their legislation, a possibility that was previously restricted only to employed workers.”
 
This has big implications for people who avoid moving to Spain because of the complicated social security contributions scheme, as they’ll now be able to continue paying US social security taxes (rather than Spanish) for up to seven years.
 
“The interesting thing is if this is extended to digital nomads because it would make the digital nomad visa more attractive,” says Williams.

“Why? Because if you’re posted by an employer (who can now avoid high Spanish social security taxes) you’re eligible for Beckham’s Law.” The law, which does not extend to autonomous works, can cap tax liabilities at 24 percent.
 
Being posted could make life much simpler, according to Elliott Locke, ACSI, co-founder of abroaden, a financial wellbeing and education start-up for people living abroad headquartered in Barcelona.

“The calculus is harder for freelancers given the different legal structures and methods for freelancing between the two countries. In many ways, if an American moves here to work remotely, it could be beneficial for them to have their US-based employer hire them on a local contract through an employer-of-record,” Locke told The Local.
 
In short, the new agreement could make it more attractive for U.S. companies to post employees in Spain, making them eligible for Beckham’s law and allowing autonomous workers to pay into the U.S. social security system, making it more beneficial and easier to be a digital nomad in Spain.

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Who benefits from the new agreement?
 
The people who will feel this new agreement the most are employers, digital nomads, retirees who have paid into both systems over the years, and finally, civil servants. “Spain has incorporated as possible beneficiaries of the Agreement those people who have contributed to the civil servant’s regime (passive class regime), who were excluded in the previous Agreement,” says the Ministry.
 
When can we expect the new agreement to come into force?

Don’t hold your breath; this is Spain after all, but we can expect the agreement to come into force within the next two years.

The deal has to pass through Congress before approval, which is likely why it has not yet been published. If things move quickly, people could expect to benefit within a year.

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