First, the classification
Unfair dismissal compensation only exists if the dismissal is declared or acknowledged to be unfair. A fair dismissal does not trigger it — apart from the specific severance attached to an objective dismissal — and a null dismissal in principle means reinstatement with back pay. That is why the calculation is the second step, not the first.
When a dismissal is held unfair, the employer can usually choose between reinstating the employee or paying compensation. There are exceptions, for instance when the dismissed employee is a workers’ representative.
Three ingredients: service, salary and scale
As a general rule, unfair dismissal compensation is 33 days’ salary per year of service, capped at 24 months’ pay. For contracts that began before 12 February 2012, service before that date is calculated on the previous scale of 45 days per year, with its own caps and transitional rules.
Countable service does not always match the current contract: chains of temporary contracts, transfers or subrogations can change it. And the reference salary generally includes all salary items, including variable pay and pro-rated extra payments, but not non-salary items such as expense reimbursements.
What is often overlooked
The final settlement (finiquito) is not the compensation: it covers outstanding salary, the pro-rated share of extra payments and untaken holiday, and is owed regardless of how the dismissal is classified. It is also worth checking for non-compete clauses, earned bonuses or retention commitments.
Statutory compensation is exempt from Spanish income tax within certain limits, provided it stems from a dismissal acknowledged in conciliation or a judgment. Amounts agreed above that may be taxable.
Why an exact figure needs the full case
Small differences in the start date, the items included or the reference period can shift the result noticeably. The classification itself may also be disputed.
This guide provides general information. Assessing your situation requires the letter, the contract, your payslips and a conversation about what happened.
Frequently asked questions
Is unfair dismissal compensation taxed in Spain?
The mandatory statutory amount is exempt within certain limits and conditions. Anything agreed above it may be taxable.
Does variable pay count towards the reference salary?
Generally yes, if it is salary in nature. A reference period reflecting its real amount is usually used.