Hire and pay employees in Portugal

Employer of Record (EOR) vs. entity

One of the first things you’ll need to do is decide between setting up your own entity or hiring employees through an EOR.

• Legal entity in Portugal. If you are setting up a legal entity in Portugal from scratch you’ll need to register with local authorities, open a local bank account, and consult with local experts to ensure you are in compliance with Portuguese tax and labor laws. Depending on how you apply, this process can take up to six months to complete.
• Portuguese EOR. An EOR is a third-party service that operates as an employer on behalf of the company. In other words, you don’t need to set up your own entity. Instead, you can hire Portuguese employees through the EOR, which will also handle all the legal requirements for complying with Portuguese laws for payroll, contracts, and benefits. EOR services also include tax calculations, employee onboarding and management, and payroll. Additionally, EORs carry all the burden of local statutory requirements.

Your decision will likely depend on your company’s size, resources, and growth plans. Here are the pros and cons of using an EOR vs. setting up a legal entity:

With an EOR in hand, you can begin the hiring process by collecting your employee’s information (think: their name, initials, date of birth, and mailing address).

Learn how Rippling can help you compliantly hire and onboard Portuguese employees in 90 seconds—and understand the steps to hiring through an EOR in our guide.

Classifying Portuguese workers: employees vs. contractors

In Portugal, it’s crucial to classify workers correctly. Full-time employees and independent contractors have different protections and entitlements. Misclassification of workers puts employers at risk of penalties and steep fines.

In our in-depth guide, you learn everything you need to know about classifying Portuguese employees and maintaining compliance with employment laws. Here’s a brief overview of the ways Portuguese law differentiates between employees and independent contractors.

Work permits for Portuguese employees

Ensuring that your prospective employees are allowed to work in Portugal is essential. Employing workers without work authorization is illegal, and if you violate the law, you can incur fines, imprisonment, and other issues. Work permits (AKA work visas) are issued by the Portuguese government and allow foreign nationals to work legally in the county.

Portugal offers two main types of work permits:

• Temporary stay. This enables individuals to stay in the country for a limited duration to engage in specific types of employment. These permits cover a range of activities, including seasonal subordinate work (for periods exceeding 90 days), independent work, specialized roles like professorships, remote work and digital nomadism, amateur sports participation, and research endeavors such as scientific investigations.
• Residency visa. A residency visa grants individuals the opportunity to reside and work in Portugal for a maximum period of two years. Afterward, the visa can be extended for an additional three years. Individuals who have lived in Portugal for five years can then apply for permanent residency. The most prevalent types of residence permits are issued for employed workers, highly qualified activities, and tech visas specifically designed for highly skilled professionals working in certified companies.

See our guide to work permits in Portugal for all the details on applications and eligibility.

New hire onboarding checklist

The onboarding process for a new employee involves several important tasks, ranging from completing the necessary paperwork to providing them with the tools they need for their first day. While it may appear overwhelming, this is your chance to make a lasting impact and ensure their successful integration. It's worth noting that a positive onboarding experience can enhance employee productivity and retention, making it a valuable opportunity for your organization.

Here is the process broken down into stages with some specific tasks to complete in each:

Before their first day

• Complete a background check. 
• Send an offer letter (more on that in the next section).
• Prepare for tax withholdings. 
• Enroll them in benefits.
• Add them to the payroll. 
• Order and configure their devices. 
• Schedule their orientation.

On Day 1

• Make sure their workspace is ready. 
• Send a welcome email. 
• Give them an agenda for their first workweek. 
• Schedule a meeting with their onboarding mentor. 
• Give them an office tour. 

During their first 90 days

• Schedule training. 
• Assign work and help them set goals. 
• Schedule regular check-ins. 
• Seek their feedback on how to improve the experience.

For the full list of onboarding essentials, read our guide on new hire onboarding in Portugal.

What to include in an offer letter in Portuguese

Offer letters, sometimes called employment contracts, set the stage for the employment relationship. The offer letter needs to be legally compliant and serve as a reference point for negotiations with your potential new hire.

The following should be included in your offer letter:

• Job title, description, and start date
• Trial or probation period 
• Working hours 
• Compensation and benefits (monthly salary, pension contributions, holiday leave, and more)
• Confidentiality agreements 
• Termination policy 
• Flexible working possibilities 
• Non-compete and non-solicit clauses 

Check out our full guide to creating legally compliant job offer letters in Portugal.

NDAs and confidentiality agreements in Portuguese

When hiring in Portugal, employers have the option to use non-disclosure agreements (NDAs) to safeguard confidential company information. However, it is essential to ensure that these NDAs comply with specific requirements to be legally enforceable. Moreover, according to European and Portuguese legislation, NDAs do not protect unlawful content, and they cannot be used to silence whistleblowers or employees who have encountered workplace harassment or discrimination.

A Portuguese NDA can protect the following types of information:

• Trade secrets
• Intellectual property
• Business strategies
• Client information
• Internal processes
• Confidential agreements with third parties

Read more about NDAs and their enforceability in our primer on NDAs in Portugal.

Running background checks on Portuguese employees

Background screenings can evoke anxiety during the hiring process. As you eagerly anticipate the potential of a new candidate, you hold hope that their employment and criminal histories align with your expectations.

