Portugal has become a popular destination for remote workers and businesses seeking a more affordable and appealing lifestyle. However, navigating the Portuguese employment landscape requires a solid understanding of local laws, regulations, and best practices.
This guide covers the essential aspects of employing individuals in Portugal, covering everything from tax obligations and employee benefits to compliance considerations and the growing trend of remote work.
Understanding Portugal’s Employment Landscape
Key Employment Statistics
- Minimum Monthly Salary: €820
- Working Hours: 40 hours per week
- Public Holidays: 13 days per year
- Date Format: DD / MM / YYYY
- Remote Workers: 293,400 (estimated)
Taxes and Employer Costs
When hiring in Portugal, employers bear a significant portion of the overall employment cost, consisting of:
- Employer Tax: 26.5% of gross salary
- Social Insurance: 23.75% (22.3% for non-profit companies)
- Labor Accident Insurance: 1.75%
- Wage Guarantee Fund: 1%
Employee Taxes and Contributions
Employees in Portugal contribute to various taxes and insurance schemes, including:
- Employee Tax: 25.5% – 64% (progressive, based on income)
- Social Insurance: 11%
- Solidarity Tax: 2.5% for earnings over €80,882, rising to 5% for salaries exceeding €250,000
Income Tax Rates in Portugal
| Gross Income | Progressive Tax Rate |
|---|---|
| Up to €7,112 | 14.5% |
| €7,112 – €10,732 | 23% |
| €10,732 – €20,322 | 28.5% |
| €20,322 – €25,075 | 35% |
| €25,075 – €36,967 | 37% |
| €36,967 – €80,882 | 45% |
| More than €80,882 | 48% |
Navigating Employment Models
Employer of Record (EOR)
An EOR acts as the legal employer of a worker in Portugal, taking care of all compliance aspects, including payroll, taxes, and statutory benefits. This model offers numerous advantages, especially for companies seeking a simpler and more cost-effective solution for international hiring.
Understanding the EOR Model
- Company: Maintains a direct relationship with the employee, assigns tasks, and manages performance.
- EOR: Handles payroll, taxes, benefits, and ensures compliance with all legal regulations.
- Employee: The third party who fulfills their work obligations for the company.
Benefits of Using an EOR:
- Compliance: Ensures adherence to Portuguese labor laws, eliminating potential legal risks.
- Simplified Payroll: Streamlines payroll processes, relieving employers of administrative burdens.
- Cost Savings: Reduces costs associated with setting up a local entity and managing in-house HR.
- Scalability: Provides flexibility to scale operations and adjust employment needs as required.
Statutory Employee Benefits in Portugal
Portuguese law mandates several benefits for employees, including:
- Christmas and Holiday Subsidies: A financial bonus paid out during the holiday season.
- National Insurance: Basic insurance coverage provided by the national healthcare system.
- Wage Guarantee Fund: Provides financial support in case of unemployment.
- Workers Compensation Insurance: Covers medical expenses and lost wages in case of work-related injuries or illnesses.
Common Non-Mandatory Benefits
In addition to statutory benefits, employers often offer non-mandatory benefits to attract and retain talent. These can include:
- Meal Vouchers: Subsidies for employee meals.
- Public Transportation Allowance: Financial assistance for commuting.
- Supplementary Pension: Additional retirement savings plan.
- Supplementary Health and Life Insurance: Enhanced health and life coverage.
- Commission: Performance-based incentives.
- Flexible Working Hours: Allows for adjustments to work schedules.
- Phone Bill Coverage: Partial or full reimbursement for mobile phone expenses.
- Gym Membership: Financial support for gym memberships.
Employee Rights and Protections
Portuguese law safeguards employee rights and protections, ensuring a fair and equitable work environment. These rights include:
- Employment Agreement: A legally binding contract outlining terms of employment.
- Payslip: A detailed record of wages, deductions, and taxes.
- Pregnancy Rights: Special rights and protections for pregnant employees.
- Safe Workplace: Employers are responsible for providing a safe and healthy work environment.
- Whistleblower Protection: Protection for employees who report illegal or unethical activities.
- Redundancy Payment: Compensation provided to employees in case of termination.
- Professional Training: Employers are required to provide opportunities for professional development.
- Right to Establish a Works Council: Employees have the right to set up a representative body to advocate their interests.
