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Hiring in Portugal
Background checks in Portugal
Hire employees in Portugal
Language requirements in Portugal
Corporate presence requirements for payroll processing in Portugal
Easily hire employees in Portugal with our EoR solution
Employer of record in Portugal
When you hire employees in Portugal, you’re responsible for withholding and paying income tax and social security contributions based on their wages. Your business will also be subject to certain payroll registration requirements, which can be administratively taxing. You may even need to set up a legal entity in Portugal, which is a time-consuming process. There is another solution: hire employees through an employer of record in Portugal.
What is an employer of record (EoR)?
An employer of record (EoR) is an organisation that hires employees on behalf of employers. Many companies use employer of record services to hire workers in countries where they don’t yet have a legal presence, which greatly simplifies the expansion process. Employers of record handle HR tasks like payroll, tax withholding, benefits administration, and more on behalf of their clients.
Hiring through an EoR in Portugal
If you want to hire employees in Portugal, using an EoR could make the process much easier. When you work with an employer of record in Portugal, the EoR will become your workers’ employer for legal and tax purposes. That means they’ll be responsible for withholding and paying employee taxes and social security contributions on behalf of your employees.
Depending on the employer of record provider you choose, they may also take on various other HR tasks and processes. For example, an EoR may be able to assist you in obtaining the relevant visas and work permits for any employees coming to Portugal from overseas. In Portugal, employer of record providers are also responsible for compliance with the relevant labour laws, which govern things like wages, working hours, benefits, and termination procedures.
Hiring in Portugal without an EoR
If you choose to hire employees without working with an EoR in Portugal, you’ll need a thorough understanding of the labour laws, tax legislation, and other relevant regulations that apply to your business. You’ll need to know about your rights and obligations as an employer, as well as those of your employees. In this guide, we’ll take you through everything you need to know to confidently and compliantly hire employees in Portugal — with or without an employer of record.
Hiring in Portugal
Portugal’s low employment costs and strategic location in Europe make it a popular destination for foreign companies looking to expand their operations. Portugal also has a strong economy, and its government encourages foreign direct investment through simplified administrative processes and tax incentives.
But hiring in Portugal does require a thorough understanding of the labour laws and regulations that will apply to your company, as well as the processes for withholding, declaring and paying taxes and social security contributions for your employees. We’ll cover what you need to know in this section.
Labour laws in Portugal
Before hiring in Portugal, companies should have a good understanding of Portuguese labour laws, which are mostly set out in the Labour Code (Código do Trabalho). This important piece of legislation covers various aspects of employment in Portugal, including maximum working hours, annual leave entitlements, rest periods, and overtime pay. We’ll discuss these in more detail in the sections below.
Collective bargaining agreements in Portugal
Many employers in Portugal are covered by a collective bargaining agreement (CBA). These are negotiated between unions and employers, either individually or as part of an employers’ federation. Industry-level agreements are the most common type of CBA in Portugal, but company-level agreements and agreements covering several companies are also possible.
There are also rules for what happens when different agreements contradict each other, which companies hiring in Portugal should be aware of. Specifically, single-company agreements take precedence over multi-company and industry agreements, and multi-company agreements take precedence over industry ones.
Employment contracts in Portugal
Written contracts are not mandatory in Portugal, which means that you can theoretically agree on employment terms verbally instead. However, certain terms must be in writing for some types of contracts, like fixed-term contracts. It’s best practice to provide written agreements to all employees for the sake of clarity. Probationary periods (trial periods) are permitted in Portugal and typically last for 90 days.
Taxes and social security contributions in Portugal
Companies hiring in Portugal are responsible for deducting both taxes and social security contributions from their employees’ wages and remitting payments to the relevant authorities.
When it comes to taxes, non-residents in Portugal pay a flat rate of 25%. For everyone else, taxes are calculated using a progressive system based on the employee’s income, with rates varying between 13.25% and 48%. High earners also pay an additional surtax called the ‘solidarity rate’. This is 2.5% for people earning EUR 80,000 or more, and 5% for those earning over EUR 250,000.
