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Starting a Business In Portugal

In-Depth Guide to Employment Laws in Portugal

Portugal is blessed with a strategic geographical location aided with support infrastructures to set up new businesses easily. Companies scaling up their operations in the southern European country can use skilled talents in the European Union.

To do so, they must establish legal employment relationships upholding statutory provisions per local law. Some mandatory obligations for employers under Portuguese labor law include

  1. Standard weekly work time of 40 hours and eight hours per day
  2. Minimum of 22 days of annual vacation leave
  3. Exclusively 72 days of paid maternity leave in Portugal for foreigners and citizens
  4. The current social security rate charged against employee salary is 38.50%

While Portuguese employment law accords a high degree of employment protection, employers may use other legal forms of employment contracts valid in the country to meet short-term or specific staffing requirements.

Continue reading this employment guide for a better understanding of hiring and managing employees in compliance with the labor code in Portugal.

Applicability of the Act

Portugal’s labor laws are concerned with statutory employment rights, like duration of working hours, holiday entitlements, paid leave scheme, protection from unfair dismissals, employee data privacy, health, and safety employer obligations, etc.

All statutory labor act rules in Portugal apply to full-time, part-time, or remote employees protected under an employment contract. Portuguese employment laws do not recognize an employment relationship between independent contractors or self-employed persons and do not extend any statutory protections for them.

However, employers may establish an employment relationship with independent contractors or self-employers. They may extend necessary statutory protections under the labor regulations in Portugal, if any two of the following conditions are met:

  1. The start and end times of the work performed are recorded.
  2. The equipment and tools of work belong to the beneficiary of the work being done.
  3. In exchange for the work, a specified amount of money is paid regularly.
  4. The work involves management or directorial functions within the employing company.

Employment Contract

An employment contract can take the following forms per Portuguese employment rules:

  1. Contract of employment of indefinite duration: The most common form of the employment contract without any pre-established termination.
  2. Fixed-term contract of employment: Employers and employees determine the duration and termination of work.
  3. Contract of employment of unspecified duration: Termination depends on the end of work and could be extended to a maximum of four years.
  4. Part-time employment contract: For employees working less than the standard weekly work period per Portuguese labor regulations.
  5. Provision of services: Partnering with independent contractors or self-employed individuals on a project.

Portugal’s labor law stipulates employers draft written contracts in the following situations:

  1. When employing non-EU citizens
  2. When drafting an indefinite-term contract that contains non-competition clauses
  3. Employing for remote work or teleworking employment contract
  4. For fixed-term, part-time employment contracts, and temporary work contracts

Further, the written contract must contain the following information per the labor act rules in Portugal:

  1. Identification of parties to the employment agreement: name, location, address, ID proofs, company details, etc.
  2. The job role and a brief description of their duties
  3. Date of commencement of the employment
  4. Working hours and conditions
  5. Holiday and leave entitlements
  6. The frequency of salary payments, methodology used for calculation, applicable tax deductions, and mandatory social security contributions
  7. Applicable collective labor regulation instrument, if any

Key Provisions of the Act

Portuguese labor law is a concatenation of specific legal provisions sourced under

  1. The Labour Code in Portugal 2009
  2. Special laws enacted by the Assembly of the Portugese Republic (for example,  parenthood protection, occupational accidents and sickness, and occupational health and safety.)
  3. Case laws and judgments of labor courts
  4. Constitution of the Portuguese Republic
  5. European Union directives and regulations

The following sections deal with key provisions of the labor act rules in Portugal, including working hours, overtime compensation, leave entitlements, payroll obligations, employment termination rules, employer penalties, and employee privacy obligations.

Working hours

  1. Employers shall calculate permissible working hours per Portugal labor law at eight hours per day and 40 hours per week measured over an average maximum period of:
  2. four months under individual employment contracts or
  3. Twelve months under the Collective Bargain Agreement (CBA)
  4. Portuguese working hours law allows employers to increase the daily work schedule two-four hours each day and the weekly work schedule to up to 50-60 hours.
  5. However, the Portuguese labor code prohibits employers from exceeding daily night shift work beyond eight hours.
  6. Additionally, the labor code in Portugal introduces the concept of a Time Bank, which allows employers to request additional labor time upon mandatory compensation in any one of the following ways:
  7. Reduction of working hours proportionally at another time
  8. Increase employee holiday period
  9. An overtime payment
  10. Further, Portuguese employment rules stipulate employers frame flexible working hours requirements for employees in managerial positions or positions of trust/supervision executives or remote workers with suitable compensation.

