How to Reduce Hiring Costs with Employment Pension Plans

Discover how employment pension plans can help companies reduce hiring costs through tax benefits, corporate tax deductions, and social security savings, while also benefiting employees.

Keeping costs under control is one of the biggest challenges for any business. HR teams, along with financial departments, are in constant search for ways to reduce business expenses, especially when it comes to hiring. Because ultimately, the ability to hire efficiently translates into greater growth capacity and competitiveness.

1. Current Measures to Reduce Hiring Costs

Among the most well-known measures to reduce hiring costs are the Social Security contribution rebates that the Government grants to companies hiring certain profiles. These bonuses, which are established through the Employment Law and its implementing regulations (Royal Decree 1069/2024), include:

However, it is critically important to know that there is another financial tool that all companies can access without needing to meet specific requirements like those mentioned above. This instrument not only allows companies to save on hiring costs but also benefits employees.

2. What Instrument Are We Talking About?

We're talking about Employment Pension Plans. Also known as EPP, the Employment Pension Plan is a smart long-term savings instrument aimed at saving for retirement. It consists of capital contributions by the company and voluntarily by employees to a pension fund. The employee freely decides whether part of their salary is allocated to it.

3. How Does the Company Save on Hiring?

The answer is simple: one of the tax benefits offered by employment pension plans is the reduction of Corporate Tax (CT) at the time of hiring, as well as common contingencies.

The Employment Pension Plan is an efficient way to compensate workers, as it allows them to receive more in their paycheck without increasing costs for the company in the same proportion. This is because the company can reduce Social Security common contingencies thanks to plan contributions. The reduction applies to the item that most increases labor costs for the company, since Social Security common contingencies account for approximately 23.6%. The maximum amount of these contributions to which a one hundred percent reduction will apply is €128.86.

On this maximum amount, the applicable employer rate for common contingencies will be applied:

General Regime: 128.86 x 23.60% = €30.41

Additionally, Employment Pension Plans offer an extra tax benefit for companies through Corporate Tax deductions. The company must declare contributions to obtain up to a 10% deduction, which is higher for lower salaries. For example, for contributions of €250 per month to the pension plan (€3,000 per year), the deduction would be €300 for a salary of €27,000, €270 for €30,000, and €135 for €60,000.

4. How Do Employees Benefit?

On the other hand, employees have the opportunity to save easily and effectively, allowing them to secure their financial future. Employment Pension Plan compensation is exempt from personal income tax (IRPF), meaning the worker receives a higher net income. Moreover, both company and employee contributions are invested, generating returns that are reinvested. This increases long-term benefits by leveraging the power of compound interest.

5. The First Step to Transform Your Financial Future Starts with Arca

Arca is an innovative company that has entered the market with the goal of improving the future economy of both companies and their employees, offering a solution with the potential to transform their financial well-being. Our purpose is also to educate organizations about the importance and benefits of Employment Pension Plans, which can significantly influence their future.

At Arca, we facilitate and efficiently manage Employment Pension Plans, allowing companies to access this valuable resource without the need to hire a compensation consultancy. We take care of directly resolving the questions of teams and employees, while freeing companies from the complexity of adjusting the plan in each payroll.