How to Hire Employees in Portugal: Employer of Record Solution

 In Employers

When you are looking for talent abroad there are many factors to consider, one of which is how to legally hire a worker based in a foreign country.  You can hire them as an independent contractor if that is their preference, or if your company is unsure initially of how much consistent work you can offer.  There are pros and cons to hiring contractors, but you might also be faced with a situation where the worker wants more stability and statutory benefits.

If you have recruited a prospect in Portugal that wants to become a full-time employee, you do have options for accomplishing this.  Some employers will set up their own Portuguese entity, which does allow for hiring an entire team of remote employees, or pursuit of other business interests.  But to hire just one or two Portuguese employees, there is a better solution of using an employer of record (EOR) to run a local payroll that is fully compliant.

What to know when hiring employees in Portugal

Even if you are using an EOR as the legal employer in Portugal, you will want a full understanding of what you will encounter in terms of employment contracts, entitlements, tax withholding, and statutory contributions.

Employment in Portugal

Contract types

Open-ended, indefinite-term contracts are the most common, but fixed-term contracts are permitted with some limitations to prevent discrimination.  There is no specific requirement that the contract is in Portuguese, as employees are used to English language contracts.  However, a bi-lingual template is advised, because in the case of litigation the court will require a Portuguese version.

Entitlements

Vacation leave: 22 working days per year, plus 13 public holidays.

Sick leave: Unlimited up to 3 years, all paid by social security at 55-75% of wages.

Maternity/parental leave: 120-150 days, which can be shared by the parents.  The mother must take at least six weeks after birth, and the father must take at least two weeks.  Leave is paid by social security at 80-100% of wages.

Termination

Notice: 15-75 days depending on the length of service.  Notice may be paid in lieu.

Severance: 12 days salary for each year of service, paid 50% by social security and 50% by the employer.

Just cause for termination: Redundancy, unsuitability for the job, serious employee breach of duties.

Payroll and tax in Portugal

Income tax rate: Residents – 14.5 – 48%.  Non-residents – flat rate of 25%

Social security and payroll contributions:

Given the generous social security leave entitlements that are mostly government paid, the overall combined contribution of almost 35% does seem justified.  It may be more than you are used to paying, so that has to be considered with the overall cost of compensation.

  • Employer contribution: 23.75%
  • Employee contribution: 11%
  • Mandatory employer insurance to cover occupational accidents

Immigration and Work Permits in Portugal

Not every recruit will be a citizen of Portugal, as it has become an attractive destination for international remote workers.  When hiring expats, they may ask about how to obtain a work or residence permit in Portugal.

EU-nationals do not need a work permit in Portugal, but other expats will need to secure a visa with a valid Portuguese sponsor.  This is where an EOR can be helpful, as they are a legal entity that can sponsor work permits for your employee.

How to hire employees in Portugal with an employer of record

The process of hiring employees in Portugal with an EOR is a simple solution, and the EOR will take over once you have recruited your employee and made an offer.  They will set up the local payroll, receive the employee’s tax ID numbers and other data and assist with onboarding, including drafting an employment contract with all required terms.

Once the payroll is ready, the EOR will invoice your company for the entire compensation amount, plus the employer social contribution of 23.75%.  They will withhold taxes and the employee’s contribution, and then issue the employee a Portuguese payslip.  This is helpful for the employee as they will know their employment is being administered at a local level, even while they are being managed remotely by your company.

The employer of record solution can be used for any number of employees, and it is a simple matter to add new employees to the payroll as you recruit.  Your company will remit the total labor cost each month, and you don’t have to worry about compliance as the EOR is well-versed in Portuguese labor law and will keep you advised of any changes that occur

Alternatives to hiring employees in Portugal without an EOR

If you want to explore other options other than the EOR, you can also consider hiring the worker as a contractor, or setting up your own Portuguese entity.

Hire as a contractor

In some instances, this can work out well for both your company and the contractor.  It is an easy way to begin the working relationship and see if full employment will be a mutual fit.  But few contractors will want to work long term for a single client, and could always be looking for new opportunities.  If you really want to retain their skill set and exclusivity to your company, then hiring as a contractor is not the best choice.

Set up an entity

If your company has a long-term commitment to Portugal such as building a remote team entirely inside the country, then you might consider setting up your own branch or subsidiary.  In terms of cost and expense, this option is at the other end of the spectrum from hiring a temporary contractor, and should only be used as part of a broader business strategy.  Some companies will set up an entity after using an EOR solution for some time, to take more ownership of local employment for multiple staff.

How Contractor Taxation helps you hire in Portugal

In addition to our expertise in international contracting, Contractor Taxation also has access to a global network of employers of record, including in Portugal.  Our partner can show you how simple it is to hire local employees with an EOR, and then offer ongoing account management for the duration of the engagement.

Depending on your situation, you can transition an existing high-value contractor to a Portuguese EOR as an employee, and if you ever decide to set up an entity the EOR can help with that handover of personnel as you begin to run your own payroll.

What this means is that you are never on your own when employing abroad, as your employee relationship is secure, compliant, and flexible if your needs change.  Please contact us if you want to learn more about this foreign employment solution.