The screening process in Portugal is different from those in countries like the US and the UK. Under Portuguese law, it is prohibited for companies to directly conduct background checks on job applicants or enlist the services of third-party screening agencies for this purpose. Furthermore, companies are not allowed to retain any personal information acquired from such checks in their databases.

Commonly run background checks you can conduct include:

• Criminal background check
• Education history check
• Employment history check
• Reference check
• Work authorization check

Do know that there are background checks that are illegal in Portugal. See our guide for more details and common mistakes to avoid during the screening process.

Paying employees in Portugal

After making the decision between utilizing an EOR (Employer of Record) or establishing your own local entity, the next step is to select a payroll solution.

Once you’ve picked a payroll solution, take the following steps:

• Double-check that employees are correctly classified.
• Collect employee information, including name, date of birth, date of hire, and contact and bank information.
• Input the remuneration amount in EUR—or get written permission from the employee if you’re planning to pay them in a different currency.
• Ensure that you’re adhering to statutory requirements when calculating payroll deductions and tax rates.
• Run payroll.

Learn more about paying employees in Portugal with our step-by-step guide.

Mandatory employee benefits in Portugal

Portugal is recognized for its robust worker protections, primarily established through the labor laws of the European Union, the Portuguese Constitution, and the Labor Code. These comprehensive regulations encompass various aspects of employee benefits.

Mandatory benefits in Portugal include:

• Pension. In Portugal, the government's Ministry of Labour, Solidarity, and Social Security oversees pension plans, with both employees and employers contributing at specific rates, including a 26.5% payroll contribution by employers and an 11% deduction from each paycheck for employees as social security tax.
• Workers’ compensation. While Portuguese social security covers various aspects like unemployment, sick leave, parental leave (AKA maternity leave and paternity leave), orphan and widow pension, and disability leave, employers are obligated to have worker’s compensation insurance (also known as labor accident insurance) to address workplace-related accidents, ensuring compensation for employees and their dependents in case of injury or occupational disease. 
• Vacation entitlements. Full-time workers in Portugal are entitled to 22 working days of leave annually, with the option to carry over unused vacation time. Employers cannot offer extra compensation to replace forfeited vacation days.
• Statutory holidays. Portugal observes 13 national holidays along with regional and optional holidays. These public holidays are separate from the 22 days of paid time off. 
• Employee training. Full-time employees in Portugal are required to receive a minimum of 40 hours of training per year to support their professional development. Employers must either provide this training or allow employees to pursue training during regular work hours at their convenience.

Read our complete guide to offering benefits in Portugal for more details on mandatory and supplementary benefits.

Managing remote employees’ computers and apps

Managing the supply and maintenance of employees' devices remotely poses significant challenges in the age of global employment. When onboarding employees globally, there are numerous factors to consider, such as shipping computers, establishing and securing employee accounts, and effectively managing applications throughout the entire employee lifecycle.

As the employer, it’s your responsibility to ensure your employees are ready to go on their first day with all the apps and tools they need to work with the rest of their team. With Rippling you can:

• Speedily set up your employee’s accounts
• Ensure that employees have access and permissions for all the tools they need
• Streamline the process of setting up, managing, and disabling employee applications with a centralized platform

Check out our guide to learn more about setting up and managing remote workers’ devices.

Protecting company IP in Portugal

Granting new employees access to applications and sensitive company information carries inherent risks if proper precautions are not taken. To safeguard your company's original ideas, it is crucial to address intellectual property (IP) protections explicitly in the employee agreement. This should encompass aspects such as clarifying ownership of IP created by the employee, delineating rights for commercial utilization, establishing confidentiality agreements for trade secrets, and other relevant provisions.

4 things employers need to know about in Portugal are:

• NDAs are enforceable
• Portuguese laws protect trade secrets and IP
• International treaties enforce IP across borders
• Copyright ownership can be complicated for employers without a written agreement

Read more about intellectual property protections in our beginner’s guide to IP ownership and rights in Portugal.

Complying with Portuguese labor laws

Navigating the legal framework that governs the workforce can be full of unexpected nuances. Both Portugal and the European Union provide substantial worker protections, alongside intricate regulations. Moreover, the presence of collective bargaining agreements in the country adds an extra layer of complexity. To effectively navigate the Portuguese employment landscape, employers must familiarize themselves with its distinctive characteristics and the rights afforded to employees.

Get a better understanding of the most important regulations to keep in mind when hiring in Portugal, including:

• Portuguese employment cadence. Salaries in Portugal are divided into 14 payments throughout the year, including double payments for Christmas and summer holiday bonuses.
• At-will employment doesn’t exist. Termination of employment can only occur if the employee’s behavior makes it impossible to continue their role, they demonstrate low productivity or generate poor-quality work, they are no longer suitable for the job, or due to organizational restructuring.
• Social security contributions. Employers in Portugal are required to contribute to social security, with a payroll contribution of 26.5% of an employee’s wage.

Terminating employees in Portugal

In Portugal, employees have the right to resign from their job by providing prior notice, as outlined in their job offer. However, employers can only terminate an employee’s contract for a valid disciplinary or objective reason and must follow a prescribed formal procedure.

Full-time employees are entitled to a notice period depending on their length of service, detailed in the table below:

It is worth noting that non-compliance with termination requirements can be costly. Learn more about handling termination requirements with our full guide to terminations in Portugal.

Disclaimer: Rippling and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.