Country overview of EOR Portugal services
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Portugal is a Country inside the European Union and part of the Iberian Peninsula with its neighbor Spain. It is located in southwestern Europe. Its territory also includes the archipelagos of the Azores and Madeira in the Atlantic. The Azores is the European territory closest to the US. Portugal is in the time zone of the UK and Ireland and is a high-income, developed country with a tech landscape growing all over the country, but with a special growth in the capital Lisbon. Some now call Portugal the California of Europe, due to similar weather and tech environment. Lisbon is turning into the next global tech hub! This is due to the excellent talent based on strong STEM education and excellent English proficiency.
Portugal's cost of living and lifestyle, with a special fiscal benefit in income tax for international talent, makes it very appealing to relocate, increasing the local talent available.
Legislation
Labor law in Portugal is not governed by a single law. Portuguese legislation, the Portuguese Employment Code, and the Regulation of the Employment Code are the main sources of laws, which set forth fundamental rights and principles. Also, companies must understand the tax authority and Social Security legislation.
Additionally, collective bargaining agreements for specific activity sectors must be considered.
Almost all rules spelled out in Portuguese employment law are mandatory and can't be modified by collective bargaining or agreements between the parties. Portuguese employment law is very protective of the workers.
Employment Contracts
Portugal's employment contracts can be permanent or non-permanent. We guide you in choosing the best contract type for your needs.
Employment Terms
The minimum wage in Portugal is EUR 760 (2023) and EUR 820 (2024) per month, based on a standard workweek of 40 hours at 8 hours per day. In Portugal there are 12 wages in the year, plus a Vacations Allowance and a Christmas Allowance, meaning that there are 14 wages in a year. All work past the standard 40 hours each week is to be paid as overtime.
Payroll and Taxes
Every year, Portuguese employees get 14 months of salary payments:
· 12 months of work
· 1 Holiday allowance
· 1 Christmas allowance
Allowances are paid like a full month's salary. Holiday and Christmas allowances are taxed the same way as other payments to the Income tax and Social Security tax. One allowance is paid around the summer, and the other around the winter holidays.
On the other hand, workers can choose to get paid 12 times ("twelfths"), with those two extra payments prorated throughout the year. You have to pay every month by the last working day of the period.
We pay the employees in the last weekday of the month.
Tax contributions in Portugal
Social Security tax (Employer)- 23.75% (of the gross salary of each worker)
Social Security tax (Employee)- 11% (of the gross salary)
Income Tax (Employee) – depends on the gross wage, number of dependents, etc
Other costs
Work Insurance is mandatory
Hygiene, Safety, and Labor Medicine is mandatory and should be done before the start of the work contract.
Professional Training of 40 hours/year is mandatory.
Autonomous tax – some expenses are taxable, like meals paid to customers
Fringe Benefits
Some Fringe Benefits are taxable. For instance, bonuses have social security and income tax.
One of the most common benefits is Meal Allowance. The value of 6€/day in a payslip or 9,60€/day in a voucher(card) is exempted from taxes. Meal cards are a common and expected benefit in Portugal. They are used to cover the cost of employee meals during work days and can be only used in restaurants and supermarkets. Values above the mentioned are taxable in Social Security and income taxes.
For employees with kids, also a good fringe benefit is a voucher for kids schools. It has a cost from the issuer and is exempted from Social Security tax, but it is taxable in the income tax of the employee.
Another very common benefit is health insurance, which is also exempted from taxes. Although the country has a public health system, supplemental health insurance provides employees with access to a wider range of options for providers and specialists, as well as significantly shorter wait times.
Not so common is the retirement savings plan, which is exempted from Social Security tax, but taxable in the income tax of the employee.
Remote allowance is a 2023 new option, it not mandatory, and it can go until 22€/month without taxes.
Types of Leave
- Parental Leave
Both parties have parental leave that is paid by Social Security. We contact the employee and inform the company and the employee how to proceed. You can find more info here.
- Sick Leave
Employees who have worked for 6 months are entitled to up to 1,095 days of sick pay by Social Security. This only happens after the 4th day of sick leave. During the 3 initial days employee doesn’t receive wage from the employer or from Social Security. You can find more info here.
- Paid Leave
Portugal has 13 mandatory public holidays, and employees who have worked at their company for 1 year are also entitled to at least 22 days of paid time off each year. Employees can take up to 20 days of leave in their first year, about 2 days of paid leave per month.
Bereavement, marriage, and care leave: Workers in Portugal can get up to 5 consecutive days of paid leave for family bereavement. They can also take a 30-day paid leave for caring for a family member younger than 12 or 15 days for an older family member. Employees get 15 days of paid leave if they get married.
Annual Training hours
In Portugal, employers must provide 40 hours of professional training per year to all employees with indefinite contracts. If these hours are not provided and duly registered, they will have to be paid upon termination according to Portuguese legal requirements.
Visas & immigration
Depending on your employee's situation, we can support and sponsor the visa application in Portugal.
