The management of employment terminations on objective grounds now involves a new financial and administrative consideration that companies should take into account.
The Spanish General Treasury of Social Security, known as the TGSS, has changed the approach traditionally applied to payments made to employees when an employer fails to provide the statutory notice period in an objective dismissal.
Until now, these amounts were commonly treated as compensation of an indemnity nature and were therefore excluded from the Social Security contribution base. However, RED News Bulletin 08/2026, dated 14 July 2026, confirms that the TGSS has reconsidered this interpretation in light of existing case law.
Under the new approach, payment in lieu of notice is considered to be closer in nature to salary than to severance compensation.
What does this change mean for companies?
From now on, amounts paid due to the failure to provide the required notice period must:
- Be included in the employee’s Social Security contribution base.
- Be subject to Social Security contributions through the corresponding settlement.
- Be treated as accrued on the employee’s termination date.
- Be reported using CRA code 0054, whose description now covers both dismissal compensation and payments made in lieu of notice.
This is not merely a technical change.
The new interpretation means that choosing not to grant the statutory notice period in an objective dismissal may result in higher employment costs than initially anticipated. It also creates additional reporting, settlement and administrative compliance obligations for employers.
A change introduced against a backdrop of steadily increasing employment costs
This new development coincides with a significant rise in the maximum Social Security contribution base.
In 2022, the maximum monthly contribution base under the Spanish General Social Security Scheme was €4,139.40. By 2026, it has risen to €5,101.20 per month.
This represents an increase of €961.80 per month, or approximately 23.24% in only four years.
The increase is linked, among other factors, to the adjustment of the maximum contribution base in line with inflation and to the additional annual increase introduced by law to reinforce the long-term sustainability of the public pension system.
Companies must also consider other measures that continue to increase employment-related costs, including the Intergenerational Equity Mechanism and, for employees whose remuneration exceeds the maximum contribution base, the additional solidarity contribution.
Employment terminations require increasingly careful planning
Taken together, these developments are making dismissal procedures progressively more complex from a legal, financial and administrative perspective.
This is particularly significant in objective dismissals, which may arise precisely because a company is facing serious economic, technical, organisational or production-related difficulties.
In these circumstances, a decision intended to protect the company’s viability may still trigger additional Social Security costs, strict formal requirements and a considerable risk of subsequent disputes or liabilities.
For this reason, before implementing a dismissal, it is no longer sufficient to calculate the statutory severance payment alone. Companies should assess the full financial and legal impact of the termination, including:
- The statutory severance payment.
- Outstanding salary and final settlement amounts.
- Whether the statutory notice period will be granted or compensated.
- The applicable Social Security contributions.
- Reporting obligations through the RED System.
- The potential cost of a legal challenge.
- The overall impact of the measure on the company’s financial position.
The TGSS’s new approach once again demonstrates that a poorly planned termination can be significantly more expensive than initially expected.
Preventive planning, specialist advice and a comprehensive assessment of every possible scenario are therefore becoming increasingly important for companies seeking to make employment decisions with greater certainty and control.
