Severance Pay in Spain: Correctly Calculating the Indemnización on Dismissal

Severance pay in Spain – in Spanish indemnización – is not a single fixed amount, but depends largely on why and how your employment ends. If you're a German-speaking employee dismissed on Mallorca or elsewhere in Spain, you'll suddenly be confronted with terms such as despido objetivo, despido improcedente or disciplinario – and each of these categories leads to a completely different sum. In this guide you'll learn how statutory severance pay is calculated under the Estatuto de los Trabajadores, which daily rates apply for which type of dismissal, which deadlines you absolutely must observe, and how severance pay differs from the Finiquito – including a worked example to follow along.

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What is severance pay (Indemnización) – and what isn't it?

In Spain, there is often confusion about what constitutes Finiquito and what constitutes Indemnización. The Finiquito is the final settlement document that must be drawn up whenever a contract ends – regardless of the reason. It lists outstanding wages, pro-rata bonus payments and remaining holiday entitlement. The Indemnización, on the other hand, is a legally mandated lump-sum payment that only arises for certain types of termination, and is merely shown within the Finiquito.

The legal basis is the Estatuto de los Trabajadores (ET), which was passed by Real Decreto Legislativo 2/2015 of 23 October. Article 49 ET sets out the possible grounds for ending an employment relationship, Article 52 ET specifically governs objective dismissal; further provisions of the ET regulate the procedure and the amount of severance pay in detail.

Note: There is no single, uniform severance payment in Spain for every type of contract termination. The amount depends almost entirely on the reason for dismissal – not on length of service alone.

The three types of dismissal and their severance pay

In principle, Spanish employment law distinguishes three ways in which an employer can terminate an employment relationship – and each leads to a different amount of severance pay.

In addition, under certain conditions, the employee can themselves bring about a termination of the contract with entitlement to severance pay:

Please note: Many employers deliberately issue a disciplinary dismissal instead of an objective one in order to avoid paying severance – even if the alleged breach of duty is not actually sufficient grounds for it. Always critically review the reason for dismissal stated in the dismissal letter (carta de despido).

Transitional rule: years of employment before the 2012 reform

The Spanish labour market reform changed the rates for unfair dismissals in 2012. Anyone who was already employed at the same company before 13 February 2012 remains entitled to the old, higher rate for those earlier years.

In practice, this means: for long-serving employees who were already hired before 2012, the severance pay must be calculated in two separate segments and then added together – a detail that is often overlooked in many finiquito drafts.

Calculating severance step by step

The basic formula for calculating severance pay is:

Severance = daily salary × day-rate (20/33/45) × years of service

The daily salary is usually based on the gross salary including the proportional share of the extra payments (pagas extra), since Spanish salaries are typically paid out in 14 instalments – 12 monthly salaries plus two additional payments, usually in July and December.

1. Determine gross annual salary including extra payments (12 monthly salaries + 2 pagas extra)
2. Divide by 365 days → daily salary
3. Multiply the daily salary by the applicable day-rate (20, 33 or 45)
4. Multiply the result by the full years of service
5. If employed both before and after 13.02.2012: calculate both periods separately and add them together

Worked example (illustrative, based on a gross monthly salary of €2,000 and 5 years of service):

Note: This is a calculation example to illustrate the formula, not legal advice. Special collective bargaining agreement provisions may affect the calculation basis.

Resignation and extraordinary termination by the employee

If you resign yourself through ordinary termination (dimisión), you are in principle entitled to no severance pay – you merely need to observe the notice period, which is usually 15 days, though some collective bargaining agreements provide for up to 30 days. If you fail to observe this period, you become liable for damages to the employer or partially lose your entitlement to compensation for remaining holiday and outstanding pay.

The situation is different if the employer commits serious breaches of contract – such as wage arrears or a significant change in working conditions without justification. In this case, you can bring about an extraordinary termination of contract with a severance entitlement of 20 to 45 days' salary per year. This usually requires recourse to the courts.

If you are unsure whether your case counts as a "good cause", you should seek legal advice before resigning – a hasty step can cost you your severance entitlement.

Notice periods in Spain: what applies to whom

Unlike in Germany, Austria or Switzerland, Spanish labour law does not have a general statutory notice period for employers vis-à-vis employees with permanent contracts. For employees, however, a clear rule applies.

Caution: The 20-day deadline for contesting a dismissal before the labour court is a preclusive deadline (caducidad). If you miss it, you generally can no longer contest the dismissal in court – even if it was objectively unjustified.

