Contract reform, and more specifically firing costs, is one of the biggest barriers in the way of agreements in recent labor market debates. For this reason, and independent of the negotiations between employers' organizations and labor unions, the Spanish government is thinking about levying a tax on severance pay, which is currently exempt from taxation.
In accords with a project that the Mariano Rajoy government is working on, tax obligations would apply to those receiving severances that pay 45 days salary for 12 months of work, but the tax would exempt the first 20 days of severance pay. In other words, workers could opt to receive 20 days of severance and not pay the maximum tax rate that they would incur if accepting the 45-day severance package.
In January of 2010 Zapatero's government abolished taxes on severance pay established under the Spain Redundancy Procedure (ERE following the Spanish abbreviations) in order to do away with discrimination that existed between workers who stopped working under this program and those who stopped working independently or through wrongful dismissal, and were not allowed to receive severance benefits under Spanish law.
The current proposal would equally affect all dismissed workers, be they independent or under the aegis of the ERE program, receiving 45-day severance packages. The tax would be levied against the last 25 days that exceed the legal limit of 20 days of severance offered for terminations conducted for objective reasons.
