Temporary Contract End Compensation in Spain: Expats Guide

🇪🇸 Read the original in Spanish

The termination of an employment relationship usually generates doubts and uncertainty, especially when it comes to fixed-term contracts. In the Spanish legal system, the termination of these contractual relationships does not always occur in the same way, and the right to receive financial compensation depends closely on the cause of the termination and the type of contract. Understanding how the indemnización por fin de contrato temporal (compensation for termination of a temporary contract) works is essential both for workers to defend their rights and for employers to strictly comply with current legislation, avoiding costly legal claims.

The legal framework of temporary contracts after the labor reform

Spanish labor legislation underwent a historic transformation with the entry into force of Royal Decree-Law 32/2021, which substantially modified the Texto Refundido de la Ley del Estatuto de los Trabajadores (Recast Text of the Workers' Statute Law, approved by Royal Legislative Decree 2/2015, of October 23). The main objective of this reform was to combat abusive temporary employment and make the indefinite contract the general rule for hiring.

Currently, *Article 15 of the Estatuto de los Trabajadores (Workers' Statute)* reduces the modalities of temporary hiring to two highly defined scenarios:

1. Fixed-term contract due to production circumstances: Intended to cover occasional and unpredictable increases in teaching or production activity, or fluctuations in demand (with a maximum limit of 6 months, extendable to 12 months by sectoral collective agreement). It also allows for predictable and short-duration situations (maximum of 90 days per calendar year, non-continuous).
2. Fixed-term contract for the substitution of a working person: Designed to replace a worker with the right to have their job reserved (maternity, paternity, temporary disability), to complete the reduced working hours of another worker, or for the temporary coverage of a post during a selection or promotion process (with a limit of 3 months in this last case).

Who is entitled to compensation and how much is it?

The general rule for calculating compensation upon the termination of a temporary contract is regulated in *Article 49.1.c) of the Estatuto de los Trabajadores***. This provision establishes that, upon the expiration of the agreed time or completion of the work or service that is the object of the contract, the worker will have the right to receive compensation.

The amount of compensation

The legally established amount is the equivalent to the proportional part of the quantity that would result from paying 12 days of salary for each year of service, or that established, where applicable, in the specific regulations that apply.

However, this general rule has a crucial exception:

• Contracts due to production circumstances: Do generate the right to compensation of 12 days per year of service.
• *Substitution contracts (formerly interinidad): Do not generate any right to compensation* under current Spanish legislation, unless the applicable sectoral or company collective agreement expressly establishes an improvement in this regard.

What concepts make up the settlement?

It is very common to confuse the indemnización (compensation) for the end of a contract with the finiquito (severance pay settlement). The finiquito (or settlement and release document) is the liquidation of the amounts accrued and not received by the worker up to the last day of work. It must obligatorily include:

• The salary days worked in the last month of the contract.
• The proportional part of the pagas extraordinarias (extra annual bonus payments) if they were not prorated monthly.
• Unused annual holidays (which are subject to Social Security contributions and must be paid).
• The compensation for the end of the contract (the corresponding 12 days per year, if applicable).

How to calculate the compensation step-by-step

To perform the exact calculation of the compensation for the end of a temporary contract, three simple mathematical steps based on the worker's real salary must be followed.

Step 1: Calculate the daily salary

The salary used as a basis is the daily regulatory salary. To obtain it, you must add the base salary and all salary supplements (agreement bonus, seniority, night shift bonus, etc.) from the last payslips, including the proportional part of the extra payments if they are not received prorated.

The formula is: $$\text{Daily Salary} = \frac{\text{Annual Gross Salary}}{365 \text{ days}}$$ (Or, if the salary is a fixed monthly amount, by dividing the monthly gross salary with prorated extra payments by 30).

Step 2: Calculate the length of service (seniority)

In Spanish labor law, periods of time are computed by full months. This means that if a worker provides services for even a single day of a specific month, for the purposes of calculating dismissal or contract termination compensation, that month is counted as a whole month.

Step 3: Apply the 12-day formula

Once you have the daily salary and the months worked, the following mathematical formula is applied: $$\text{Compensation} = \text{Daily Salary} \times \left( \frac{\text{Months of seniority} \times 12 \text{ days}}{12 \text{ months}} \right)$$ Which simplifies to: $$\text{Compensation} = \text{Daily Salary} \times \text{Months of seniority}$$

Practical calculation examples

To clearly illustrate how these rules are applied, we will analyze two practical scenarios with different salaries and contract durations.

Example 1: Carlos's contract due to production circumstances

Carlos has been hired under the production circumstances modality to cover the Christmas campaign in a logistics company. His contract has had an exact duration of 6 months. His gross monthly salary is 1,500 €, and he has his extra payments prorated in his payslip.

1. Calculation of the daily salary:

$$\text{Daily salary} = \frac{1,500 €}{30 \text{ days}} = \mathbf{50 € \text{ per day}}$$

1. Calculation of service time: 6 months.
2. Application of the formula:

$$\text{Compensation} = 50 € \times 6 \text{ months} = \mathbf{300 €}$$ Carlos will receive a contract termination compensation of 300 € gross (which, being a legal compensation for the end of a temporary contract, is exempt from IRPF (personal income tax) withholding up to the legal limit).

Example 2: Elena's substitution contract

Elena signs a substitution contract to cover a maternity leave and subsequent leave of absence of an office colleague. She works in the company for a total of 9 months with a salary of 1,800 € per month.

As this is a substitution contract, and in accordance with *Article 49.1.c) of the Estatuto de los Trabajadores, Elena is not entitled to compensation for the end of the contract (her compensation is 0 €). However, the company will be obliged to pay her the corresponding finiquito* for unused holidays and the proportional part of the accrued extra payments.

