Portugal

Portugal PEO & Employer of Record

WeHG provides an International PEO and global Employer of Record service in Portugal to companies willing to enter the Portuguese market or hire local/expat employees in this country.

Traditional approach requires establishing a subsidiary in Portugal.  However our solution allows you to start the operations in Portugal within days hence save time and money.  WeHG would hire candidates on your behalf while you maintain full operational control of their work. So legally they would be our employees, on our local payroll, 100% compliant but will work on your behalf. .

Portugal fast facts

Population, million: 10,2 
Land area: 92,226 km²
Capital: Lisbon
Local currency: EUR

 Portugal  is a sovereign state located mostly on the Iberian Peninsula in southwestern Europe. It is the westernmost country of mainland Europe, bordered to the west and south by the Atlantic Ocean and to the north and east by Spain. Its territory also includes the Atlantic archipelagos of the Azores and Madeira, both autonomous regions with their own regional governments.

Hiring, Negotiating and Doing Business in Portugal

Necessity of written employment contract

In general, written employment contracts are not legally required, although they are considered best practice. However, certain types of employment contract must be in writing, including (Labour Code):

  • Promissory employment contracts.
  • Part-time employment contracts.
  • Term employment contracts.
  • Employment contracts with foreign employees.
  • Employment contracts under a commission of services.
  • Contracts for the temporary assignment of employees.

Although, employment contracts do not require execution in writing, the employer must inform the employee of certain terms and conditions, including the:

  • Employer’s identity.
  • Place of work.
  • Employee’s job category.
  • Date of execution of the contract and date on which it becomes effective.
  • Anticipated duration of the contract.
  • Pay amount and when it is paid.
  • Working times.
  • Applicable collective bargaining agreements (if any).
  • Workman compensation insurance policy number and insurer.

In some circumstances, information can be replaced by a reference to the applicable:

  • Legal provision.
  • Collective bargaining agreement.
  • Company insurance policy.

This information must be given in writing and signed by the employer. The duty of information is considered fulfilled whenever either:

  • This information is included in a written employment contract.
  • A promissory employment contract is executed.

Portugal Employment Contract

Types of employment agreements

Fixed term employees (that is, employees hired for a limited period of time) are, in general, entitled to the same benefits as permanent employees (for example, regarding remuneration, working hours, holidays and so on).

However, the hiring of temporary employees must be duly justified (Labour Code), is limited to the specific and temporary needs of the employer and cannot exceed 18 months, or two or three years, depending on the circumstances that justified the contract’s temporary nature (including renewals).

The employer can terminate temporary employment unilaterally without cause, provided it observes a statutory notice period.

Portugal working hours

In general, an employee cannot exceed the maximum working periods of (Labour Code):

  • Eight hours a day.
  • 40 hours a week.

Work over these limits qualifies as overtime and gives the employee the right to additional pay and, in some cases, to a remunerated compensatory rest period. The performance of overtime is subject to limits (Labour Code).

Rest breaks

The work period must be interrupted by a rest break with a minimum duration of one hour and a maximum duration of two hours, distributed in such a way that the employee does not work consecutively for more than five hours.

Employees are also entitled to a break of at least eleven consecutive hours between two successive working days.

Rest breaks

The work period must be interrupted by a rest break with a minimum duration of one hour and a maximum duration of two hours, distributed in such a way that the employee does not work consecutively for more than five hours.

Employees are also entitled to a break of at least eleven consecutive hours between two successive working days.

Vacation leave in Portugal 

As a general rule, employees are entitled to a minimum 22 working days of holiday per calendar year. This right falls due on 1 January and relates to work performed in the previous year.

Special rules apply in the first year of employment, to contracts with a duration of less than six months, and on termination.

Sick leave: 

Entitlement to time off

Employees are entitled to time off from work for illness or injury, which is paid by the state social security protection schemes, provided they meet all the eligibility requirements.

Entitlement to paid time off

The state social security protection schemes pay sick pay to employees who are absent from work as a result of illness or injury. The employee can receive sick pay for a total of 1,095 days. Sick pay is calculated based on the employee’s remuneration reference for Social Security purposes and varies between 55% and 75% depending on the period of illness.

Portugal Maternity Leave

The maternity and paternity regime is extensive and relatively complex. The main maternity and paternity rights are the following (Labour Code).

Working parents are entitled to choose initial parental leave (licença parental inicial) for the birth of a child, which they can share.

If the leave is taken by only one parent, the parent can choose to take either 120 or 150 consecutive days leave. If the parent has 120 days off, 100% of their reference pay (as determined) is paid (by Social Security). If 150 days are chosen, then only 80% of the employee’s reference pay is paid over the period.

If parents share initial parental leave, the total leave is extended by 30 days so that they are entitled to 150 or 180 consecutive days, paid by Social Security. If the employees choose to have 150 days off, 100% of the employee’s reference pay (as determined) is paid. If 180 days are chosen, then only 83% of the employee’s reference pay is paid over that period.

When the initial parental leave is shared, both the male and female employees must inform their employer, at least seven days before the birth, of the start and end dates of each of their leave periods, by way of a joint written statement.

