Is your EOR arrangement legal in Spain?
There is no such thing as an Employer of Record in Spanish law. The category does not exist. What exists is Article 43 of the Workers’ Statute, which allows one company to supply workers to another only through a licensed temporary work agency, and which defines illegal assignment of workers as arising whenever the supplying company does not exercise the functions that belong to a real employer. In a typical EOR arrangement you choose the hire, set the salary, direct the work and manage the performance, while a different company signs the contract and runs the payroll. That is the arrangement Article 43 was written to catch. No Spanish court has yet ruled on a global EOR platform, so the position is unsettled rather than decided. What is not unsettled is where the liability lands if one does.
This guide is written for the finance director or general counsel of a foreign company with people in Spain through an EOR. It is an assessment of a legal risk, not an accusation against any provider, and not legal advice on your specific facts. Spanish courts decide these cases one at a time, on the facts.
The short answer, and why it is not a yes or a no
EOR arrangements in Spain are not prohibited by name, because Spanish law does not name them. They sit in a gap.
The honest position is this. The model as normally operated maps closely onto the statutory definition of cesión ilegal de trabajadores, illegal assignment of workers. Spanish and international firms that have written on it publicly, Garrigues and Baker Tilly among them, treat it as at least a serious risk and in several cases as illegal assignment outright. Academic commentary runs the same way. But no Spanish court has adjudicated a global EOR platform, so nobody, including us, can tell you it has been found unlawful. Anyone who tells you it has been settled in either direction is selling something.
What you can do is understand the test a court would apply, apply it to your own arrangement honestly, and decide whether you want that exposure on the balance sheet when you next raise money or sell the company.
What Article 43 actually says
Article 43.1 of the Workers’ Statute (Estatuto de los Trabajadores, Real Decreto Legislativo 2/2015) permits hiring workers in order to assign them temporarily to another company only through a duly authorised Empresa de Trabajo Temporal, an ETT. That is the single lawful channel for lending staff in Spain.
Article 43.2 then says illegal assignment exists “in any case” where any of four things is true:
- The object of the contract between the two companies is limited to the mere provision of the supplying company’s workers to the user company.
- The supplying company lacks its own stable activity or organisation.
- It lacks the means necessary to carry out its own activity.
- It does not exercise the functions inherent to being an employer.
These four indicators were developed by the courts over decades and then written into the statute. The fourth is the one that matters here, because the entire commercial proposition of an EOR is that it will be the formal employer while you remain the real one.
The dividing line between lawful outsourcing under Article 42 and illegal assignment under Article 43 has been described by Garrigues as a fine one, and the test the Supreme Court applies is whether the contractor genuinely puts its own organisation into play: its own means, its own direction and control, its own assumption of business risk. The doctrine was crystallised in a 2001 Supreme Court ruling and has been reiterated as recently as 2023 and 2026. It is stable law, actively applied.
Note what the test is not. It is not whether both companies are real. Early case law looked for a sham company; the doctrine moved on. Today it is normally irrelevant whether the supplier is a genuine business. What matters is whether, in this particular arrangement, its organisation was put into play or whether its role was reduced to supplying labour.
Why the standard model collides with the test
Run your own arrangement through it. In a typical EOR engagement:
- You identify and interview the candidate.
- You set the salary and the package.
- You set the objectives, the schedule and the priorities.
- You direct the day-to-day work.
- You manage performance and decide on promotion.
- You provide the tools, the systems and the email address.
- The person sits in your org chart and reports to your manager.
And the provider signs the contract, runs the payroll, remits IRPF withholding and social security, and handles HR administration.
The provider is the formal employer. You are the real one. That separation is precisely the interposición that Article 43 targets, and the direction-and-control test in almost every EOR arrangement points at the client.
The providers are not hiding this. The larger platforms state publicly that the client retains control over daily operations and performance management. They mean it as reassurance. Read against Article 43.2, it is a description of the risk, in their own words.
We are not aware of any major EOR provider that holds a Spanish ETT authorisation. The industry norm is an ordinary Spanish company, sometimes presented as a consultancy with the client relationship papered as a service contract. That framing only works if the provider directs the work. If you direct it, the paper does not change what happened.
It is worth adding that even a licensed ETT commits illegal assignment if it supplies workers outside the temporary situations the ETT regime permits. In March 2024 the Supreme Court confirmed that conduct as a very serious infringement and upheld a fine of €187,515. The licence is not a blanket permission. It authorises a narrow, genuinely temporary use, which is a poor description of an indefinite hire in your core business.
The part that should concern you: the liability is yours
This is the section to forward.
Article 43.3 makes the supplying company and the user company jointly and severally liable for obligations owed to the workers and to the social security system, expressly without prejudice to other liabilities including criminal ones. You are not a customer of a service here. In the eyes of the statute you are one of two liable parties.
Article 43.4 gives the worker, at their election, the right to become a permanent employee of either company, including yours. And their rights are those of a comparable employee in an equivalent post at the user company, with seniority calculated from the start of the illegal assignment, not from the date a court says so.
