How to calculate severance pay in Spain: a practical guide
Severance and final settlements cause a lot of confusion — especially for foreign workers used to "at-will" employment or statutory redundancy schemes back home. Here is what each concept includes and exactly how the amounts are calculated in Spain under the Workers' Statute, with worked examples for every dismissal type.
Settlement vs. severance: two different things
When an employment relationship ends in Spain, you may be owed two separate amounts, and mixing them up is the most common mistake:
- The final settlement (finiquito) is what the company owes you whenever the contract ends, for any reason — even if you resign. It covers salary for days worked in the final month, accrued but untaken holiday (the statutory minimum is 30 calendar days a year, commonly expressed as 22 working days), and the pro-rata share of the extra payments you have earned but not yet received.
- Severance (indemnización) is an additional, and usually much larger, amount due only in certain types of dismissal. It compensates the loss of the job itself.
If you resign voluntarily, you still get your finiquito — but no severance.
How Spain differs from the UK and the US
Coming from the US, the key difference is that Spain has no at-will employment: every dismissal needs a legal cause, and dismissals without sufficient cause generate significant compensation. Coming from the UK, note that Spanish severance accrues faster than statutory redundancy pay (which is capped at 20 weeks) and requires no minimum two years of service: severance accrues from day one, pro-rated by months worked.
The dismissal types and their 2026 severance
| Type | Severance | Cap |
|---|---|---|
| Unfair dismissal (despido improcedente) | 33 days of salary per year of service | 24 monthly payments |
| Objective / collective dismissal (despido objetivo, ERE) | 20 days of salary per year of service | 12 monthly payments |
| End of fixed-term contract | 12 days of salary per year of service | No cap |
| Disciplinary dismissal declared fair | None | — |
| Voluntary resignation | None | — |
An objective dismissal is one based on economic, technical, organisational or production grounds. A dismissal is unfair (improcedente) when a court — or the company itself, to avoid litigation — concludes the alleged cause does not hold. In practice many negotiated exits are settled at or near the unfair-dismissal rate of 33 days per year.
The formula, step by step
- Compute your daily salary: annual gross (including the extra payments) ÷ 365, or monthly gross ÷ 30. Use the gross, not the net, and include salary supplements — a frequent underpayment trick is to compute severance on base salary only.
- Multiply by the days per year for your dismissal type (33, 20 or 12).
- Multiply by your years of service. Incomplete years count pro-rata by months.
- Apply the cap (24 or 12 monthly payments) if the result exceeds it.
Worked example 1: unfair dismissal, 5 years
Salary of €2,000/month (extras pro-rated) and 5 years of service. Daily salary: €2,000 ÷ 30 = €66.67. Severance: €66.67 × 33 days × 5 years = €11,000 — plus the finiquito.
Worked example 2: objective dismissal, same worker
Same €2,000/month and 5 years, but on economic grounds: €66.67 × 20 × 5 = €6,666.67. The gap with example 1 — over €4,300 — is why the classification of the dismissal is usually the main point of dispute.
Worked example 3: when the cap bites
A worker on €2,000/month with 30 years of service is dismissed unfairly. Uncapped, 33 × 30 = 990 days ≈ 33 months of salary. The law caps it at 24 monthly payments: 24 × €2,000 = €48,000. Similarly, an objective dismissal after 20 years (20 × 20 = 400 days ≈ 13.3 months) is capped at 12 months: €24,000.
A finiquito example
Say you are dismissed on the 20th of the month, earn €2,000/month with two non-prorated extra payments, and have 8 days of untaken holiday. Your finiquito would include roughly: €1,333 for the 20 days worked, €533 for the 8 holiday days (8 × €66.67), plus the accrued fraction of the next extra payment. Every item is taxable and subject to contributions as normal salary; severance itself, by contrast, is exempt from IRPF up to the legal amounts.
Before you sign anything
- Check every line: days worked in the final month, untaken holiday, pro-rata extras, and the severance formula and salary used.
- Verify the salary base: it must include supplements and the pro-rated extras, not just base salary.
- Sign "no conforme" (under protest) if you disagree — signing receipt does not waive your right to claim.
- Mind the deadline: you have only 20 working days to challenge a dismissal in court, one of the shortest limitation periods in Spanish law.
- Keep your payslips: they prove your real salary. If you are unsure how to read them, see our guide to understanding a Spanish payslip.
Frequently asked questions
Is severance taxed?
Legally mandated severance is exempt from IRPF up to statutory limits. Amounts agreed above the legal minimum, and the finiquito items, are taxed as ordinary income — see how income tax works on Spanish salaries.
Does severance accrue during a probation period?
Termination during a validly agreed probation period ends the contract without severance, though the finiquito is still due.
What if my contract started before February 2012?
Service before the 2012 labour reform accrued unfair-dismissal severance at the older, higher rate of 45 days per year. For long careers spanning the reform, the calculation is split into two periods with transitional caps — worth professional advice.
Can I collect unemployment benefit on top of severance?
Yes. Severance does not reduce your unemployment entitlement, provided the contributions requirements are met and the termination was not a voluntary resignation.
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