Remote work

  1. The employment law in Portugal guides employers to consider remote work for the following employee categories:
  2. Victims of domestic violence
  3. Caregivers with child/children up to three years old
  4. Caregivers with child/children aged up to eight years old (for employers with more than ten employees)
  5. Recognized informal caregiver
  6. Employers can refuse remote work requests if the employee is to work on-site mandatorily.

Flexible work for childcare

  1. The employment law in Portugal guides employers to entertain flexible work arrangement requests (part-time or hybrid work) from employees with a child under the age of 12.
  2. Employers must submit any refusal to request flexible work arrangements for review with the Portuguese Commission for Equality in Labour and Employment.

Overtime

  1. Portuguese labor act rules constitute overtime work outside regular working hours.
  2. The employment law in Portugal guides employers to compensate employees for overtime time with additional payments:
  3. 25% for the first hour and 37.5% for each subsequent hour on a working day.
  4. 50% for each hour of overtime completed on a rest day or a public holiday.

Public holidays

  1. Portugal’s labor law mandates employers to observe 13 public holidays with full pay yearly based on religion and celebratory commemorations.
  2. 1 January (New Year)
  3. Good Friday (date varies)
  4. Easter Sunday (date varies)
  5. 25 April (Freedom Day)
  6. 1 May (International Workers’ Day)
  7. Body of Christ/Corpus Christi (on a Thursday: the exact day varies between 21 May and 24 June)
  8. 10 June (Day of Portugal, Camões, and Portuguese Communities)
  9. 15 August (Assumption of Our Lady)
  10. 5 October (Implementation of the Republic)
  11. 1 November (All Saints’ Day)
  12. 1 December (Independence Restoration Day)
  13. 8 December (Immaculate Conception Day)
  14. 25 December (Christmas Day)

Employers can ask employees to work on public holidays but must either provide:

  1. Overtime compensation per Portuguese labor act rules or
  2. A compensatory rest period equivalent to 1.5 of the number of hours worked
  3. Additionally, employers must account for Shrove Tuesday and local municipal holidays for paid public holidays in Portugal.

Leave schemes

Annual leave:

  1. Portugal’s employment law obliges employers to provide 22 days of annual paid leave to employees with one or more years of experience.
  2. In the first year of employment, employers must accrue two days of paid leave per month and grant up to 20 days of annual paid leaves after six months.

Initial parental leave

  1. Portuguese labor law advises employers to offer 120 or 150 consecutive days of paid parental leave to eligible employees, including adoptive parents.
  2. Employers must extend additional time per the labor regulations in Portugal for those experiencing multiple births or birth complications.
  3. Further, the labor code encourages shared paternity leave in Portugal, where one parent can redeem the remaining days of parental leave in the following circumstances:
    1. Mental or physical incapacity of the parent taking the leave
    2. The death of the parent taking the leave.
  4. However, employers with fewer than ten employees may or may not extend the shared paternity leave benefits.

Exclusive maternity leave

  1. Pregnant employees are entitled to take 120 days of maternity leaves.
  2. Portugal’s paid maternity leave law stipulates employers provide 30 days of pre-natal leave in addition to a mandatory 42 days (six weeks) after birth.

Exclusive paternity leave

  1. Employers must allow eligible fathers to take 15 consecutive or intermittent days of paid leave within the first 30 days of birth (five of these days must be taken consecutively immediately after the birth.)
  2. Employers may also provide an additional ten days of paid paternity leave coinciding with Portugal’s paid maternity leave period.

Other leaves

  1. Marriage leave: Employers must provide 15 days of paid leave for marriage.
  2. Bereavement leave: Employers shall extend paid leave varying from 2-20 days following the death of second and third-degree relatives or immediate family.