Collective redundancies (ERE): when special rules apply

If an employer reduces a certain number of jobs within 90 days for economic, technical, organisational or production-related reasons, instead of the individual objective dismissal, the Expediente de Regulación de Empleo (ERE) – a special collective redundancy procedure with its own consultation and notification obligations towards employee representatives and authorities. The exact thresholds depend on company size and must be assessed on a case-by-case basis. Employers hiring staff in Spain for the first time would therefore do well to look into the basic labour law obligations before taking on employees.

Finiquito vs. Indemnización: What else gets paid out

In addition to the severance pay – if it applies at all – the finiquito includes further items that you are entitled to regardless of the reason for dismissal.

Note: If you sign the finiquito with the addition "en conformidad" (agreed), you acknowledge the settlement as complete and effectively waive any later claims. If you have doubts about the calculation, sign with "no conforme" (not agreed) – this preserves your right to have the settlement reviewed and to make further claims later. You can find more details in the guide on Finiquito & dismissal.

If you want to challenge the dismissal: deadlines and procedure

If you suspect that your disciplinary or objective dismissal is in fact unjustified – for example because there was no sufficiently serious breach of duty or the economic justification does not hold up – you can take action against the dismissal.

1. Check the dismissal letter (carta de despido) carefully: reason, date, stated deadlines
2. Prepare a claim at the employment court within 20 working days — Saturdays, Sundays and public holidays do not count
3. Initiate the prior out-of-court conciliation attempt at the competent conciliation body, where required
4. Keep all payslips, the employment contract and the finiquito as evidence
5. If in doubt about the correct calculation: consult a specialist employment lawyer in Spain before signing

Warning: If the court finds that a dismissal declared as disciplinary was in fact unjustified, the claim is subsequently converted into that of a despido improcedente – with correspondingly higher severance pay.

Most common mistakes in calculating severance pay

• Confusing finiquito and severance pay: Not every final settlement automatically includes an Indemnización.
• Forgetting special payments: If the severance pay is calculated on the basis of only 12 instead of 14 monthly salaries, it turns out too low.
• Overlooked transition years before 2012: For long-serving employees, the entire period is often calculated flat-rate at 33 instead of proportionally at 45 days.
• Signing blindly: The signature "en conformidad" without checking ends any later claims for additional payment.
• Missing the deadline to file a claim: According to Art. 59.3 of the Estatuto de los Trabajadores, the right to challenge a dismissal expires after twenty working days (días hábiles) — the law explicitly states this, so Saturdays, Sundays and public holidays do not count. It is a preclusive deadline (caducidad), not a limitation period: it runs out, definitively, and the entire claim is lost. It is only interrupted by filing an application for pre-court conciliation with the competent conciliation body. Anyone who is unsure should have the deadline calculated by a lawyer on the first day, not on the fifteenth.
• Accepting a disciplinary dismissal without objection: Even without a claim to severance pay, it is worth checking whether the grounds for dismissal actually hold up.

Checklist: checking your severance pay correctly

1. Identify the type of dismissal in the notice (objective, disciplinary, unjustified)
2. Calculate length of service in full years, splitting if necessary at the cut-off date of 13.02.2012
3. Determine the daily salary including pro-rata special payments
4. Apply the appropriate day rate (20/33/45) and compare the result with the finiquito statement
5. Check all other finiquito items (remaining holiday, outstanding salary) separately
6. In case of discrepancies, sign "no conforme" and keep the 20 working day deadline in mind

What happens next?

After receiving the severance pay and the finiquito, you should register as a jobseeker with the relevant employment agency promptly, so as not to jeopardise your entitlement to unemployment benefit (paro). You should also clarify the tax treatment of the severance pay and finiquito with a specialised tax advisor, especially if, as an emigrant, you still have German income or are planning to return.

More on applying for paro · Find a tax advisor for expats

Conclusion

Severance pay in Spain is not a flat amount, but the result of a precise calculation based on the grounds for dismissal, the day rate and length of service. Anyone who knows that an objective dismissal means 20 days', and an unjustified dismissal 33 (or 45 for years before 2012) days' salary per year, can check their own finiquito independently – and prevent a hasty signature from costing hard cash. When in doubt, it is always worth getting a professional second opinion before signing.

Official sources

• Estatuto de los Trabajadores (Real Decreto Legislativo 2/2015 of 23 October) — BOE: https://www.boe.es/buscar/act.php?id=BOE-A-2015-11430