There are still companies today that agree on salaries with the workers, or their increase, based on the “net” amount included in their pay slips, without actually observing the worker’s annual gross salary, which not only infringes Article 26.4 of the Spanish Labour Relations Act, but is also not very beneficial for companies due to the additional cost that could be incurred by reaching these kinds of agreements.
As is well known, companies have a direct cost of around 31.55% of the gross salary paid, an amount they must pay in addition to the percentages corresponding to the worker for social security contributions and personal income tax withholding.
These latter percentages are the ones that could cause a conflict for the company because, if the company wants to maintain the net salary, it would directly need to pay the costs incurred at the time any change occurs in the worker’s situation. They are variable percentages and do not depend on circumstances that can be decided by the company and, due to their very nature, often change (e.g. change in number of children, etc).
We will provide some practical examples
In a situation of temporary disability leave in which the Collective Bargaining Agreement stipulates that no salary is payable for the first three days, if the salary is agreed net, this would be more beneficial to a worker who is absent due to illness compared with a worker who is not absent for such reason.
Another case could be the government increasing the part of the contributions payable by the worker, a cost that the company would need to pay in order to cover the agreed net salary, because the higher the contribution percentage is, the less net salary would be payable to the worker.
Another case could be a worker who has 3 children, for whom the percentage of personal income tax withholding would normally be much lower than for a worker who has no children, whose taxation would usually be higher. In this case, involving two workers with the same net salary agreement, the worker with 3 children would be paid a lower amount of gross salary than the worker who has no children.
Therefore, the company would need to pay the costs for the contributions payable by the worker, an issue that is incompatible with the contents of Article 26. 4 of Legislative Royal Decree 2 of 23 October 2015, which approved the Redrafted Text of the Spanish Labour Relations Act: All the tax and social security charges of the worker shall be paid by the latter and any agreement otherwise shall be deemed null and void.
Therefore, how can a salary raise be agreed with the workers?
In order to avoid discrepancies when the salary agreements are updated, the salary that is recommendable to state in the new contract or annex to the employment contact must be for a specific gross amount and not a net amount.
It is important to inform the workers that the mandatory discounts will be deducted from such gross amounts, both for social security and personal income tax withholding.
In this way, two workers in different situations for the purpose of contributions and their personal family situations would be guaranteed the same gross salary, avoiding any extra costs being incurred by the company and a possible dispute if the gross amount is compared for the purpose of the worker’s benefits.
Authors: María Rubio and Raquel Oltra, lawyers at RSM Spain