It used to be widely held by the courts that employers’ contributions to workers’ life insurance, medical insurance and pension plans had to be left out of the basis for computation of severance pay.
Their reasoning was that according to the definition of salary contained in article 26 of the Workers’ Statute (Estatuto de los Trabajadores), those contributions qualified as “discretionary benefits improving social security benefits” and accordingly were treated as non-salary items.
On October 2, 2013, the Supreme Court turned the existing majority view on its head by treating employers’ contributions to life and accident insurance as includable in the basis for computation of severance pay.
Briefly, the Supreme Court held that the only elements that could be treated as non-salary items and were therefore not includable in the basis for computation were the specific benefits to which workers would be entitled under the life insurance policy that had been taken out. Whereas the contributions/premiums paid by the employer to the insurer could indeed be treated as salary in kind and were therefore includable in the basis for calculating severance pay.
In the wake of that judgment, the high courts have been out of kilter in their rulings. On the one hand, some courts were holding that the above reasoning given by the Supreme Court was perfectly applicable to medical insurance and pension plans, while a second set was finding that they were non-salary items, and therefore, not includable in the basis for computation.
This is illustrated in the judgment of Madrid High Court of March 14, 2016, or that of the Valencia Community High Court, of January 12, 2016, which held that the premiums paid by the employer in respect of the three items concerned should be included in the basis for computation. Whereas the Madrid High Court judgment of May 11, 2016 concluded that the premiums paid for medical insurance and a pension plan must be left out of the computation basis.
As a result of those disperse views in the rulings of the various courts, on May 3, 2017, the Supreme Court gave a ruling on a point of law in a new judgment confirming its view in relation to life insurance and applying that view to the other two items at issue; pension plans and medical insurance policies.
According to the Supreme Court’s recent judgment, the contributions/premiums paid by the employer to insurance of the three items must be included in the basis for computation of severance pay; and the only items not includable are any benefits that the worker was paid or received under a life insurance policy, pension plan or medical insurance policy.
All in all, this issue now appears to have been resolved by the Supreme Court.
Garrigues Labor and Employment Law Department
