Portugal PEO & Employer of Record
For businesses looking to join the Portuguese market or engage local or ex-pat workers there, WeHG offers an international PEO and a worldwide Employer of Record solution.
The conventional method entails creating a subsidiary in Portugal. Yet, our approach enables you to begin operations in Portugal in a matter of days, saving you both time and money. On your behalf, WeHG would appoint people, but you would retain complete operational control over their work. They would therefore be our local payroll staff, 100% compliant, and working on your behalf.
Portugal fast facts
Population: 10,270,865 (2023)
Land area: 92,226 km²
Local currency: EURO
Portugal is a sovereign state in southern Europe that is mostly located on the Iberian Peninsula. It is the westernmost country in continental 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 of which are independent entities with their own regional administrations.
Hiring, Negotiating and Doing Business in Portugal
The necessity of written employment contract
In general, written employment contracts are not legally required, although they are considered best practices. However, certain types of employment contracts 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 the 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 (those recruited for a short time) are often entitled to the same benefits as permanent employees (for example, regarding remuneration, working hours, holidays and so on).
However, hiring temporary employees must be justified (Labour Law), is confined to the employer’s unique and temporary needs, and cannot exceed 18 months, two or three years, depending on the conditions that justified the contract’s temporary nature (including renewals).
The employer may terminate temporary employment without cause if a statutory notification time is observed.
Portugal working hours
In general, an employee cannot exceed the maximum working periods of (the 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).
The work time must be interrupted by a rest interval of at least one hour and no more than two hours in length, arranged in such a manner that the employee does not work continuously for more than five hours.
Employees are also entitled to at least eleven consecutive hours of rest between two consecutive working days.
Vacation leave in Portugal
Workers are entitled to a minimum of 22 working days of yearly leave each calendar year. They can take their holiday until April 30th of the following year. Employers in Portugal are expressly prohibited from compensating employees for taking an unpaid vacation.
New employees are entitled to 20 days off during their first year with the organization. They are entitled to two days of paid vacation every month after six months of employment. If the fiscal year ends before six months, the vacation days are extended until June 30th of the following year. If the employee begins work in the first half of the year, he or she is entitled to eight days of vacation after 60 workdays.
The employer and employee may agree that:
- If the employee takes their holiday entitlement between 1 January and 30 April, they can receive three extra days.
- If the employee takes their holiday entitlement in two 11-day periods (January to April and May to October), they can receive two additional days.
Employees on sick leave are covered by the Portuguese social security system and can receive benefits for up to 1,095 days. Pay is as follows:
- 55% of the average daily earnings for the first 30 days
- 60% from the 31st day until the 90th
- 70% from the 91st day until the 365th
- 75% from then on
The employer covers the first three days of sickness, paying 89% of the employee’s wage.
In some cases, collective labour agreements provide specific rules covering employee illness or injury.
Employees must meet the following conditions for benefit entitlement:
- Be temporarily unable to work, which is certified by a doctor in the competent health service
- Have worked for six consecutive calendar months before the onset of the illness, taking into account, the month in which the sickness occurred
Portugal Parental Leave
Initial parental leave, a right of working mothers and fathers, has a duration of 120 or 150 consecutive days, by choice, and can be shared after the birth. Leave of between 120 and 150 days can be taken simultaneously by both parents.
The simultaneous taking of initial parental leave by a mother and father who work for the same company, if a micro-enterprise (up to 9 workers), is subject to the agreement of the employer.
The initial parental leave (120 or 150 days) is increased by 30 days if each parent exclusively opts for a period of 30 consecutive days, or two periods of 15 consecutive days.
If parental leave is shared, the mother and father must provide the respective employers with a joint declaration, up to seven days after the birth, indicating the beginning and end of the periods to be taken by each of them. In the absence of a joint declaration, the leave will be taken by the mother. If it is not shared, the parent taking the leave must inform the respective employer, within seven days of the birth, of the duration of the leave and the beginning of the respective period.
In the case of multiple births, 30 days is added per twin after the first.
Parental leave exclusively for the mother
In the case of initial parental leave exclusively for the mother, up to 30 days leave can be taken prior to the birth, and six weeks’ leave must be taken following the birth.
Parental leave exclusively for the father
In the case of initial parental leave exclusively for the father:
- the father must also take 15 working days’ parental leave, which may be consecutive or intermittent, during the 30 days following the birth of the child
- five of those days must be taken consecutively immediately after the birth
- the father is also entitled to a further ten working days’ leave, which may be consecutive or intermittent and must be taken at the same time as the mother’s initial parental leave
- the worker must give the respective employer as much notice as possible, with no less than five days in the event of taking the 10 optional days
- in the case of multiple births, leave is extended by two days per child after the first.
Portugal Severance Laws
All job termination requirements must be followed. The employer may not terminate employment without fair cause. Depending on the motive for the dismissal, just cause might be objective or subjective. Good cause is objective when the dismissal is not due to the employee but rather due to economic factors, such as market, structural, or technical factors (Labour Code).
