Understanding Seguridad Social (autónomo) payments in Spain

Big changes happened in January 2023, to how Seguridad Social (autónomo) payments work in Spain. This guide will help you to understand how this affects you, and any action to take.

Do also check out our recent webinar with Entre Trámites, where we walked through how different users of the system are affected.

It is clear from social media discussion that there are still some fundamental misunderstandings about what the payments are for. Also, who has to pay them. So this article is to help unpack the background to these payments, what they are/ are not - as well as why they needed to change.

What is seguridad social, what do we pay it for?

Seguridad Social - we’ll use the English translation social security from this point forward - is an important safety net for all of us, regardless of profession or activity. Many countries this kind of insurance, especially in the EU, but we’re going to focus here or Spain. Everyone legally working on Spanish territory participates in Spain’s social security system, including both foreign and Spanish residents in Spain.

It provides both employees and self-employed people with a variety of benefits. Most importantly in Spain, social security payments fund your direct access to state health care, through your autónomous community.

This includes access to medical centres (centros salud) and hospitals, preventive medicine programmes, vaccinations, emergency care, and big discounts on prescription pharmaceuticals. All immediate family dependents of contributors are covered, including children and non-working partners. While the main service is provided by the comunidad you live in, you’re also covered not only throughout Spain.

In fact, you have access to urgent healthcare throughout the whole of the EU.

Maternity and paternity leave are further benefits provided by social security. These options allow parents to take time off for the birth of a new child and to provide care for them in the first years of life. They also connect with the related health and social care programmes locally.

There are other reasons why you might be forced to take a break from working of course, and the social security payments cover disability help, as well as unemployment benefits. Entitlements vary by level and duration of contribution, but there is help out there. The fund also supports special interventions, such as the ERTE programme (for those who were unable to trade during Covid restrictions.)

And finally, for those of us old enough to remember Monty Python and now asking, apart from free-at-point-of-need healthcare and employment benefits what else has the autónomo payment ever done for us…

You’ll be glad to learn that the final main item it covers is retirement savings. Part of your monthly contribution goes toward your state pension pot.

Not enough to give any pensioner a life of luxury, without private supplementation, but the point is that it’s a safety net. It provides for the basic needs of civilised society, that anyone can turn to when they have to. 

Think of it as a community insurance fund that everyone chips into, and can get help from in time of need. In fact, in the UK, it’s called National Insurance.  Apart from the state pension they’re building, a healthy childless productive and fortunate person may never receive a cent back from it - but that’s not the point. It’s the price of being part of a society where a fallback option exists.

(By the way if you’re wondering about the lack of numbers in this chapter, it’s because exact provisions get worked out at each comunidad level, not centrally. Your mileage may vary… But you won’t starve or go without medical treatment, wherever you are.)

Who pays for social security in Spain?

Social security is paid for by employers in Spain, at a rate based on the annual gross salary. Rates are locally variable and outside the scope of this document, but let’s just say that they are high. This is one of the reasons it is onerous and expensive to be an employer in Spain.

For self-employed people, it is one of things you have to pay for personally, out of your income before tax. It’s completely separate and distinct from your income tax payments, which we’re not discussing here.

Because the self-employed status in Spain is called ‘being autónomo/a’, these payments are often referred to as ‘autónomo payments.’ Your gestor or accountant will help you set up a monthly debit to the Agencia Tributaria, who will deduct the regular amount on the last working day of the month. 

Apart from ensuring funds are present to cover that, you never had to give it a great deal of thought - at least, until now.

Autónomo payments: How things work, until the end of 2022

Some people aren’t even aware of this, but the amount you pay is to an extent a matter of choice.

As every self-employed person knows, income goes up and down month on month. So until now you got to choose your own average rate to set your autónomo amount by, from a minimum base of €960.60 per month, up to a maximum of €4,139.40 per month. 

This then led to an autónomo payment between €296 per month and €1,266.66.

Can you spot the obvious flaw in this system? 

Uhuh.

By the state’s own data, at least 80% of contributors opted for the minimum payment. There was very little incentive to do otherwise, unless really trying to max out pension contributions (which we all know is a long shot, as these too can be changed at any time, and are funded from what is currently coming in to the treasury anyway)

So, the part-time cleaner or office junior would fork over a third of their monthly pay, while the 6-figure business consultant or rockstar influencer paid the same… representing a scant percentage of their income, for exactly the same entitlements. 

