When the contributory unemployment benefit (what we know as unemployment) runs out or people have not contributed enough to receive it, many workers turn to unemployment benefits, a welfare aid that guarantees a minimum monthly income. Now, in order to be a beneficiary, the State Public Employment Service (SEPE) requires that you have no own income greater than 75% of the SMI (without extra payments).
This is where a key ruling from the Supreme Court comes into play (STS 5699/2025), in which they have ruled that if, at the time of dismissal, a compensation greater than the legal minimum was received, that surplus counts as income when requesting the subsidy. In this way, many workers could now be harmed by this ruling, since they could be denied this non-contributory aid if they received compensation higher than the minimum and the excess causes them to exceed the limit of 75% of the SMI.
According to article 275.5 of the General Social Security Law (LGSS)when requesting unemployment benefits, only “the amount corresponding to the legal compensation provided for in the consolidated text of the Workers’ Statute Law for each of the cases of termination of the employment contract, regardless of whether its payment is single or periodic” is excluded as income (that is, it is not taken into account as income).
What’s more, he adds that “the excess that may have been agreed upon over said amount will be computed as income.” That is, the part that exceeds the legal minimum compensation will be counted as income when determining whether the person meets the requirement of lack of income.
The agreed excess is income
In the Supreme Court ruling, it is explained that although the company and the workers can freely agree on higher compensation through collective agreements, this excess amount does not change the nature of the extinguishing cause nor does it become the guaranteed legal compensation.
Therefore, any excess compensation must be considered “income” for the purposes of calculating whether or not the income limit (75% of the SMI) is exceeded to access unemployment benefits.
To give an example, in the case of the ruling, the man who requested the subsidy had been collectively dismissed. According to article 53 of the Workers’ Statute, in collective dismissals you have the right to the same compensation as in objective dismissals, which is 20 days of salary per year worked, with a limit of 12 monthly payments.
Well, this worker had received a much higher compensation. If the minimum legal compensation, based on his salary and seniority, was 49,707.06 euros, he received 132,388.46 euros from the company in various payments. For this reason, the SEPE determined that the excess part (82,681.40 euros) counted as income, a calculation that was later ratified by the Supreme Court.
For this reason, this man could not receive the unemployment benefit that he had requested, since counting that surplus as income, he had an income greater than 75% of the SMI.
Different tax and labor treatment
In the ruling, the High Court also clarifies that, although for the payment of taxes (IRPF) the tax law can exempt the amount of compensation up to the amount of the unfair dismissal, these tax rules are not applicable when determining income for the purposes of the Social Security unemployment benefit. In this way, compensation may not be taxed in personal income tax but may count as income when requesting the subsidy.
The calculation of the excess compensation is calculated monthly
Lastly, it must be explained that when a person receives a severance payment greater than the legal minimum, the SEPE does not count that entire amount as a single month’s income. What it does is calculate how much this “excess” represents if it were distributed month by month.
That is, the SEPE takes that amount and prorates it monthly according to its criteria and obtains a theoretical monthly figure. That figure is what you compare with the income limit of the subsidy (75% of the current SMI without extra payments).
As long as this monthly proration exceeds the allowed limit, the person will not be able to collect the subsidy or will have it suspended. Only when, in theoretical terms, that money is already considered “exhausted” and the monthly average is below the limit, will you be able to access or resume aid.