Employee social security contributions are paid at 11% of the employee’s gross salary, while employers pay 26% in total contributions. Of this, 23.75% goes to social security, 1% goes to the Portuguese Wage Guarantee Fund, and 1.75% pays for insurance for occupation-related accidents.
Background checks in Portugal
Conducting background checks on potential hires can help employers to verify information provided by candidates and to confirm their suitability for a role. However, employers should be aware of the specific rules surrounding background checks in Portugal before proceeding.
Required background checks in Portugal
Employers in Portugal are required to verify that the people they hire have the legal right to work in the country. For non-EU citizens, that means checking the applicant’s visa or work permit.
Employees are also required to subject new employees to a pre-hire occupational health consultation to confirm their ability to meet the physical demands of the job in question. This should normally happen before hiring but can be delayed until after the employee starts work if there’s an urgent need for them to start straight away. In this case, it must be completed within the employee’s first 15 days of employment.
Other types of background checks in Portugal
Employers can also choose to run various other types of background checks in Portugal, though some are subject to certain limitations. Here are some of the most common background checks you could choose to conduct on your Portuguese employees:
- Reference and education checks: Employers can contact candidates’ references to find out about their experience and work ethic. They can also validate academic qualifications.
- Credit checks: These are generally only allowed if there is a clear job-related purpose. For example, it may be possible to run a credit check on a potential employee if their role would involve significant responsibility for the company’s finances. Running a credit check involves obtaining the candidate’s information from the Portuguese Central Credit Register (Central de Responsabilidades de Crédito).
- Criminal record checks: Employers can only perform criminal background checks on potential employees if they have a valid reason related to the role. Running this type of background check in Portugal involves a criminal record certificate from the Justice Administration General Directorate (JAGD) or asking the candidate to provide one.
- Drug testing: In some circumstances, employers in Portugal can ask potential employees to undergo drug testing. However, this is only possible if it’s necessary to protect the employee or others.
- Social media checks: Employers in Portugal can also browse public information about potential employees on social media sites. However, employers are advised to proceed with caution since there’s a possibility that this type of background check could infringe on the employee’s privacy rights.
Limitations on background checks in Portugal
Employers in Portugal are not allowed to ask potential employees for information on their personal life, health, or pregnancy unless this is strictly necessary for the role in question. They are also not permitted to perform background checks to obtain this information.
All background checks in Portugal must comply with data protection regulations, which are overseen by the Portuguese Data Protection Authority (CNPD). Employers always need a lawful basis to process data related to candidates or employees, which might include fulfilling a legal obligation. In some circumstances, having the candidate’s explicit consent can be counted as a legal obligation.
Hire employees in Portugal
Before you hire employees in Portugal, you’ll need to consider which employment option will work best for your business. For example, if you’re hiring a worker for a specific, short-term project that’s not related to your business’s core activity, it may be possible to take them on as an independent contractor.
However, if you need a worker on a more long-term basis and expect to exercise significant control over their work, you’ll likely need to hire them as an employee. It’s important to ensure all of your workers in Portugal are classified correctly in order to avoid fines and other legal consequences.
Main hiring options in Portugal
There are three main options for businesses wanting to take on workers in Portugal:
- Employee: Employees are hired directly by their employers under employment contracts. Employers must withhold and pay taxes and social security contributions on their behalf. Employers are also granted certain rights and protections under the Portuguese Labour Code and other legislation. In Portugal, employees can be hired on a fixed-term or permanent basis, to work part-time or full-time hours.
- Independent contractor: In Portugal, independent contractors are professionals who work without an employment contract, and who have a large amount of control over their work. They are not covered by Portuguese employment law. Whether or not you instruct the workers on how to complete their work and their level of integration into your company are two of the biggest factors influencing independent contractor status.
- Agency worker: Agency workers can only be engaged in Portugal when they are required to fulfil a temporary need. They can be employed for a maximum of two years. Their contracts can be renewed without limitation as long as this maximum is not surpassed. Agency workers have the right to equal treatment to employees concerning pay and other benefits.
