Effects of the latest modifications to the social security contribution base
December 21, 2013 saw the publication in the Official State Gazette of Royal Decree-Law 16/2013, of December 20, 2013, on measures to encourage stable hiring and improve the employability of workers which, to the surprise of many, brought with it a major new social security-related modification, doing away with the exclusion (in place to date) of certain compensation items and benefits from the social security contribution base.
In other words, as from the entry into force of the Royal Decree-Law, certain compensation items or benefits granted by companies or agreed on with the employees, such as meal vouchers, transport bonus, medical insurance or contributions to pension plans or life insurance, and which had to date enjoyed total or partial exemption status in social security terms, now fall entirely under the contribution base of employees.
This will mean that any workers receiving benefits such as those referred to above and who do not fall under the maximum base will find their base and, as a result, their social security contributions, increased, thus boosting any future benefits to which they may be entitled, such as temporary disability or retirement benefit. Moreover, the rise in contributions will provide greater funds to the central government and thus ease the strain on the public purse, with a beneficial knock-on effect on one of the government’s core objectives for this term: ensuring the sustainability of Spain’s social security system.
Not only that, the increase to social security contributions will have other effects for workers and companies. Thus, on the one hand, employees will see a fall in their net contribution, given that companies will have to subtract the amount incumbent on them for such social security contributions. Elsewhere, companies will see a rise in their salary costs, having to include the relevant “employer’s contribution” in respect of such benefits.
In all likelihood, companies will in future make less use of the compensation items affected by the legislative amendment, which will no doubt impact on those sectors indirectly benefiting from such items, such as the catering and insurance industries.
In short, while the inclusion of certain benefits and compensation items within workers’ contribution bases will serve to improve their future benefits and ease the existing cash strain on the social security system, it will also bring about a reduction to the current net compensation of such workers and a rise in companies’ salary costs, representing a barrier to competitiveness.
Garrigues Labor and Employment Department