Practical step-by-step procedures for the worker

When the end date of a temporary contract approaches, the worker must follow a series of orderly steps to ensure the safeguarding of their financial and labor rights.

1. Receipt of the notice: If the temporary contract has lasted for more than one year, the company is obliged to notify its termination with a minimum of 15 days' notice (according to Article 49.1.c) of the ET). If the contract is of a shorter duration, this legal notice is not required, unless the applicable collective agreement provides otherwise.
2. Review of the proposed settlement: On the day of termination, the company will present the finiquito document. The worker must check that all concepts are included (salary for the month, unused holidays, extra payments, and the compensation of 12 days per year if applicable).
3. Signing the document: If the worker has doubts about the accuracy of the amounts, they must sign the document by writing in their own handwriting the mention "No conforme" (Not agreed) next to their signature, also indicating the actual date of delivery. This preserves the right to legally claim any outstanding amounts.
4. Applying for unemployment benefits: The end of a temporary contract places the worker in a legal situation of unemployment. To apply for unemployment benefits (paro) or the corresponding subsidies before the SEPE (State Public Employment Service), there is a period of 15 business days following the termination, and the Certificado de Empresa (Company Certificate) that the employer will have sent electronically to the Social Security must be provided.

Legal deadlines to claim

In the field of Spanish labor law, the deadlines for action are extremely short and preclusive. It is vital not to let time pass if an irregularity is detected.

• Deadline to claim amounts (unpaid compensation or settlement): If the company does not pay the compensation or calculates the finiquito incorrectly, the worker has a period of 1 year to claim these amounts, in accordance with *Article 59.2 of the Estatuto de los Trabajadores***.
• Deadline to claim against an unfair dismissal (fraud of law): If the worker considers that their temporary contract has been terminated fraudulently (because the temporary cause was not real and the contract should have been indefinite), the termination is legally classified as a dismissal. The deadline to file a dismissal lawsuit is 20 business days (excluding Saturdays, Sundays, and public holidays), as established in the Ley Reguladora de la Jurisdicción Social (LRJS - Law Regulating Social Jurisdiction). The calculation of this period is suspended upon filing the papeleta de conciliación (conciliation petition) before the corresponding administrative service, the SMAC (Mediation, Arbitration and Conciliation Service).

Mistakes you must avoid

• *Signing the finiquito without reviewing or adding "No conforme":* Signing a settlement document without reservations can be interpreted by the courts as an acceptance of the amounts and a waiver of future claims, preventing the recovery of the money owed.
• Confusing a substitution contract with one for production circumstances: Claiming the 12 days compensation in court for a lawful substitution contract will lead the worker to lose the lawsuit, as the law expressly excludes this right for this contractual modality.
• Letting the 20 business days deadline pass if you suspect a fraud of law: If the temporary contract was concluded without a real cause (for example, to perform regular and permanent tasks of the company), it is considered in fraude de ley (fraud of law). Upon termination, you can claim compensation for unfair dismissal of 33 days per year worked (instead of 12), but this must be done within 20 business days.
• *Not requesting the Certificado de Empresa: Without this document, which the company must send to the SEPE*, the worker may experience significant delays in the processing of their unemployment benefit.

Frequently Asked Questions (FAQ)

Am I entitled to compensation if I decide to leave voluntarily before the contract ends?

No. Resignation or voluntary departure by the worker terminates the employment relationship by unilateral will of the employee. In this scenario, the right to receive any type of compensation for the end of the contract is lost. However, the company remains obliged to pay the finiquito corresponding to accrued and unused holidays and the proportional part of the extra payments. You will also not be entitled to apply for unemployment benefits immediately.

What happens if the company does not give me 15 days' notice?

The obligation of 15 days' notice only exists for temporary contracts that have lasted for more than one year. If the company breaches this legal obligation in long-term contracts, the worker has the right to demand that the salary corresponding to the missed notice days be paid in the finiquito (for example, if they notify you with only 5 days' notice, they must pay you an additional 10 days of salary as compensation for lack of notice).

Is the temporary contract end compensation taxed by the Tax Agency?

No. In accordance with the Ley del Impuesto sobre la Renta de las Personas Físicas (LIRPF - Personal Income Tax Law), compensation for termination of an employment contract in the legally established amount (in this case, 12 days per year of service) is completely exempt from IRPF taxation. No withholdings are applied to this amount either. However, any amount that exceeds the established legal limit will be subject to taxation.

What is a temporary contract in "fraude de ley" and how does it affect my compensation?

A temporary contract is in fraude de ley (fraud of law) when it is used to cover permanent needs of the company instead of a temporary need, or when the cause and circumstances of the temporality are not specified with absolute precision in the written contract. If the fraud of law is proven before the social courts, the contract is considered indefinite from its start. Therefore, its unilateral termination by the company is classified as an unfair dismissal (despido improcedente), giving the right to compensation of 33 days per year worked (with a maximum of 24 monthly payments) instead of the 12 days of the temporary contract.

In summary

• The compensation for the end of a temporary contract is 12 days of salary for each year of service (or its proportional part for shorter periods).
• Substitution contracts do not carry any legal compensation upon their termination.
• The deadline to claim differences in money in the finiquito or compensation is 1 year.
• If the temporary contract was concluded in fraud of law, you can claim compensation for unfair dismissal of 33 days per year within a period of 20 business days.
• Always sign with the note "No conforme" if you are not completely sure of the accuracy of the amounts offered by the employer.

General legal information, not personalised legal advice. For your specific situation, ask your question for free at AbogadoAI — answers grounded in Spanish law (BOE), in English.

This is general information, not legal advice. Verify on the BOE or consult a lawyer for your specific case.