Bordered by Spain and the Atlantic Ocean, Portugal is quickly becoming one of Europe’s most important hubs for startups and tech. With an economy that keeps growing, Portugal is a popular destination for digital nomads and major tech companies, including Microsoft, Amazon, and Google.
In recent years, Portugal has been actively attracting foreign investments. Unlike most nations in Europe, Portugal does not require companies to establish an entity to open a business in the country. Still, Portugal has complex labor laws protecting employee rights, which can be difficult to navigate without the support of a PEO or EOR service.
A wide range of industries want to hire Portuguese workers, as well as foreigners and expats based in Portugal. However, the country also has complex compensation and benefit laws for employees. For example, it’s almost impossible to hire independent contractors or freelancers in the country, as practically all employees are considered long-term.
Before hiring new employees, you will need to have a strong written employment contract between employer and employee to ensure no confusion arises and all stipulations of employment are clearly laid out.
Here’s everything you need to know about establishing the right employer of record in Portugal.
PEO services assist foreign employers and businesses with HR, payroll, hiring and benefits.
Partnering with a PEO means:
Hiring new employees in a short amount of time
Helping manage employee responsibilities
However, it’s not the PEO’s sole responsibility to monitor legal compliance regarding labor laws. With a PEO, employers enter into a co-employment model, so both groups are responsible for maintaining compliance.
To use a PEO service, the parent company must already have a local legal entity or subsidiary in Portugal. Setting up an entity in Portugal can take a few months and be costly, since you will need to open a local bank account, register with government institutions, and complete other forms.
Using a PEO service in Portugal is a good option, if you already have a subsidiary established. Otherwise, seeking the services of an employer of record in Portugal may prove the better choice.
If you have not yet been able to set up a local business in Portugal, an employer-of-record service can help you streamline the hiring, compliance, and HR process.
When expanding your business to another country, compliance with labor laws is one of the most important aspects of expansion.
Manage all HR related tasks
Acts as its own entity to free you from legal issues
Hires new employees without you waiting to open an entity
Choosing to use a PEO or EOR service is an individual decision based on the parent company. However, if you are a smaller business, or just beginning to expand, an EOR service allows you to grow without establishing a subsidiary.
Capital city: Lisbon
Largest city by population: Lisbon
Currency: Euro (EUR)
Population: 10.31 million
Portugal GDP: 231.3 billion (USD)
Payroll frequency: Bi-weekly
Federal Minimum wage: 822.5 (EUR) per month
In Portugal, there are 13 paid holidays that employees enjoy off:
New Year’s Day
All Saints Day
Restoration of Independence
Immaculate Conception Day
In addition to these holidays off, employees are guaranteed 22 paid vacation days off after 1 year of service.
For the first year, employees are allowed 20 days of leave. For the first half of the year, the new employee will start with 8 days of vacation after working for 60 days. But, if the calendar year ends before the employee works 6 months, then the leftover days can be used until the 30th of June of the following year.
After 6 months of service to a company, employees can receive up to 365 days of paid sick leave per year. In addition to requesting sick leave off, you must provide a medical certificate within 48 hours of onset of illness to receive compensation for sick days.
For the first 3 days of illness, the employer pays directly to the employee, at 89% of their usual salary.
After the first 3 days, social security pays the remaining sick days. The percentage of the employees salary paid by social security are as follows:
55% of average salary rate for 30 days
60% of average salary rate between 31-90 days
70% of average salary rate between 91-365 days
Upon starting a company, employers are required to take out private insurance to cover any type of work accident or injury.
In Portugal, there is a strong parental leave system that gives both the mother and father agreed upon time to take care of new children, even in cases of adoption.
For up to 120 days, you are entitled to 100% of your salary, to be paid out directly by social security. To be eligible for this leave, you must have been employed for at least 80 days during the 12 months prior to the due date.
This leave is available for both parents and can be shared. If more than 120 days of leave is needed, you can take an additional 60 days, at 83% of your usual salary rate.
For new mothers, there is a mandatory period of 6 weeks of paid time off immediately following the birth of a child.
For new fathers, there is a mandatory period of 20 days of leave that must be taken within 6 months of the birth. The time period can be taken as one single period or through a few periods.
Fathers can take at least 5 days of parental leave following birth. This is paid at 100% of the employee’s average salary in the last 6 months.
After the required 6 months of maternity leave and 30 days of paternity leave, the couple can decide who takes the remaining 78 or 108 days.
Following the death of a spouse, child, or immediate family member, employees are entitled to 5 consecutive paid days off.
Newly wed employees receive 15 days of time off to attend their wedding and honeymoon.
One other form of leave that employees are allowed is 30 days of paid leave per calendar year to care for a family member under the age of 12. For older family members, the number increases to 45 days.
In Portugal, most taxes go directly into social security. Employees pay 11% of their salary into their social security while employers pay 23.75% of the employee’s salary to social security.
The payroll taxes that employers must pay out breakdown as follows:
23.75% into social security
21% for corporate taxes
3-7% for municipal surcharge, depending on the municipality
To avoid any confusions, the employer of record needs to clearly understand the laws surrounding taxes in Portugal or hire an EOR service that understands the ins and outs of tax laws.
