Final Settlement vs Severance Pay in Spain: Key Differences

The key difference: money owed versus compensation

The final settlement covers what the employer owes you for work already done and not yet paid: the days worked in the final month, holiday accrued but not taken, and the accrued share of extra payments. It is always due, whether you are dismissed, resign, retire or reach the end of a fixed-term contract.

Severance pay, by contrast, compensates for the loss of the job and exists only where the law or the collective agreement provides for it: objective dismissal, unfair dismissal, collective redundancy or the end of certain fixed-term contracts. On resignation, a disciplinary dismissal ruled fair or a termination by mutual agreement there is no statutory severance, although the settlement is still due. When both apply they are often set out in the same document, but they should be checked separately because they are taxed and bear contributions differently.

What the final settlement includes

The Workers' Statute requires the employer to send a proposed settlement document together with the notice of dismissal or termination, and the employee may ask for a workers' representative to be present when signing it. These are the usual items:

• Pay for the days worked in the month of leaving, including supplements.
• Holiday accrued and not taken in the calendar year, which can only be paid in cash when the contract ends.
• The accrued share of extra payments not yet received; if one was paid in advance, the unaccrued part is deducted.
• Other outstanding amounts: overtime, commission, accrued bonuses, allowances or arrears under the collective agreement.
• If the employer fails to give the required notice, pay for the days of notice not given (15 days in an objective dismissal).

How to calculate the settlement: a step-by-step example

Carlos earns 30,000 euros gross a year in 14 payments (2,142.86 euros each), started on 1 June 2019 and his last day is 30 September 2026. He is entitled to 22 working days of holiday a year and has taken 10. His collective agreement accrues extra payments half-yearly: the summer payment, for January to June, has already been paid; the Christmas payment accrues from July to December.

September pay: he worked the whole month, 2,142.86 euros. Holiday: by 30 September he has accrued 22 × 273 / 365 = 16.45 days, leaving 6.45 days. Valuing each working day as the monthly pay divided by 22 (97.40 euros), that comes to 628.71 euros. Christmas payment: he has accrued 92 of 184 days, i.e. 1,071.43 euros.

Total gross settlement: 3,843.00 euros, subject to contributions and income tax withholding. If his agreement used annual accrual (summer from July to June and Christmas from January to December), the extra payment figure would change significantly, so always check what yours says. The method for valuing holiday can also vary between agreements.

Types of termination and days of severance

The amount depends on the reason for dismissal. These are the statutory minimums under the Workers' Statute; a collective or individual agreement may improve them, but never reduce them:

• Unfair dismissal: 33 days' pay per year of service, up to a maximum of 720 days (24 months' pay).
• Fair objective dismissal for economic, technical, organisational or production reasons, incapacity or failure to adapt: 20 days per year, up to 12 months' pay.
• Collective redundancy (ERE): statutory minimum of 20 days per year with the same 12-month cap, although more is often agreed.
• End of a fixed-term contract: 12 days per year, except for training and replacement contracts.
• Void dismissal: mandatory reinstatement with payment of lost wages.
• Fair disciplinary dismissal, resignation and mutual agreement: no statutory severance.

How severance is calculated and what the caps are

The basis is gross annual pay, including pro-rata extra payments and regular salary supplements, divided by 365 to obtain the daily wage. Periods of less than a year are pro-rated by month, with any part of a month counted as a full month.

Back to Carlos: his daily wage is 30,000 / 365 = 82.19 euros and his service, from 1 June 2019 to 30 September 2026, amounts to 88 months. If the dismissal is unfair, he is entitled to 33 × 88 / 12 = 242 days, i.e. 19,890.41 euros, well below the 720-day cap (59,178.08 euros). If it is an objective dismissal, 20 × 88 / 12 = 146.67 days, 12,054.79 euros, below the 12-month cap (30,000 euros).

In an unfair dismissal, the employer has five days from notification of the judgment to choose between reinstating the employee, paying the wages accrued during the proceedings, or paying severance. Although a reform of dismissal rules has been under discussion in recent months, the amounts described above remain in force as at 30 September 2026.

Contracts that started before 12 February 2012

The 2012 labour reform cut severance for unfair dismissal from 45 to 33 days per year, but preserved what had already been earned. If your contract began before 12 February 2012, it is calculated in two parts: 45 days per year up to 11 February 2012 and 33 days per year from then on.

The general cap is 720 days, unless the first part already exceeds that figure; in that case the amount of the first part becomes the maximum, never exceeding 42 months' pay. Example: Marta earns 30,000 euros and has worked since 1 March 2008. The first part covers 48 months, i.e. 180 days (14,794.52 euros), and the second 176 months, 484 days (39,780.82 euros). Total: 664 days and 54,575.34 euros, below the 720-day cap.

If the same employee were dismissed on objective grounds, the two-part rule would not apply: 20 days for 223 months would give 30,547.95 euros, but the 12-month cap limits it to 30,000 euros. For very long service, for example since 1995, the first part alone can exceed 720 days and become the limit.

Signing 'not in agreement' and deadlines to claim

Signing the settlement proves you have received it, but you do not have to agree with it. If you have doubts about the amounts or the dismissal, write 'recibí, no conforme' (received, not in agreement) next to your signature and the date: you collect what you are paid and keep your right to claim the difference. Never sign a document stating you have nothing further to claim without checking it first.

Deadlines are very short and it is best not to leave things to the last minute:

• Challenging a dismissal: 20 working days from the day after the dismissal, excluding Saturdays, Sundays and public holidays. This is a strict limitation period; filing a conciliation request, in Madrid with the Mediation, Arbitration and Conciliation Service, suspends it.
• Claiming settlement amounts: one year from when they became due.
• Applying for unemployment benefit: 15 working days from the date you become legally unemployed. Holiday paid in the settlement delays the start of benefit by that number of days.
• Resignation does not entitle you to unemployment benefit and requires you to give the notice set in your agreement, usually 15 days; if you do not, the employer may deduct it from the settlement.

Tax and contributions on each item

The final settlement is salary for all purposes: it is subject to income tax and Social Security contributions, including untaken holiday, which the employer must report by extending the contribution period.

Severance pay is exempt from income tax up to the mandatory amount set by the Workers' Statute, with a limit of 180,000 euros, and bears no contributions up to that same amount. For unfair dismissal, the exemption requires the unfairness to be acknowledged at the administrative conciliation hearing or in a court decision; the employer's letter alone is not enough. In objective dismissals for economic, technical, organisational or production reasons and in collective redundancies, it is exempt up to the unfair dismissal limit. Anything paid above that, and any payment agreed on resignation or mutual termination, is taxable; if service exceeds two years, the 30% reduction for irregular income may apply within the legal limits.