Spain Dismissal Compensation: Rules Explained

Severance is not the finiquito

Confusing the two is the most common error in English-language Spain severance guides. The finiquito is always owed, even on resignation. Severance is owed only for some dismissal types. A worker who resigns gets a finiquito, not severance. A worker fairly dismissed for disciplinary reasons gets a finiquito, not severance. A worker whose dismissal is null gets reinstatement, not a money amount.

Daily salary and the 14-pay trap

Severance equals days per year times years of service times daily salary, subject to the cap for the dismissal type. Partial years are prorated by months: full calendar months plus remaining days as a fraction of a 30-day month. Daily salary equals gross annual salary including prorated pagas extra, divided by 365 days, always 365, even in leap years. Gross means before tax and Social Security. Never use net pay, and never use the Social Security contribution base, which is a different figure. What counts: base salary plus regular bonuses, commissions, overtime and salary in kind that form part of remuneration. What does not count: extra-salary items, such as compensation for remote-work costs.

The 14-pay trap is easy to fall into. A worker on 1,800 euro a month with 14 payments earns 25,200 euro a year, not 21,600 euro. Entering a 14-payment monthly salary as if it were 12 payments understates the annual salary by two months and the severance by the same proportion.

The rates by dismissal type

Objective dismissal, under Articles 52 to 53 of the Workers' Statute, covers economic, technical, organisational or production causes, and a few personal grounds. It pays 20 days per year, prorated by months, capped at 12 months of pay, which is 365 days. It also requires 15 calendar days' written notice, or 15 days' pay in lieu. A collective agreement may set a longer notice period, so check yours.

Unfair dismissal, under Article 56, pays 33 days per year, prorated by months, capped at 24 months of pay, which is 720 days. This applies to contracts from 12 February 2012. If a court declares the dismissal unfair, the employer chooses between reinstatement with back pay and compensation, except for employee representatives, where the employee chooses. At the same salary and service, 33 days is 65% more than 20 days.

For contracts that started before 12 February 2012, the calculation splits: 45 days per year for service before 12 February 2012, and 33 days per year for service from 12 February 2012. The combined result is capped at 720 days, with one exception: if the pre-2012 part alone already exceeds 720 days, that pre-2012 amount becomes the cap, subject to an absolute ceiling of 42 months, which is 1,260 days. When a fixed-term contract ends, Article 49(1)(c) provides 12 days per year, with no specific cap in the general rule. Training and substitution contracts are excluded from this scope note. A fair disciplinary dismissal, under Article 54, pays zero euro severance: the finiquito only. A null dismissal, for example discrimination or a fundamental-rights breach, means reinstatement plus processing wages, known as salarios de tramitación.

Worked examples, tax and deadlines

Example one is objective dismissal, six years, 36,000 euro gross annual salary. Daily salary is 98.63 euro. Days are 20 times six, which is 120, below the 365-day cap. Severance is 11,835.62 euro. Plus 15 days' notice, which is 1,479.45 euro, plus the finiquito on top. The total before any finiquito is 13,315.07 euro. Example two is unfair dismissal, post-2012 contract, seven years, 42,000 euro gross annual salary. Daily salary is 115.07 euro. Days are 33 times seven, which is 231, below the 720-day cap. Severance is 26,580.82 euro. If it had been objective dismissal instead, 20 times seven would be 140 days, which is 16,109.59 euro.

Example three is mixed service above the cap: 17 years before 12 February 2012 and 10 years after, at 36,500 euro gross annual salary. Daily salary is 100.00 euro. The pre-2012 part is 45 times 17, which is 765 days. The post-2012 part is 33 times 10, which is 330 days. The raw total is 1,095 days. Because the pre-2012 part alone, 765, already exceeds 720, the pre-2012 amount becomes the cap, limited to 765 days. Severance is 76,500.00 euro, not 109,500 euro. This cap rule is worth 33,000 euro to this worker.

Compensation for dismissal is exempt from IRPF up to the mandatory Workers' Statute amount, and the exempt amount shall not exceed 180,000 euro, under Article 7(e) of Law 35/2006. Any excess is taxed as employment income. Only the mandatory amount is exempt. Amounts set by agreement, pact or contract are not exempt. For dismissals after 7 July 2012, the exemption requires recognition in a conciliation act or court decision. You have 20 working days to challenge a dismissal. Conciliation comes first, through the Mediation, Arbitration and Conciliation Service, known as SMAC, before a court claim. For ordinary unfair dismissal, the Supreme Court, Social Chamber, on 16 July 2025, held that severance cannot be increased by the courts beyond Article 56. Exceptions are fundamental-rights violations and cases expressly provided by law.