Work through what that means on a termination. A person you engaged through an EOR three years ago, whom you then let go, can claim they were always your employee. If a court agrees, you are facing unfair dismissal (despido improcedente) at 33 days per year of service with three years of backdated seniority, or null dismissal with reinstatement and back pay, against a company you thought had no Spanish employees at all. We set out the arithmetic in what dismissal really costs in Spain.
On top of that:
Fines. Assignment of workers in prohibited terms is a very serious infringement under Article 8.2 of the LISOS. Since 1 October 2021 the bands are €7,501 to €30,000 at minimum grade, €30,001 to €120,005 at medium, and €120,006 to €225,018 at maximum. In some scenarios a fine is assessed per affected worker. You will still see the older ceiling of €187,515 quoted in commentary written before the increase.
Criminal exposure. Article 312 of the Criminal Code punishes trafficking illegally in labour with two to five years’ imprisonment and a fine. The Supreme Court has confirmed that the offence typically materialises through illegal worker assignment. Prosecution in practice is reserved for serious and abusive cases, and we are not suggesting a normal commercial EOR engagement invites it. But the exposure exists in the statute, and it can reach directors.
An indemnity from your provider does not fix any of this. A contractual indemnity allocates cost between you and them. It does not extinguish your statutory liability to the worker or to the State, and it is worth exactly what the provider is worth on the day you call on it.
The problem the EOR does not even claim to solve
Your EOR puts a person on a Spanish payroll. It says nothing about whether your company now has a taxable presence in Spain.
Permanent establishment is a separate question under the Non-Resident Income Tax Law and the Spain–UK and Spain–US treaties, and it turns on different facts: a fixed place of business, which can include an indefinite home office used for core work, or a dependent agent who habitually concludes or negotiates contracts that bind you.
The danger roles are obvious once stated. A Spain-based sales lead. A country manager. Anyone with authority to price or sign.
If a permanent establishment is found, you are looking at Spanish corporate income tax on attributable profits at 25%, a VAT review, payroll withholding, social security registration, transfer pricing documentation and AEAT filings, typically reaching back four open tax years and up to ten where wilful conduct is found. A full treatment is in permanent establishment risk in Spain.
The sales hire is where the two risks compound. The same facts that make someone a dependent agent for tax also make the direction-and-control analysis worse for Article 43. If you have one person in Spain and they are in sales, you have the highest-risk configuration available.
What the courts have actually said, and what they have not
Here is the state of play, stated plainly, including the parts that cut against this guide’s argument.
No Spanish ruling has found a global EOR platform guilty of illegal assignment. That is worth repeating because a lot of writing on this subject implies otherwise.
The nearest development is the Court of Justice of the European Union judgment of 24 October 2024 in Case C-441/23, referred by the TSJ of Madrid. The Court held that the Temporary Agency Work Directive applies to any entity that hires a worker in order to assign them to a user undertaking to work temporarily under its direction and control, even where that entity is not recognised under national law as a temporary work agency because it lacks the required permit. The TSJ Madrid then condemned the supplying company and the user company jointly.
That case involved a domestic outsourcing contractor, not an EOR platform. And Garrigues has argued, reasonably, that the ruling is less revolutionary than the headlines suggested: whether an arrangement is a genuine service contract or an assignment of workers has always been a question of fact for the national court, and Article 43 already answered it. What the ruling adds is that where an assignment is found, the ETT conditions apply anyway, to a supplier who never held a licence.
Some firms read the case optimistically, as a step towards eventual regulation of EOR in Spain. That reading is speculative and is written in conditional language. The model is unsettled, not legalised.
You should also weigh how Spain behaves when it decides an arrangement disguises employment. In September 2022 the Labour Inspectorate imposed a sanction of €78.9m on Glovo covering 10,614 couriers, and criminal proceedings followed against its founder. In 2024 the Inspectorate surfaced more than 92,600 hidden-economy jobs affecting some 876,700 workers and imposed roughly €541m in fines. Its Strategic Plan for 2025 to 2027 explicitly prioritises hidden illegal assignment and disguised subcontracting.
The Inspectorate has not publicly named EOR platforms as a target. The practice it is looking for is the one the model embodies.
When an EOR is the right answer
This is not an argument that EOR is a bad product. It is a good product being used, in many companies, for something it was not designed to carry.
Lower risk, and a reasonable choice:
- Short engagements and market testing
- One or two people
- Back-office or support functions outside your core business
- Genuinely temporary needs
- Nobody with authority to negotiate or conclude contracts
Higher risk, and worth acting on:
- Indefinite arrangements with no end date
- Core-business roles
- Senior managers
- Sales staff who negotiate or close
If your Spanish population is one customer-support hire on a six-month trial, this guide is background reading. If it is four engineers and a country manager who have been there two years, it is a to-do.
The trigger policy worth writing down
Most companies do not decide to stay on an EOR too long. They simply never decide anything, and the arrangement ages. A written trigger removes that.
Convert to a local entity when any hire crosses one of these:
- Duration. Expected engagement beyond roughly twelve months.
- Function. The role is in your core business rather than support.
- Authority. The person manages others, or can negotiate or bind.
- Headcount. You pass three to five people in Spain.
