Employer of Record (EOR) Portugal

Employees vs Independent Contractor Compliance

In Portugal, the distinction between employees and independent contractors is primarily based on the concept of legal subordination. Employees commit to perform work under an employer’s supervision and direction, which includes the power to issue binding orders on how the work should be carried out. In contrast, independent contractors provide specific results through their work and are not subject to the same level of control or supervision.

Factors to consider when classifying

If two or more of these factors are present, the relationship is presumed to be an employment one, even if the provider is labeled as an independent contractor. In such cases, the burden of proof lies with the employer to demonstrate that the relationship qualifies as independent contracting.

Employment Contracts in Portugal

In Portugal, while written employment contracts are standard practice, they are not required in all cases. However, they are mandatory for term contracts, part-time contracts, telework contracts, intermittent work contracts, agency work contracts, and those under the service commission regime. Employers must provide a written statement outlining the core working conditions within 60 days of the employee’s start date, which is usually included in the written employment contract.

It is important to note that employment contracts cannot include terms that are less favorable to the employee than those stipulated by mandatory employment laws and applicable collective bargaining agreements (CBA).

Working Hours

In Portugal, standard working hours are set at 8 hours per day, totaling 40 hours per week across 5 working days. Employers, though, have the flexibility to implement alternative schedules, allowing for an extension of the daily limit to 12 hours and the weekly limit to 60 hours for brief durations.

13th Month Salary

In Portugal, employees have a legal entitlement to receive two bonuses annually—one during the summer and another at Christmas. As a result, employees receive a total of 14 payments each year, rather than the standard 12.

Minimum Wages

The existing minimum wage in Portugal is €760.00 per month as of January 1, 2023, and remains valid through December 2023. All figures are stated in Euros and are presented before tax deductions.

Payroll Cycle

Monthly payroll processing is the norm in Portugal, and employee payments must be completed by the final day of the month.

Mercans’ Payroll Capabilities 

Handling payroll in Portugal demands precision and comprehensive solutions, and Mercans excels in simplifying the process through its employer of record services, ensuring accuracy, compliance, and operational efficiency.

In Portugal, the payroll cycle operates on a monthly basis, encompassing critical stages such as setup, salary calculations, and reporting. Mercans’ Employer of Record services adeptly handle these tasks with precision and reliability.

Opting for local currency payments enhances convenience and reduces currency exchange complexities. Mercans facilitates seamless multi-country payment solutions, ensuring a hassle-free payroll experience.

From initial payroll setup to processing salaries and administering leave balances, Mercans’ EOR services cover every aspect of payroll management with efficiency in Portugal.

Ensuring compliance with local regulations is paramount, and Mercans provides seamless support for statutory filings, guaranteeing adherence to Portuguese laws.

As your trusted payroll partner in Portugal, Mercans brings extensive expertise in Employer of Record services, extending its proficiency to multi-country payroll management for accurate and streamlined operations across diverse locations.

Social Security in Portugal

Social Security Contributions

Social security contributions in Portugal are a shared responsibility between employees and employers. The rates, set at 11% for employees and 23.75% for employers, are applied to the employee’s gross remuneration and cover family, pension, and unemployment benefits.

Additionally, employers must purchase an insurance premium to cover occupational accidents, the cost of which varies based on work and risk classification.

For members of the board, social security rates differ, with individual contributions at 9.3% and employer contributions at 20.3%. However, those considered managers or administrators face rates of 23.75% for employers and 11% for members of statutory boards, based on their effective remuneration, subject to a monthly minimum income of EUR 480.43.

Managers or administrators, along with certain types of self-employed individuals, gain entitlement to unemployment protection.

Self-employed individuals face a contribution rate of 21.4%. Those under the simplified tax regime calculate their monthly basis as 1/3 of the relevant remuneration from the previous three months, with contributions impacting the reporting month and the subsequent two months. Relevant remuneration, constituting 70% of service-related income and 20% of income from production and sales, is determined based on the income received in the preceding three months.

Employers are subject to a 10% contribution rate if 80% or more of a self-employed individual’s fees come from services for the same company, person, or group. For economic dependence between 50% and 80%, a 7% contribution rate applies. Payment occurs upon the issuance of a tax assessment by social security authorities.

In 2023, the monthly minimum wage in Portugal is set at EUR 760.

Portugal Employee Hiring Cost

In a hypothetical scenario, let’s consider an employee in Portugal with a Gross Annual Salary of EUR 9,999.96. Beyond the direct salary, the employer incurs additional costs, bringing the Total Annual Employer Costs to EUR 4,892.40. This comprehensive figure, known as the Total Annual Cost, amounts to EUR 14,892.36, encompassing both the employee’s gross salary and the employer’s contributions and associated expenses. This hypothetical breakdown sheds light on the holistic financial commitment involved in hiring an employee, covering various elements such as social security contributions, benefits, and other employer-related costs in the Portuguese employment context.

Personal Income Tax

Residents in Portugal for tax purposes are subject to progressive tax rates ranging from 14.5% to 48% on their global income in 2023. Non-residents, on the other hand, are obligated to pay income tax solely on income derived from Portuguese sources. This encompasses the portion of remuneration linked to activities conducted in Portugal, as well as remuneration supported by a Portuguese company or permanent establishment (PE). In 2023, non-residents face a flat tax rate of 25% on their taxable remuneration. The resident income tax rates for 2023, structured based on different income brackets, dictate both the applicable tax rate and any deductible amounts. Special rates are also in place for capital gains and investment income. In cases of married taxpayers or those in de facto marriages opting for joint taxation, the taxable income is divided by two for determining the tax rate.