We can also obtain Social Security and Fiscal numbers for foreign employees.
Onboarding Process
- Obligations
Employees must be EU citizens or have a valid visa, Social Security, and tax numbers. They must leave in Portugal. If something is missing we can help.
Employees need to go to Work Medicine consultancy, and Social Security must be notified 1 day before the start of the contract.
- Process
Customers send us the profile needed and if they need recruitment (extra service).
With the annual gross wage, we send a commercial agreement with all annual costs related to employee costs, taxes, and benefits. We also sent a severance simulation.
With the approval, we prepare the work contract that we send to our customer. Then we contact the employee to schedule the onboarding meeting and explain all rights, procedures, and how we operate. Meanwhile, we schedule also the Work Medicine. With the signature of the work contract, we notify Social Security and we activate the mandatory insurance and the fringe benefits.
The onboarding usually is done after 48h the commercial agreement signature and with all documentation and information delivered to us.
Termination Process
- Probation Period / Trial Period
Portugal has a probationary period where an employment contract can be terminated without cause, this period can change according to positions and type of contract. After the probationary period, if the employer wants to terminate an employee they need to do so with just cause or provide a notice period.
Even if agreed on, longer probation periods aren't allowed. However, you can agree on a shorter probation period or exclude probation completely.
- Notice Period
Notice periods for the termination in Portugal are usually linked to the employee’s length of service at the company, but it can go from 7 days to 2 months notice.
- Severance Pay
Severance pay depends on the terms of the contract, the position/role of the employee, and the cause for termination. If the employee is not being terminated due to serious misconduct, negligence, theft, or something of that nature, a severance payment is due. Our proposals have this cost simulation.
- Process
There are a few ways to end an employment relationship:
As per contract, retirement;
Employee resigns (voluntary termination);
As per contract, retirement;
Expiration or non-renewal of employment contract;
A termination without indemnity for just cause, like theft – this is a very special process;
Dismissal due to economic issues (bankruptcy, restructuring, etc.); or
Mutually agreed termination.
In Portugal, regular terminations require a notice period from the employer, depending on the worker's tenure.
The Company will notify us that they need to end the employment relationship and we then notify the employee, prepare the costs of this termination, and calculate the number of days of vacations that the employee has. He can use the holidays or they can be paid in the last payroll on the last working day, with the severance included. The insurance is canceled and the Social Security is notified. The employee also receives the form filled out to him to deliver to Social Security.
Other questions:
As a worker, why should you switch from contractor to employee?
- Steady Income – no hidden taxes!
- Simplified Taxes and Less administrative burden – No accountant and lawyers needed! No invoices and no extra costs for the Contractors! Contractors receive more money but the administrative costs are higher! Instead of working, contractors are filling out tax forms and trying to understand taxes and social security taxes! And there are legal liabilities for both parties! Employees have taxes automatically withheld from the wage, which makes the tax filing process simpler compared to the more complex tax filing that contractors face several times in the year.
- Job Security - Employees typically have more legal protections and are entitled to certain benefits, such as unemployment benefits and protection from arbitrary termination.
- Benefits from health insurance to retirement plans, paid time off, sick leave, maternity/paternity leave, and more, benefits can significantly contribute to your overall compensation package and well-being.
As a Company why should we use EoR instead of Contractors?
- No hidden taxes!
- As Employer of Record we inform you of all legislation changes. And by the way, there are a lot of changes in the employment legislation.
- In Portuguese legislation, there is no figure as Contractor and there is a huge risk of the contractor being considered as a worker with contract without term!
- The Company is increasing the liabilities and the risk of employee misclassification. Portugal, like many other countries, treats self-employed individuals or contractors and full-time employees differently. Misclassification of contractors in Portugal may lead to fines and penalties for the offending company.
- Employers of Contractors in Portugal have Social Security taxes!
- Job Security - Employees typically have more legal protections and are entitled to certain benefits, such as unemployment benefits and protection from arbitrary termination. So is a better way to attract talent.
- Benefits from health insurance to retirement plans, paid time off, sick leave, maternity/paternity leave, and more, benefits can significantly contribute to your overall compensation package and well-being.
Public holidays
13 Public national holidays + 1 local public holiday:
January 1 - New Year's Day (Dia de Ano Novo)
? - Good Friday (Sexta-feira Santa)
? - Easter Sunday (Páscoa)
April 25 - Freedom Day (Dia da Liberdade)
May 1 - Labor Day (Dia do Trabalhador)
June 8 - Corpus Christi (Corpo de Deus)
June 10 - Portugal Day (Dia de Portugal)
August 15 - Assumption Day of Our Lady (Assunção de N.a Senhora)
October 5 - Implantation of the Republic (Implantação da República)
November 1 - All Saints Day (Dia de Todos os Santos)
December 1 - Restoration of Independence Day (Restauração de Independência)
December 8 – Immaculate Day (Dia da Imaculada Conceição)
December 25 - Christmas Day (Natal)
EoR services
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