Put it in the policy, review it quarterly, and the decision makes itself before it becomes a legal question.
What you can do instead
A Spanish subsidiary (SL). The clean answer for anything durable. You become the direct, lawful employer and the Article 43 problem disappears, because there is no longer anyone between you and the worker. Minimum share capital is €1 since Ley 18/2022, with a legal reserve obligation until capital and reserve reach €3,000, though most foreign subsidiaries still fund €3,000. Realistic timeline for a foreign parent is six to twelve weeks; see how long it really takes.
Non-resident employer registration. A foreign company with no establishment in Spain can obtain a NIF and a social security contribution account code from the TGSS and employ people in Spain directly, appointing a representative domiciled here. This makes you the direct employer, which removes the illegal assignment problem. It does not answer the permanent establishment question, and it is best treated as an interim step rather than a destination.
A licensed ETT. Lawful, and genuinely useful for the temporary situations the regime permits. Not a workaround for permanent staffing.
Contractors. Worth naming only to warn you off it as a substitute. Spain pursues falso autónomo recharacterisation aggressively, and swapping an Article 43 exposure for a misclassification exposure is not a remediation.
The cost comparison across all of these, with real numbers, is in EOR or your own entity, and the mechanics of moving people across without losing anyone’s coverage are in leaving an EOR. What the move itself costs, layer by layer, is set out in the cost of exiting an EOR.
Seven questions to put to your provider in writing
Ask them by email. The answers, or the absence of them, tell you what you need to know.
- Do you hold a Spanish ETT authorisation? If not, on what legal basis do you assign staff to us, given Article 43 of the Workers’ Statute?
- Is your Spanish entity registered as an ordinary company or as a licensed ETT, and can you evidence it?
- In your compliance analysis, who exercises direction and control over these workers, you or us?
- How do you defend against a finding of cesión ilegal on these facts?
- Do you indemnify us against joint and several liability, backdated-seniority severance and LISOS fines? To what cap?
- How do you address our permanent establishment risk, specifically dependent agent and fixed place of business?
- At what headcount, role seniority, sales authority or duration do you recommend we incorporate?
Questions we are asked about this
Is our EOR arrangement illegal right now?
Nobody can tell you that without the facts, and anyone who does is guessing. Illegal assignment is decided case by case on who actually directs the work, which means outcomes vary and no arrangement is automatically unlawful or automatically safe. What we can tell you is which way the indicators in Article 43.2 point for a given role, and how that changes with duration, seniority and contract authority. That is a two-hour exercise on a real employee list, not a view from a web page.
Does it help that our provider owns its own Spanish entity?
Less than the marketing implies. The old case law looked for a sham company, and a real entity would have mattered. The doctrine moved: the Supreme Court has held it is normally irrelevant whether both companies are genuine, because the question is whether the supplier’s organisation was put into play or whether its role reduced to supplying labour. A large, real, well-capitalised provider that does not direct the work is still, on that test, in the same position as a small one.
What about the CJEU ruling in 2024? Did that settle it?
No, and it is being over-read in both directions. Case C-441/23 confirmed that the temporary agency rules apply based on the facts of who directs the work, even where the supplier holds no agency permit, and the user company was condemned jointly with the supplier. But it concerned a domestic outsourcing contractor rather than an EOR platform, and respected firms differ on how far it moves the picture. It is best read as tightening a facts-based analysis that already existed, not as deciding the EOR question.
Our provider indemnifies us. Isn’t that enough?
An indemnity is a commercial allocation of cost between you and your provider. It does not change who the statute makes liable. The worker’s claim to permanent status and backdated seniority runs against you directly, the joint and several liability for social security debt runs against you directly, and a LISOS fine is imposed on you, not recovered from you. Read the cap, too. Most are a multiple of fees paid, which is not the same order of magnitude as three years of backdated severance on five employees.
Will this come up if we raise or sell?
Increasingly, yes. Buyers and investors now flag EOR-employed Spanish staff as a contingent liability, because misclassification, joint liability, backdated seniority and permanent establishment all affect warranties, price and integration planning. A Spanish workforce held entirely through an EOR is a diligence finding rather than a neutral fact. Remediating it before a data room opens is considerably cheaper than explaining it inside one.
How long does it take to move off an EOR?
Plan on three to four months end to end for a small population: six to twelve weeks to have an entity that can employ, then the transfer itself. The transfer is the part that needs care rather than speed. Employees cannot simply be moved; consent or a business succession under Article 44 is required, seniority follows the person, and the deregistration from the old payroll and the registration on the new one should happen on the same day so nobody loses a day of coverage.
Last reviewed September 2026. This guide describes a legal risk under Spanish law for a general business audience. It is not legal advice on any specific arrangement, and no view is expressed about the conduct of any particular provider. Illegal assignment is decided on the facts by Spanish courts, and the treatment of EOR arrangements is legally unsettled. Fine bands, capital rules and inspection priorities change; verify current figures before relying on them.
Ask us what your own arrangement looks like
We will go through your Spanish employee list with you, role by role, and tell you which ones we would move and which ones we would leave. If the answer is that your arrangement is low risk and you should stay where you are for now, that is what we will say.