Not fair, not sustainable, and very hard for those on the lowest incomes - of which Spain has a great many people. 

Something had to change.

So from 2023, everything is different.

Autónomo payments from 1st January 2023

After many years of debate, Spain is finally adopting a more progressive approach to social security payments, which will bring it into line with the rest of the EU, and also provide a more level playing field between employees and entrepreneurs.

In July 27th 2022, the Real Decreto-ley 13/2022 was published, the upshot of which 64 pages was - among other things - to relate the autónomo fee paid more directly to the income earned, on a monthly basis. 

The more you earn, the more you pay.

Now the challenge here is, as mentioned previously, freelance income typically fluctuates. For many self-employed people that variation can be huge, the difference between the best and worst months of the year.

So, the fairest way to figure it out is to base it on an average monthly income from the past 12 months, and then allow you to shift bands according to the reality of what you earn - with either a refund or a higher payment, if your projected income shifts significantly over time. 

While it remains a completely separate system, this is a bit like the way income tax gets collected quarterly, then adjusted annually, depending on the whole picture. And the tax office will work out the additional fee or refund in subsequent periods, changing the amount you pay.

The rates have been set according to 12 net income bands, and there is a still a choice to be made about the base rate to be paid:

So, if you estimate your monthly income (based on the past 12 months) will typically amount to between €2030 and €2330, you would fall into Tramo 9, and choose to pay your monthly contributions based on a rate between €1045.75 and €2330 (this table shows the minimum, but as before you can go higher if you wish:)

Understanding autonomo tramos and cuotas for self employed social security payments in Spain January 2023

Assuming you opt for the lowest base, as most people probably will continue to choose, then your contributions will be €320 per month for 2023:

The minimum base and associated deduction will rise annually, incidentally, and for Tramo 9 it will increase to €330 for 2024 and €390 for 2025. But two years is a long time in fiscal policy, especially with elections pending. So we’ll focus on the present situation at this moment in time.

As you can see from the table, the fees paid are progressive, with the highest band of Tramo 12 paying nearly twice as much as those in the lowest.

The lowest 3 Tramos are in fact below the interprofessional minimum wage, as they’re based on net incomes. But they still have to pay a significant chunk of income - €230 for a net income of less than €670 is 30% of the total profit, while €500 for a net of more than €6,000 will be less than 10%. 

So, it’s not quite as progressive as we may have expected. Though the lowest band’s basis and minimum contribution will reduce over time, projected as €200 in 2025. 

With Tramo 12 due to be €590 at that point, you can see that the new system is iterating toward a more progressive and fair one as the years go by, while presumably doing their best not to alienate top earners too abruptly. Anyone in Tramo 12 pays 37% marginal income tax anyway, next to which the autonomo fee charges look minimal.

Meanwhile for 2023, some will pay a bit more, and others a bit less, than they were on the previous universal Tramo.

How do I choose my contribution basis?

Your accountant or gestor will help you to calculate the best starting point, based on previous years’ profits, for your Seguridad Social (autónomo) payments in Spain. Or the Tributaria will base it on your previous month’s income (December 2022) if not instructed otherwise.

Don’t worry, because you can change your Tramo up to 6 times per year, if your income varies significantly from what you expected. As such, it’s a provisional assumption anyway, designed to best approximate your actual bill,

Just like with your income tax, the ideal return will be as close as possible to the reality, so that any adjustments up or down will turn out to be minimal. No one likes a big tax bill on a year gone by, and if you have overpaid it takes months to receive it back in your account. At least with this payment it should adjust much more quickly, in the following quarter.

So long as you stay within your anticipated Tramo, there won’t be any net adjustment.

What about the flat rate for new autónomos (the Tarifa Plana), and discounts for small pueblos, etc?

All of this has changed too, and for further insight we recommend you review the webinar we conducted in December: 

Jim embed the below

https://remoteworkspain.info/freelance/autonomo-payments-2023-spain-self-employed/

You might also want to book a personal consultation with Entre Trámites, who are providing free initial meetings with Remote Work Spain readers - to review your self-employed position, and any action you need to take to optimise your tax and social security situation.