Employment termination for an objective reason necessitates either (Labour Code):
- A collective dismissal procedure.
- A procedure for dismissing an employee owing to the end of a job position.
- A procedure for dismissing an employee due to his or her lack of adaptability.
Subjective just cause results from an employee’s breach of legal or contractual responsibilities that, given the gravity and consequences, renders the working relationship realistically untenable. The Labour Code includes a number of instances of subjective just cause as well as criteria for determining them. Termination for disciplinary reasons must also follow a particular procedure outlined in 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 depend on the number of years of service:
- Fifteen days for employees with less than one year of service
- Thirty days for employees with one to five years of service
- Sixty days for employees with five years or more and up to ten years of service
- Seventy-five days for employees with more than ten years of service
Employees are entitled to compensation calculated in the Labour Code terms, corresponding to 12 days’ salary for every year of work, with the following maximum limits:
- The salary used as a basis to calculate the compensation may not be higher than €12,700 (20 times the national minimum wage)
- The global amount of compensation may not be higher than 12 times the monthly salary or €152,400 (240 times the national minimum wage)
- For a partial year, compensation is calculated proportionally\
Most employees negotiate more time than this, especially in the case of a mass layoff.
Residents’ Income Tax: Portugal’s state budget announced nine tax bands for 2022, stretching from 14.5% for income up to €7,116 (US$8,060), through a fourth band of 28.5% for the excess over €15,216 (US$17,250) up to 48% for income over €75,009 (US$85,028). Additionally, those earning above that rate are liable for a solidarity rate between 2.5% and 5%.
Non-Residents’ Income Tax: A flat rate of 25% applies.
Social Insurance Taxes: Contributions are made based on employees’ gross remuneration. Employers remit the equivalent of 23.75% of their employees’ salaries to the revenue, while employees contribute 11%, which is withheld and remitted by their employer.
Value Added Tax (VAT): The standard rate is 23% on goods and services with a reduced rate of 13%, for example, on foodstuffs, publications, pharmaceutical products, transportation, hotel accommodation and agricultural products.
Capital Gains Tax (CGT): Non-residents are taxed at 28% and companies at 25% on their gains. Residents’ capital gains are taxed at the relevant personal tax rate between 14.5% and 48%, with 50% of the capital gains included in the calculation. EU citizens can opt to be taxed as Portuguese residents but must declare their worldwide income.
Property and Rental Taxes: Rental income is generally taxed at 28% but payers can opt for being taxed at progressive rates as part of general income. Property transfer tax can be levied between 5% and 10%.
Dividends and Interest: Taxed at 28% unless payers opt to be taxed on progressive personal income rates.
Portugal Individual Tax – Single, Married
Tax liability depends largely on residency. Residents pay tax at progressive rates on their worldwide income in six categories – employment income, self-employed income, investment income, rental income, capital gains and pensions. Non-residents pay at a flat rate of 25% on income earned in Portugal. Individuals become tax residents by spending 183 days – not necessarily consecutive – in any 12-month period, or by owning or maintaining a property in Portugal, regardless of how many days are spent in-country. Married couples or registered couples can make either joint or individual returns, but in the latter case both must name dependents on their returns.
Residents’ Income Tax:
Those earning above €75,009 are liable for a solidarity surcharge of between 2.5% and 5.0%.
Non-residents’ Income Tax:
Non-residents are generally taxed at a flat rate of 25%.
Employees’ Social Insurance Contributions: Employees contribute 11% of their gross remuneration to the social security system. Foreign residents may be exempt if they pay into the social security system of a fellow European Union member nation.
Social security contributions
Social Security contributions are divided between the employer and the employee. At for-profit companies, the employee contribution rate is 11%, and the employment rate is 23.75%. At nonprofit organizations, the employment rate is also 11%, but the employment rate is 22.3%.
Contributions are administered by the Ministério do Trabalho, Solidariedade e Segurança Social (MTSS), and they cover benefits such as pensions, sick leave, parental leave, unemployment insurance and family benefits.
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.
In addition to the personal holidays, the employee is entitled to national public holidays. Below are the holidays for 2023
- New Year’s Day – January, 1
- Good Friday – April, 7
- Easter – April, 9
- Freedom Day – April, 25
- Labour Day – May, 1
- Corpus Christi – June, 8
- Portugal Day – June, 10
- Assumption of Mary – August, 15
- Republic Day in Portugal – October, 5
- All Saints’ Day – November, 1
- Portugal Restoration of Independence Day – December, 1
- Feast of the Immaculate Conception – December, 8
- Christmas Day – December, 25
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.
In general, an employee cannot exceed the maximum working periods of:
- Eight hours a day.
- 40 hours a week.
- 1 January.
- Good Friday.
- Easter Sunday.
- 25 April.
- 1 May.
- 10 June.
- 15 August.
- 8 and 25 December.
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.