Resident Income Tax Rates for the Year 2023 in Portugal

Employee Benefits in Portugal

Statutory benefits, also referred to as mandatory benefits, are privileges that employers are legally mandated to offer their employees. These encompass essential entitlements such as paid annual leave, parental leave, worker’s compensation insurance, and paid sick leave. Portugal boasts robust working conditions, securing the second position on the International Trade Union Convention Global Rights Index, which rates workers’ welfare on a scale from 1 to 5 (with 1 being the best and 5 the worst) globally. The Portuguese Labor Code ensures comprehensive protection for workers, guarding against arbitrary dismissal and establishing a substantial safety net for the nation’s workforce of 5.1 million. For businesses aiming to enter the Portuguese labor market, understanding the legally required benefits is crucial to ensure compliance and attract top talent in Portugal.

Portugal’s commendable working conditions, as reflected in its second position on the International Trade Union Convention Global Rights Index, showcase the country’s commitment to workers’ welfare. For businesses venturing into the Portuguese labor market, a comprehensive understanding of these statutory benefits is vital. This not only ensures legal compliance but also positions businesses as attractive employers, capable of meeting the diverse needs of their workforce.

Termination and Notice Period

Terminating an employment contract in Portugal can occur through various means, including expiration, termination, dismissal attributable to the worker, collective dismissal, dismissal for redundancy, dismissal for unsuitability, and termination by the worker.

If the employer terminates the contract, the worker is entitled to compensation from the company’s assets. Expiration can result from termination, absolute impossibility for the employee to perform duties, or the employee’s retirement due to old age or disability.

In cases of termination, the worker can contest the agreement if their signature is not authenticated within seven days, providing a written communication within that period. For dismissals attributable to the worker, just cause may arise from various serious offenses.

Collective dismissal occurs when at least two or five employees (depending on the company’s size) are terminated within a three-month period, or when it involves closures, reductions, or other structural changes. Dismissal for redundancy is based on market, structural, or technological reasons. Dismissal for unsuitability arises from the worker’s inability to fulfill the role due to productivity issues, resource breakdowns, or safety risks.

Termination by the worker requires written notice within 30 days of becoming aware of justifying facts, or immediately in cases of just cause, such as non-payment of remuneration, breach of legal or agreed guarantees, abusive penalties, negligent breach of occupational safety, and other offenses. Lack of timely payment of remuneration for 60 days is considered negligent, allowing the worker to terminate the contract.

Work Permit

The specific work visa you need for Portugal is determined by your job nature and experience. Here are the main work visas available:

Portugal Work Visa Requirements

In addition to meeting specific visa criteria, essential documents for any work visa application in Portugal include a completed application form, valid passport, 2 passport-sized photos, employment contract, proof of funds, criminal record certificate, health insurance for Portugal, and proof of accommodation.

How to Apply for a Portuguese Work Visa

• Land a Job in Portugal: Secure a job and obtain a signed work contract.
• Work Permit Application: Your employer applies for a work permit on your behalf, including essential documents.
• Apply for the Portugal Job Visa: Once the work permit is approved, apply for the work visa at your local Portugal embassy or consulate, involving form submission, fee payment, document collection, and a visa interview.

Processing Time and Fees

The processing time for a work visa application is 2–3 months, and for a Portugal work permit, it is 60 days. The application fee for a work visa is €90, and the residence permit application fee is €83, with an additional cost of €72 to receive the permit.

Final Step: Getting a Residence Permit for Work

Upon entering Portugal with a work visa, apply for a residence permit at SEF within 4 months. The residence permit is usually valid for 1 year, renewable as long as the contract remains valid. Changing jobs requires a new residence permit.

Portugal’s Job Seeker Visa

This visa allows you to visit Portugal and search for employment without a prior job offer. It grants an initial stay of 120 days, extendable by 60 days. If a job and work permit are secured during this period, you can stay; otherwise, you must leave Portugal and apply for jobs from abroad.

Requirements for the Job Seeker Visa Include:

• Completed visa application form
• Passport valid for at least 3 months
• 2 passport-sized photos
• Criminal record certificate
• Valid travel insurance
• Copy of return ticket
• Proof of financial resources (equivalent to at least 3 times Portugal’s minimum monthly salary – €760)
• Application fee: €75

Understanding these requirements empowers you to navigate the visa process confidently and embark on a rewarding professional journey in Portugal.

Employee Onboarding

When onboarding a new employee in Portugal, several online regulatory forms must be completed and processes followed. It is essential for the employer to ensure that the new employee has both a tax number and a social security number.

The employee’s tax number is necessary for the company to submit monthly tax declarations related to labor income.

The social security number is required to register the employee with the Social Security and Compensation Funds web portal and to submit monthly social security contributions.

Off-boarding

When offboarding an employee in Portugal, certain online regulatory forms must be completed, and specific processes followed. The employer must ensure that all departing employees are officially dismissed through the Social Security and Compensation Funds web portals, typically by the 10th of the following month.

EOR Solutions in Portugal