What does Spain’s “False Freelancer” Law Mean for Your Global Business?
The Spanish labor scene has been shrouded in controversy over the hiring of ‘false freelancers’ and the misclassification of workers. The practice has dominated the headlines in the country after some high-profile businesses were hit with enormous penalties and fines for falsely registering thousands of staff.
This article provides a helpful overview of the strict rules and regulations around Spanish employment law and ‘false freelancers’ so that global businesses with a presence in Spain can remain fully compliant and avoid significant fines, and even imprisonment.
What is a false freelancer?
The term ‘false freelancer’ – or ‘contratar falsos autonomos’ in Spanish – refers to any person who falsely works for a business or individual as though they were self-employed or independent when, in reality, they behave as an employee.
Why is this a concern? Because the practice is illegal. A ‘falso autonomo’ – or ‘false freelancer’ – normally arises when an employer seeks a low-cost staffing solution. It can be used by employers as a way of evading tax and social security obligations as well as other benefits and labor protections that normally apply when employing someone on a full-time basis.
With new policies and regulations being introduced all the time, staying compliant when employing workers in Spain can be a challenge for many businesses, especially those based outside the country. This is particularly important regarding how workers are classified by your organization. For instance, where a business or individual claims they were unaware of Spain’s misclassification laws, they will still be held accountable and face the legal consequences for any mistakes they make.
In Spain, a ‘self autonomo’ is anyone registered as self-employed, such as a freelancer or contractor. Typically, this refers to individuals who:
- Work for several companies simultaneously
- Have full control over their working status and timetable
- Work for a company for a predetermined period of time to avoid being classified as an employee
As you can see, companies operating in Spain must pay close attention to HR and payroll requirements in the wake of the recent clampdown on ‘false freelancers’ while continuing to monitor any changes to the country’s labor laws. This can be a complex task and is one of the main reasons international businesses looking to hire staff abroad outsource their HR function to a service provider with expertise in employment law in a specific country. Similarly, a business may also hire a global managed service provider to run their payroll and ensure its international employees are paid accurately and on time.
What are the penalties for hiring a false freelancer?
Penalties and fines for companies that hire false freelancers but expect them to have the same responsibilities as full-time employees can be severe and punishable by imprisonment for up to six years. This follows new legislation introduced in Spain in 2022 aimed at penalizing employers that violate the rights of their workers.
Several major companies have been prosecuted for hiring false freelancers and failing to comply with Spanish employment law. For example, food delivery company Glovo, was fined a staggering 79 million euros after it was found to have falsely registered over 10,600 people as self-employed workers instead of full-time employees in Barcelona and Valencia between 2018 and 2021, breaking the so-called Rider Law. In addition to receiving a massive fine, Glovo was subsequently forced to alter the employment status of those affected, add them to the payroll, and include them as part of the workforce like other full-time workers.
With new policies and regulations being introduced all the time, staying compliant when employing workers in Spain can be a challenge for many businesses, especially those based outside the country. This has particular importance when an organization classifies its workers so that full compliance with labor rights and social protections are met.
The penalties for organizations that misclassify self-employed workers can vary depending on the degree of irregularity detected by inspectors. These include:
- Imprisonment up to six years.
- Minimum degree fine: Up to €6,250.
- Medium degree fine: Up to €8,000.
- Maximum degree fine: Up to €10,000.
An organization found guilty of false freelancer misclassifications is also likely to face the following sanctions:
- Payment of all contributions the worker would have accrued during employment over the previous four years.
- Back taxes on wages.
- Additional surcharge of between 100% and 150% on each installment.
- Possible criminal prosecution if unpaid contributions amount to €50,000 or more.
- Immediate registration of the worker in the General Social Security System as a salaried employee.
Why is hiring ‘false freelancers’ considered illegal in Spain?
Hiring false freelancers is an illegal practice in Spain for many reasons. There are clearly defined conditions for employers relating to the misclassification of workers set out in Article 311 of the Penal Code.
The practice of purposely misclassifying workers as self-employed rather than employees is illegal in Spain because:
1. Avoids labor costs
Employers may classify workers as self-employed rather than employees to avoid compliance with labor obligations and other costs. This includes social security contributions, severance payments, and other benefits such as holiday entitlement and sick pay.
2. Denies labor rights
Self-employed workers are protected by fewer labor rights than company employees. Therefore, a false freelancer hired by a company would be deprived of their basic labor rights including minimum wage, paid holiday entitlement, protection against unfair dismissal, and more.
3. Prevents fair competition
Companies that hire false freelancers are denying fair market competition by artificially reducing their labor costs, thus giving them an unfair advantage over businesses that operate legally and comply with all Spanish labor obligations.
Misclassification of self-employed individuals can have significant legal and tax implications both for employers and workers and can result in expensive court disputes and labor rights claims. Therefore, it is vital that employers fully comply with a country’s labor laws and also perform a thorough and precise classification of their workforce. Doing this will help to avoid scenarios of false self-employment or worker misclassification while ensuring full compliance with Spain’s labor rights and social protections.
Why is it important to practice full labor law compliance in Spain?
Hiring workers in other countries including Spain is a tactic used by many global organizations when expanding into new territories and markets. It offers multiple benefits such as reduced costs, improved revenue opportunities, and greater productivity.
Similarly, leveraging international self-employed contractors can bring reductions in taxes and benefits for rapidly expanding companies, as well as provide expertise and knowledge of local markets and emerging trends. Yet, as Spain’s new false freelancer laws prove, any mistakes will be harshly punished, however innocent they may be.
Employee misclassification could also lead to further repercussions in other European countries, causing widespread reputational damage for an organization. For example:
- Governments may assess business back tax withholdings on wages.
- A self-employed worker may take legal action forcing a business to pay backdated benefits and overtime.
- Businesses may be forced to pay holiday entitlement, sick leave, severance pay, and other benefits to the worker if they are found to have previously ignored their obligations.
Therefore, it is essential that organizations ensure all employment contracts comply with local legislation and that all tax and social obligations are met. Partnering with a global HR and payroll provider like IRIS FMP will help reduce risks and mistakes around compliance and ensure workers are classified correctly according to Spain’s labor laws.
Does your business need help with Spain’s false freelancer laws?
At IRIS FMP, our in-country HR, payroll, and legal experts will keep your organization fully compliant and avoid employee misclassification around Spain’s new false freelancer laws. Not only that, but we will also save you the time and effort of registering a local business entity in the country. Contact us today.