How to Hire Remote Workers as Contractors in Spain
If your company is looking for remote international talent, you may be considering hiring workers as independent contractors. This can be an extremely cost-effective method of hiring for startups and smaller companies that want to expand, without the overhead of full-time employees.
Nonetheless, there are a few complexities when it comes to hiring remote international contractors when compared to hiring a similar worker at home. You will need to consider the method of hiring and payment, tax obligations, and compliance risk to make sure that the engagement is successful.
Why hire remote contractors in Spain?
You can hire remote workers in any country, and Spain can be a good location to recruit and hire new talent, particularly for European companies that want proximity to their workers. Whether you are looking for bi-lingual customer service and sales agents, or skilled IT specialists, Spain may have both temporary or long-term contractors to meet your business needs.
How do I hire and pay a remote contractor in Spain?
Once you have found and recruited a qualified remote worker, the next step is to arrive at a method of hiring and paying them across international borders.
Hire and pay them as a freelancer
The first option is to hire the contractor as a freelancer or self-employed. This involves setting up a direct contract with all the negotiated compensation and performance terms and then agreeing on a method of remitting payment.
Although this seems straightforward, you have to consider that when contracting across borders there can be some risk if the freelancer does not perform up to expectations. There is no easy way to enforce contract terms as you would within your own country, so some measure of trust is required on both ends.
Engage directly with their limited company
A contractor may also have their own limited company in Spain, that would ‘lease’ the contractor to you. All contracts and payments are made through the limited company as a business entity. This may be slightly more certain that just hiring a freelancer, as a Spanish limited company will likely have their stability and reputation as a business at stake.
A contractor working through their own limited company probably has some history with international clientele, and you might be able to ask for references. In the end, the contract and payment issues are the same, and the limited company will be responsible for all their own Spanish tax and business compliance.
Hire the remote worker through an umbrella company
Umbrella companies offer a third-party presence to the contracting process and will facilitate payment to the contractor while confirming timesheets or other contract deliverables. Using this option does take the uncertainty out of hiring overseas, as the umbrella company becomes a partner in the foreign country to ensure all contract terms are met for both parties.
This could be especially appealing when hiring an unknown, new freelancer until some goodwill is built up. There is a fee for the service, but the peace of mind for your company may be worth it to avoid any conflicts or misunderstandings. If the contractor is an expat non-EU citizen in Spain, this is probably the only viable option to hire them as the umbrella company could sponsor a work permit.
What are my tax obligations when paying a contractor in Spain?
When you hire an international contractor it is a B2B transaction, and your company only has tax obligations in your home country, with no taxes or contributions due in Spain as with an employee. This is one of the reasons hiring contractors is cost-effective, as long as you avoid misclassification under local labor laws.
A less likely, but possible, company tax obligation would be through creating a permanent establishment (PE), where your contractor’s work activity is generating local revenue, such as concluding sales contracts. That revenue could then be subject to Spanish corporate tax under PE criteria.
Are there compliance risks when paying contractors in Spain?
The primary compliance risk for a foreign company hiring workers in Spain is misclassification. Misclassification is when your new contractor is actually deemed to be an employee in Spain, due to regular, salary-like payments, control of work schedule, or offering benefits.
In that case, authorities might re-classify them as an employee and ask you to set up a local payroll through a legal entity in order to retain them. The best way to avoid this is to make sure your contractor invoices your company as a sole proprietor or limited company, and maintains an arms-length relationship, with control over their own time and work methods.
Using an umbrella company can also minimize this risk for you, as the contractor is engaged by a local entity already, acting as their de facto employer.
What are the alternatives to hiring a remote worker as a contractor?
A company looking for a stable, long term worker engagement may not want to hire a contractor, especially if they find the right talent fit and don’t want to lose them. In that situation, it could be worth it to hire them as an employee and secure their commitment, either initially or after some time working for you as a contractor.
To take that step, there is a whole other level of compliance required, as the new employee will be entitled to all Spanish employment benefits and labor protections. However, you do avoid the misclassification risk of hiring contractors.
To hire a citizen or expat as a remote employee in Spain, you have two options:
1. Set up a local entity
If your company is planning a business commitment to Spain beyond just hiring one or two remote employees, you can set up your own local entity as a branch or subsidiary. Then, the new Spanish corporation would hire and payroll the employee directly, with the help of accounting and legal experts to guide the process.
2. Outsource employment with an employer of record
A more efficient solution for hiring is to use the services of an employer of record (EOR), who can hire and payroll your employee on your behalf. You simply remit the salary plus benefits to the EOR who will take care of the rest. This is similar to an umbrella company, but for actual employment, and does offer a compliant and quick method of hiring.
How does Contractor Taxation help you hire remote workers in Spain?
Contractor Taxation already has in place experienced Spanish umbrella companies in Spain, who can hire your contractors and allow them to start working right away. We can show you how to set up the local contract, arrange payment, and confirm work performance, so there is no uncertainty in the contracting relationship.
We also have access to employers of record in Spain, in the event that you decide to hire the worker as an employee, giving you some flexibility in managing cost and commitment. Please let us know if we can assist you with hiring Spanish workers for your business.