In this present post we will be looking at a consultation about company directors who simultaneously receive a pension in Spain.
Certain issues have been raised in relation to the Social Security system of sole directors of companies. For example, take a director who has decided to retire, however maintaining his duties of controlling a company in accordance with the shares he holds. He receives no remuneration, only the payments from his pension. Will this situation lead to hisinclusion into the Social Security system?
The General Treasury of Social Security has tried to clarify this situation. The 27th additional provision in the General Law of Social Security establishes that those who exercise functions of leadership or management for profit with effective control of the company are automatically included in the Social Security regimen for self-employed workers (RETA).
Therefore, the question that must be determined is whether aperson who has control and manages a company without receiving payment should be included in RETA.
Relating to the first point about working for profit, following the criteria of a resolution made by the General Directorate of Social Security on 4th May 1999, a company director will be included in RETA when his percentage of shares of the company exceed 25%. Therefore, a director with control of his company who has functions of leadership and management must be included in RETA.
In relation to the second point, a company director without control or remuneration will not have to be included in RETA, so he is excluded from paying into social security.
Following are a few example of what will be included in such a regime:
•A director who manages a company and gets paid for it, but doesn’t have overall control will have to pay into social security.
•A director who is a partner of a company, but no longer has control and does not manage the company will still have to pay into social security.
•A director who has overall control, but without technically having any functions of management, will be part of the social security system if in effect he carries out managerial tasks.
To determine the activities that constitute an inclusion into social security, there is a difference between managerial functions and advisory functions. With the first it makes reference to those functions than can be carried out by a director, senior figures or CEOs. Advisory functions relate to any other activity.
The difficulty will be in deciding who carries out these managerial functions when it comes to the different roles of sole directors, joint directors, joint and several directors, and a board of directors. The delegation of general power can be seen as a good indicator of these functions, but not proof beyond all doubt.
A resolution of the General Directorate of Social Security on 13th August 1999 stated that the management of a company should be seen as activity incompatible with the RETA pension. Consequently, a director who has control of a company but does not have managerial functions, just those of an advisory nature, will be excluded from RETA if such a situation can be proved.