Closing a company that still has employees, step by step

Terms used

• ERE — The ERE is a collective dismissal procedure, with consultation and notice to the labour authority, used when dismissals reach set thresholds.
• FOGASA — FOGASA is the state wage guarantee fund that pays part of unpaid wages and dismissal indemnities when an employer cannot.
• Concurso — The concurso is Spain's formal insolvency procedure for a company that cannot pay its debts.
• Memoria — The memoria is the written report you prepare explaining the causes of the dismissals.
• Finiquito — The finiquito is the final settlement a worker receives when the job ends, covering pay owed.
• Baja — A baja is the notice that removes a worker, or the employer's account, from Social Security.
• Registro Mercantil — The Registro Mercantil is the public commercial register where companies are recorded and cancelled.

Key rules

• Order: Choose the dismissal route before you dissolve the company.
• Splitting dismissals: Spreading dismissals over later periods to stay under the thresholds, without new causes, makes them void.
• FOGASA: FOGASA pays only after the debt is recognised, and the worker must apply within one year.
• Tax deregistration: The tax agency accepts company deregistration only after Registro Mercantil cancellation.

Start with the route, before you dissolve

Decide how you will end the employment contracts before you dissolve the company. Dismissals normally come before or at dissolution, so no one is left unpaid when the company stops existing. You have three routes:

1. Collective dismissal (ERE). Used when the dismissals reach the thresholds below.
2. Objective dismissal for economic causes. Used for fewer workers. The indemnity is 20 days' pay per year worked, up to 12 months' pay.
3. Insolvency (concurso). Used when the company cannot pay. The wage guarantee fund (FOGASA) may then cover part of the unpaid pay and dismissal pay.

The decision block below helps you choose.

Check whether the dismissal is collective

Count the dismissals over any 90 days. The dismissal is collective if it affects:

• at least 10 workers, in a company with fewer than 100 employees;
• at least 10% of the workforce, in a company with 100 to 299 employees;
• at least 30 workers, in a company with 300 or more.

Closing the whole business is also collective if you have more than 5 employees and the closure is total and your own decision. Splitting dismissals into later 90-day periods to stay under the thresholds, without new causes, is treated as fraud and the dismissals are void.

Follow the collective-dismissal steps

1. Send a written communication to the workers' representatives and to the labour authority. Attach a memoria explaining the causes, with supporting documents: accounts and, for economic causes, financial statements and tax returns.
2. Consult the representatives for up to 30 calendar days, or 15 days if you have fewer than 50 workers. Negotiate in good faith, aiming at an agreement. Discuss ways to avoid or reduce dismissals and to soften their effects. The labour authority may ask the Labour Inspectorate for a report and may issue warnings.
3. When there is an agreement or the period ends, tell the labour authority the outcome. Then notify each worker individually.
4. Give 15 days' notice.

The legal indemnity is 20 days' salary per year of service, capped at 12 months, unless the agreement improves it. For workers aged 50 or over in companies with profits, special rules apply. You must also offer outplacement for 6 months, or 12 months if you have more than 50 workers.

Pay what you owe

Each worker gets a finiquito. It covers salary up to the termination date, the proportional extra payments, unused accrued holiday and any indemnity due. Your collective agreement may add items. Pay Social Security contributions through the termination month.

What FOGASA covers

FOGASA is a backstop, not a plan. It pays only if the company is insolvent, bankrupt or in a formal insolvency procedure, and the debt has been recognised by a judgment, a conciliation record or the insolvency administrator.

• Unpaid wages: up to 120 days, with a daily cap of twice the daily minimum wage including extra payments.
• Dismissal indemnity: up to one year of salary, daily salary capped at twice the minimum wage. Cover is 50% of the legal indemnity, calculated at 20 days per year for economic dismissals. In companies with fewer than 25 workers it is 40% for lawful dismissals.

Each worker applies to FOGASA with that document within one year. The caps follow the minimum wage, which changes yearly.

Deregister as an employer

Do it in this order:

1. Submit each worker's baja to Social Security through the RED/Import@ss system, within the legal deadlines.
2. File the final contribution settlement and close the company's contribution account code with a baja.
3. File the final quarterly withholding return (modelo 111) and the annual summary (modelo 190). You must file them even after activity ends.
4. Finish dissolution and liquidation, and cancel the company in the Registro Mercantil.
5. File the tax census deregistration (modelo 036 or 037) with the tax agency. It is accepted only after the Registro Mercantil cancellation.