The employer of record must draft the contract in Portuguese, so knowing the language is a necessity for any company wishing to hire within the country. Each contract should spell out stipulations of the employee’s work, as well as if the contract is a fixed-term or open-ended contract.
Employees in Portugal receive a wide range of mandatory benefits through the country's social security. Offering added benefits like private health insurance and productivity bonuses can help you stand out as an employer.
Given all the information that needs to be included in these labor contracts, partnering with an EOR specialist makes sense. When using an EOR service like Via, we take the stress off of you by ensuring that your team’s needs are met and that your business practices remain compliant with standard Portuguese practices. Plus, our employment contracts include clauses for IP/intellectual property so that you can ensure your trade secrets are protected across borders.
In Portugal, it is a common practice to give new employees probation/trial periods of 90 days. This trial period can be extended to 180 days for complex roles, or 240 days for management positions.
Employees are almost always hired full-time. Unless agreed upon and specified by both parties, contracts are deemed open-ended, or long-term.
However, fixed-term or temporary contracts are permitted as long as they are written out correctly, with all the specifics in place. Fixed-term contracts are only meant to fill roles based on an employer’s temporary needs.
If there is no employment contract, then the employment is considered open-ended.
The Portuguese work week is 40 hours maximum for anything under overtime. The work week is set up a bit differently than many other countries. Typically, the first part of the work day starts at 9am and ends at 1pm, with a 2 hour break for lunch, and then resumes from 3pm-7pm.
Any work over the standard 40 hours must be paid as overtime. Overtime is regulated by the stipulations of the employment contract/collective agreement between both parties.
The max limit on overtime is set at 2 hours per day, meaning employees can work up to 48 hours per week. Annually, an employee can have up to 150 hours per year of overtime for companies with more than 50 employees, or up to 175 hours per year for companies with fewer than 50 employees.
Overtime payments are calculated at 125% of the annual salary rate for the 1st hour of overtime and increases to 137.5% per hour following the first hour. Overtime worked on days of rest and holidays is paid at 150% of the usual salary rate.
The agreements for overtime must be clearly defined in the original employment contract.
Notice for termination is required unless the employer can provide ample cause for termination without giving notice. Dismissal in this manner is typically only granted in cases of misconduct or disobedience.
If there is a lack of notice for termination, the dismissal must be in writing and sent to the Ministry of Labour.
Generally for notice period, the terms of termination are stipulated in the employment contract/collective agreement. Further, the amount of notice that must be given depends on the employee’s length of service:
7 days notice must be given if employed less than 6 months
1 month notice must be given for employment between 6-48 months
2 months notice must be given for employment of more than 2 years
Severance pay highly depends on the terms of the original employment contract. Other factors that may influence severance are the position/role of the employee and the reason for termination.
Normally, the minimum amount of severance pay is equal to 18 days of the employee’s usual salary rate for their first 3 years of service. After the first 3 years, 12 days of salary is added to their severance for every subsequent year of service to the company.
From small startups to major tech companies, employers want to hire talent in Portugal. However, the process can be daunting, especially without using a third-party PEO or EOR service like Via.
Becoming an employer-of-record in Portugal requires a lot of knowledge about local compensation and employment laws. To ensure that you’re maintaining compliance with payroll and benefits, you will either need to hire an outsourced payroll service or build your own HR team by establishing an in-country subsidiary.
For companies who plan to hire a large number of employees in a foreign country, opening an entity with a strong HR and legal team might make sense. Most of the time, however, using a third-party EOR service like Via is the easiest move.
Opening a subsidiary in Portugal requires you to pay employees with an in-country bank account and establish an entire HR team.
However, the process of opening an entity takes months. For this reason, companies looking to hire people in Portugal as soon as possible can streamline the process by partnering with an EOR service like Via.
For companies that want to build a large team in Portugal and have their own entities, using a PEO service makes sense.
PEO companies act as co-employers and manage the HR process. However, they do not accept any legal responsibility for the entity in the country. If any compliance issues come to light, the PEO service passes all of the legal responsibilities to the parent company.
Further, using a co-employment PEO service requires you to comply with the procedures of opening an entity, which can be daunting, especially for smaller companies.
When using an EOR service like Via, you do not need to open a bank account or take legal responsibility for complying with governmental institutions in Portugal. Via takes care of that paperwork for you, including opening a bank account and registering with all of the necessary government institutions.
When trying to build a small but strategic team in Portugal, using an EOR service expedites the process. Via allows you to hire and onboard employees without needing to become an expert on tax and hiring regulations.
For corporations looking to build out new teams, small startups, and SMBs, partnering with an EOR makes sense.
Many companies want to hire within Portugal but do not have the in-depth knowledge of beginning the process compliantly. Via makes hiring Portuguese talent and building your global team seamless. Via helps you manage local HR processes for direct employment such as work visas & permits, benefits, payroll, background checks, and more. Our team of local labor lawyers and on-the-ground experts ensure that your company remains compliant while expanding abroad. As your employer-or-record/entity in Portugal, Via assumes full responsibility for employment liability, so that you can focus on what matters: recruiting and managing your team.
With Via’s transparent pricing, you can pay full-time employees or contractors in Portugal with no hidden set-up fees, no foreign exchange or transaction fees, and no minimums–start with 1 employee and scale up at your own pace.