Leave Entitlements
Portuguese employees are entitled to various types of leave, including:
- Paid Time Off: 22 days + public holidays
- Paternity Leave: 28 days
- Sick Leave: 1,095 days
- Parental Leave: 120-150 days
- Maternity Leave: 30 days before birth and 42 days after birth
Probation Periods
Probation periods typically last 90 days but can be extended to a maximum of 240 days.
Payment Frequency
Portuguese law dictates that salaries are paid monthly.
End of Employment
Termination of employment in Portugal typically involves a simple agreement between the employer and employee. However, employer-initiated terminations require a valid reason, disciplinary procedure, and compensation equivalent to 12 days of basic pay and seniority allowances for each year of service. Employees have the right to file a claim with a labor court in case of wrongful dismissal.
Common Employment Models for Remote Workers
HQ Country Employment & Payroll
Employees are employed and paid by the company’s headquarters entity, even while residing in Portugal. However, this approach may be legally challenging long-term, especially if the employee is not a tax resident in the headquarters country.
Independent Contractor Agreements
Individuals register as sole traders or limited liability company owners in Portugal and invoice for their work. This model avoids a direct employment relationship, but it is not compliant for full-time workers who exclusively work for a single company.
Direct Local Employer Setup
The company establishes a fully compliant local entity in Portugal, involving local tax registration and legal setup. While this model offers full control, it can be expensive, time-consuming, and complex to manage.
Partnering with an EOR in Portugal
This model involves using a platform specializing in employing individuals on behalf of client companies. The EOR handles all aspects of employment, including payroll, taxes, and compliance.
FAQs About Employing in Portugal
Q: What are the options for hiring a worker in Portugal?
A: The four common models are:
- HQ Country Employment & Payroll: Legally challenging long-term.
- Independent Contractor Agreements: Not compliant for full-time workers.
- Direct Local Employer Setup: Expensive and complex.
- Partnering with an EOR: Simplified, compliant, and cost-effective.
Q: How long does it take to set up a company in Portugal?
A: Setting up a company is relatively straightforward, but managing payroll, taxes, and compliance ongoingly can be challenging.
Q: Can I employ people as independent contractors in Portugal?
A: Treating full-time workers as independent contractors is likely a breach of Portuguese employment laws. Doing so could result in fines for unpaid benefits such as holiday pay, sick pay, social welfare payments, paternity benefit, maternity benefit, and other legal consequences.
Q: What does HR compliance mean in Portugal, and why does it matter?
A: HR compliance involves ensuring that all employment practices and policies comply with Portuguese labor laws, safeguarding employee rights and minimizing employer liability.
Q: How much does it cost to employ someone in Portugal?
A: The cost of employment includes the gross salary, social insurance, labor accident insurance, and contributions to the Wage Guarantee Fund.
Q: What does Employer of Record mean in Portugal?
A: An EOR is the legal employer of an individual in Portugal, responsible for payroll, taxes, compliance, and employee benefits.
Q: Who is responsible for filing and paying employees’ taxes and social insurance contributions in Portugal if employing through an EOR?
A: The EOR files all relevant taxes related to the compliant employment of an individual in Portugal.
Q: How does an EOR in Portugal ensure HR compliance?
A: EORs partner with employment lawyers and advisors to ensure that all employment documentation and processes comply with Portuguese law.
Q: What are the legal responsibilities of a company when using an EOR service in Portugal?
A: The company remains responsible for managing the employee’s day-to-day work, performance, and any disciplinary issues. The EOR handles compliance with Portuguese labor laws.
Q: Do employees get all their rights and benefits when employed through an EOR in Portugal?
A: Yes, employees are entitled to all statutory rights and benefits under Portuguese law, including a compliant employment contract, maternity leave, annual leave, illness benefits, and tax credits.
Q: What taxes do I need to pay in Portugal?
A: Employers pay social insurance contributions, labor accident insurance, and contributions to the Wage Guarantee Fund, while employees pay social insurance, solidarity tax, and income tax.
Bottom Line
Hiring in Portugal presents a unique set of considerations, requiring careful planning and understanding of local regulations. Whether you’re a small business owner, remote worker, or recruiter, this guide provides the essential information to navigate the Portuguese employment landscape effectively and ensure compliance with local laws. By understanding the key aspects of employment, taxes, benefits, and legal obligations, you can establish a successful and sustainable employment model in Portugal.