Debts with Social Security or the tax agency can block or delay closure. Have a labour lawyer check your route, thresholds and compensation before you start.

Choosing between options

Which route should you use to end your employees' contracts?

• Collective dismissal: The dismissals reach the thresholds within 90 days, for example 10 workers in a company under 100 staff, or you end all activity with more than 5 employees.

• Objective dismissal for economic causes: Fewer workers are affected and the thresholds are not met.

• Insolvency (concurso): The company cannot pay its debts. FOGASA, the wage guarantee fund, may then cover part of the unpaid pay and dismissal pay.

Count the workers affected over 90 days, then choose the route before dissolving, so staff are not left unpaid when the company is extinguished.

Timeline and deadlines

• Choose the closure route before you dissolve: collective dismissal, objective dismissal for economic causes, or insolvency: before dissolving the company

• Count dismissals to see whether the collective thresholds are met: across any 90 days

• Open the collective dismissal with a written communication to worker representatives and the labour authority: at the start of the procedure

• Tell the labour authority the outcome, then notify each worker individually: after an agreement or the end of the consultation

• Give each worker notice: 15 days

• Workers apply to FOGASA if the company cannot pay: within one year

• Submit worker bajas to Social Security, file the final contribution settlement and close the contribution account: after contracts end, within the legal deadlines

• File the tax census deregistration (modelo 036 or 037): after the company is cancelled in the Registro Mercantil

Documents you need

• Written communication opening the collective dismissal, sent to the workers' representatives and to the labour authority.

• Memoria explaining the causes of the dismissals, which you prepare yourself.

• Supporting documents for the memoria: accounts, and for economic causes the financial statements and tax returns; for production causes, technical reports.

• Finiquito for each worker, covering salary to the termination date, the proportional extra payments, unused accrued holiday and any indemnity due.

• Judgment, conciliation record or insolvency administrator's recognition of the debt, which a worker needs to apply to FOGASA, the wage guarantee fund.

Checklist

• Decide the closure route before dissolving: collective dismissal, objective dismissal for economic causes, or insolvency.

• Count the dismissals over 90 days to see whether they are collective.

• Negotiate in good faith with the representatives during the consultation period.

• Notify the labour authority of the outcome, then notify each worker individually.

• Pay each worker a finiquito and the indemnity due.

• Submit worker bajas to Social Security, then file the final contribution settlement and close the contribution account.

• File the tax census deregistration after the company is cancelled in the Registro Mercantil.

What to watch out for

• Splitting dismissals to stay under the thresholds: Further dismissals in later 90-day periods that dodge the thresholds without new causes are treated as fraud and are void. Plan all dismissals together and use the collective procedure when the thresholds are met.

• Closing the whole company without a collective procedure: If the company has more than 5 employees and you end activity completely, dismissing everyone is collective even below the usual thresholds. Open the collective procedure before dismissing anyone.

• Skipping good-faith consultation: The consultation must be a real negotiation aimed at an agreement, covering ways to reduce dismissals and soften their effect. Prepare the memoria and supporting documents, and bring proposals to the meetings.

• Forgetting outplacement for older workers: Special rules cover workers aged 50 and over in firms with profits, and you must offer outplacement for 6 months, or 12 months for firms over 50 workers. Ask a labour lawyer whether these rules apply to you.

Frequently asked questions

Does closing the whole company count as a collective dismissal?

Yes, if the company has more than 5 employees and the whole workforce is dismissed because you decide to stop activity completely. This applies even when the number is below the usual thresholds.

How much does FOGASA pay a worker if the company cannot pay the dismissal indemnity?

FOGASA pays 50% of the legal indemnity for economic dismissals, and 40% in companies with fewer than 25 workers when the dismissal is lawful. The daily salary used is capped at twice the daily minimum wage. The worker must apply with a court or administrative document within one year.

Do I still have to file payroll tax returns after the business stops?

Yes, you still have to file the final quarterly withholding return (modelo 111) and the annual summary (modelo 190) after activity ends. Income tax withheld from salaries must be reported and paid to the AEAT, Spain's tax agency, even when the company is closed.