Portugal Severance Laws

All rules on the termination of employment are mandatory. The employer cannot unilaterally terminate employment without just cause. Just cause is either objective or subjective, depending on the motivation for the dismissal. Just cause is objective when the dismissal is not attributable to the employee but is due to economical reasons, either market, structural or technological (Labour Code

Termination of employment for an objective cause requires either (Labour Code):

  • A collective dismissal procedure.
  • A procedure for an individual dismissal due to the termination of a job position.
  • A procedure for an individual dismissal due to the employee’s incapability to adapt.

Subjective just cause arises from a breach by the employee of their legal or contractual obligations that, in light of its gravity and consequences, makes the employment relationship practically impossible. The Labour Code provides a series of examples of subjective just cause and guidelines as to how they are assessed. Termination for disciplinary reasons must equally obey a specific procedure as set out by the Labour Code.

Term employment contracts and employment contracts under a commission of services regime benefit from a more flexible termination procedure different to that above; in these cases, it is possible to terminate without case, within the limits and requirements provided for by law.

Notice periods

There are no notice periods for dismissals resulting from a disciplinary cause. Dismissal is effective once the employee becomes aware of the employer’s formal decision to dismiss, which constitutes the last step of the mandatory disciplinary procedure which precedes it.

For information on notice periods applicable under the procedures regarding dismissal for objective reasons

Severance payments

The unilateral termination of an employment contract by the employer entitles the employee to severance pay where there has been termination for objective reasons.

Generally, employees are entitled to compensation for termination equivalent to 20 days’ base remuneration plus seniority subsidies (if applicable) for each complete year of service subject to the following caps:

  • The total amount of the base remuneration and seniority subsidies to be considered for the purposes of calculating compensation cannot exceed 20 times the minimum statutory salary (minimum statutory salary is currently EUR485).
  • Total compensation (statutory) cannot exceed 12 times the employee’s monthly base remuneration (plus seniority subsidies, if applicable) or, where the cap referred to above applies, 240 times the minimum statutory salary.

Portugal Tax

Resident income tax rates for 2020

Taxable income (EUR*)

Tax rate (%)

Deductible amount (EUR)

Over

Not over

0

7,112

14.5

0

7,112

10,732

23.0

604.54

10,732

20,322

28.5

1,194.80

20,322

25,075

35.0

2,515.63

25,075

36,967

37.0

3,017.27

36,967

80,882

45.0

5,974.54

80,882

 

48.0

8,401.21

* euros

Non-residents are taxed at a flat rate of 25% on their taxable remuneration in 2020.

Regime for non-habitual residents. Since 2010, this regime targets non-resident individuals who are likely to establish a permanent or a temporary residence in Portugal.

Provided that they have not been taxed as such during the previous five years and that certain formalities are complied with, non-habitual resident individuals can benefit from this status for a ten-year period, after which they will be taxed under the standard income tax regime.

Income arising from employment or independent personal services obtained in Portugal or abroad but, in this case, not covered by the exemptions in this regime, will be liable to autonomous tax at a special 20% rate, and not to the general and progressive income tax rates applicable to standard residents, provided that it derives from high value-added activities (of a scientific, artistic or technical nature), listed in the Ministerial Order issued for this purpose.

Rate of taxation on employment income

An employer must withhold a variable percentage of the employee’s remuneration under an employment contract as income tax. The percentage depends on the employee’s:

  • Marital status.
  • Spouse’s income (if any).
  • Number of dependants.

The withholding income tax rates for 2012 range between 0% and 40%.

Social security contributions

The employer must pay a social security contribution equal to 23.75% of the employee’s remuneration. Employees must pay a social security contribution of 11% of their remuneration, deducted by the employer.

Additional Benefits in Portugal

Supplementary health insurance may be provided to employees as a benefit.  Most senior level executives request supplementary health and life insurance but smaller companies may prefer to provide an allowance in lieu of arranging insurance.

Portugal Holidays

In addition to the personal holiday, the employee is entitled to national public holidays (nine mandatory days and two optional days) (Labour Code):

  • 1 January.
  • Good Friday.
  • Easter Sunday.
  • 25 April.
  • 1 May.
  • 10 June.
  • 15 August.
  • 8 and 25 December.

Collective bargaining agreements or individual employment contracts can also grant the employee two optional “public” holidays: Shrove Tuesday and the local municipal holiday.

Why Choose WeHireGlobally

WeHG takes care of all the onboarding hurdles, payroll, compensation and benefits, tax filing, and termination of employment. Our Employer of Record solution allows you to manage your overseas teams efficiently while minimizing cost and risk.

 

FAQ Portugal

  • Portugal working hours

    In general, an employee cannot exceed the maximum working periods of:

    • Eight hours a day.
    • 40 hours a week.
  • Portugal Holidays

    • 1 January.
    • Good Friday.
    • Easter Sunday.
    • 25 April.
    • 1 May.
    • 10 June.
    • 15 August.
    • 8 and 25 December.
  • Severance payments in Portugal

    Generally, employees are entitled to compensation for termination equivalent to 20 days’ base remuneration plus seniority subsidies (if applicable) for each complete year of service subject to the following caps:

    • The total amount of the base remuneration and seniority subsidies to be considered for the purposes of calculating compensation cannot exceed 20 times the minimum statutory salary (minimum statutory salary is currently EUR485).
    • Total compensation (statutory) cannot exceed 12 times the employee’s monthly base remuneration (plus seniority subsidies, if applicable) or, where the cap referred to above applies, 240 times the minimum statutory salary.
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