The importance of correctly classifying workers in Portugal
The Portuguese government takes the misclassification of workers seriously, and companies that engage workers as independent contractors when they are really employees could face serious consequences. For example, they may receive fines and penalties, and be required to pay back taxes, wages, and other benefits for the time the worker has been employed.
To figure out whether a worker is an employee or an independent contractor, employers in Portugal should ask themselves the following questions:
- Are the worker’s working hours set by the employer?
- Does the employer decide on the location where the work takes place?
- Does the employer provide the worker with tools or equipment?
- Does the worker receive regular, fixed payments for their work?
- Does the employer provide instructions on how to complete work?
- Is the worker integrated into the employer’s organisation?
If the answer to two or more of the above questions is yes, the worker is legally presumed to be an employee. If they have been classified as an independent contractor, the employer could face consequences including significant fines and penalties.
Language requirements in Portugal
While Portuguese is the main language used in Portugal, there are no statutory language requirements for employment documents. That means that employers are free to draft contracts in English (or any other language) as long as both parties understand the terms of the agreement. However, labour courts require a Portuguese contract or an official translation, so it’s a good idea to provide a bilingual version in case of litigation.
Language requirements for Portuguese visas and citizenship
Applicants for Portuguese citizenship need to prove that they have at least A2-level proficiency in Portuguese according to the Common European Framework of Reference for Languages (CEFR). To do this, they must pass an exam called the CIPLE (Centro de Avaliação de Português Língua Estrangeira). There are no language requirements for a residency permit in Portugal.
English language in Portugal
English is fairly widely spoken in Portugal, particularly in large cities. Portugal ranked eighth in the world and seventh in Europe for English language proficiency in the EF English Language Proficiency Index 2023.
Corporate presence requirements for payroll processing in Portugal
Foreign companies can engage employees in Portugal without setting up a local legal entity, subject to certain business, corporate, and tax considerations. All employers in Portugal must have the proper payroll registrations, withhold tax from their employees’ wages, and pay it to the proper authorities.
How to set up payroll in Portugal
Here are the steps to follow if you want to set up payroll for your Portuguese employees:
- Register with the Commercial Registry: All businesses operating in Portugal must be registered with the Commercial Registry (Registro Comercial). Employers can register via an online application.
- Register with social security and tax authorities: Employers also need to register with both the Portuguese Tax and Customs Office (Autoridade Tributária e Aduaneira) and with Social Security (Segurança Social). They’ll then receive a taxpayer number which they will need to withhold and pay employee taxes.
- Register new hires with social security bodies: Employers must then register any employees with social security bodies at least 24 hours before the official start of their contract. This can usually be done online, unless the employee has never worked in Portugal before and has no social security number.
- Take out occupational accident insurance: Employers must take out occupational accident insurance before their employees’ first working day. This ensures employees are protected in the case of injuries at work.
- Sign up for the national compensation fund: In addition, all employers must sign up for the national compensation fund, which protects employees from loss of income in the case of the company going bankrupt.
- Provide payslips and keep payroll records: Employers in Portugal are required to issue employees with payslips after every pay run. They must also keep payroll records for at least five years.
Do you need a local bank account to run payroll in Portugal?
Yes, employers in Portugal must set up a local bank account in order to process payroll and make payments to the tax and social security authorities.
Easily hire employees in Portugal with our EoR solution
Hiring employees in Portugal usually means setting up a legal entity, which can be costly and time-consuming. Employers can avoid this hassle by working with an Employer of Record (EoR), like CXC.
Through our EoR solution, you can confidently hire employees in Portugal, without worrying about compliance issues. We’ll handle everything from payroll to benefits to employment contracts on your behalf — so all you have to think about is finding the right person for the job.
Compliantly hire workers anywhere with CXC
With our EoR solution, you can engage workers anywhere in the world, without putting your business at risk. No more worrying about local labour laws, tax legislation or payroll customs — we’ve got you covered.
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