Sick leave

  1. Employers may extend employees’ sick leave benefits for up to three years (1095 days) in case of illness or injury.
  2. Employers must make mandatory social security contributions to ensure salary payments during the paid sick leave period from the social security allowance:
Sick leave periodSick leave pay
Up to 30 days55% of salary
31-90 days60% of salary
91-365 days70% salary
More than 365 days75% of salary

Caregiving paid time-off:

  1. The labor act rules in Portugal oblige employers to provide 30 days of paid leave or time off for caregiving activities.
  2. Employers must ensure mandatory contributions for enabling 65% of regular salary from social security allowance during the leave period.

Unpaid time-off:

  1. Employers may entertain employee requests for absence from work for up to two years to take care of a child under age six.

Minimum wage

  1. Portugal’s labor law obliges employers to revise minimum salary payments over any lower wages established in employment contracts or Collective Bargaining Agreements.
  2. Employers must calculate the minimum monthly wage proportionally for part-time employees.
  3. The national government sets a minimum monthly wage every year.
  4. The minimum wage in Portugal is € 760.00 starting January 1, 2023.
  5. The minimum monthly wage per Portugal’s labor law in the autonomous regions of Madeira and Azores may vary but mostly remain similar.

Payroll taxes & obligations

  1. Portugal’s employment law mandate all registered employers to
  2. Deduct and withhold taxes on salary paid.
  3. Pay mandatory social security contributions, including the employee  contributions from the salary.
  4. Report withheld taxes to authorities monthly or quarterly.
  5. Make mandatory 13th and 14th salary payments in Portugal.

Income taxes deduction

  1. Personal Income Tax (IRS) in Portugal is charged at progressive tax rates varying from 14.5% to 48% (on taxable employment income of EUR 75,009 and above).
  2. Additionally, solidarity tax is also charged at a rate of
    1. 2.5% with taxable employment income exceeding EUR 80,000 and up to EUR 250,000.
    2. 5% with taxable employment income exceeding EUR 250,000.
  3. Mandatory social security contributions

The current social security rate charged against employee salary is 38.50% in total:

Mandatory social securityEmployer contributionsEmployee contributions
Social Security23.75%11.00%
Labor Accident Insurance1.75%N/A
Wage Guarantee Fund1.00%N/A
  1. Holiday allowance and Christmas allowance
  2. Employers must grant one month’s salary, both a holiday allowance, which is paid out in June, and a Christmas allowance in December.

Payslip

  1. Portuguese labor code allows employers to pay any part of an employee’s salary in kind (for example, meal allowance, housing, and so on), which cannot exceed the value of the salary paid in cash. Further, employers must provide employee payslips on demand containing the following information:
  2. Information about the employer and employee, like their social security number, company code, employee code, etc.
  3. Total remuneration amount
  4. Date of remuneration paid
  5. The rate at which the compensation is paid
  6. Days of absence or total working time
  7. Employer’s social security and other contributions

Employee termination

  1. The employment law in Portugal for termination guides employers to dismiss employees without any ground/justification only during the probationary/trial period.
  2. In all other cases, the labor code in Portugal mandates employers to terminate an employment contract in the following ways:
  3. a just cause (employee’s gross misconduct or repudiatory breach of the employment contract) or
  4. objective reasons (unsuitable for the job role, economic reasons, business restructuring)
  5. Portuguese employment law for termination prescribes employers the following steps to dismiss an employee for a just cause
  6. Notify the intention to dismiss the employee in writing
  7. Follow it with a statement outlining the details of the misconduct within 60 days of receipt of the notice to dismiss
  8. Send both copies to any applicable employee representative bodies

Notice period:

  1. Employers may ask employees to serve a notice period before an indefinite employment contract is terminated.
    1. Employed for two years: 30-day notice period
    2. Employed for more than two years: 60-day notice period
  2. Employers must provide a 15-day notice period for terminating a fixed-term or temporary employment contract.
  3. The labor regulations in Portugal also allow employers to seek compensation from employees equivalent to their base pay for not serving the required duration of the notice period.

Data protection and employee privacy

The GDPR (General Data Protection Regulation) regulate the use of Portuguese residents’ personal data. Further, the Portuguese labor code contains explicit provisions for employee privacy, including provisions for monitoring and surveillance.

Employers must frame stringent internal work policies for collecting, storing and using employee data. Employers must seek employees’ written consent before using any personal data for various employment purposes, like background checks and biometrics for attendance records.

The new labor act rules in Portugal on remote work mandate employers to guarantee employee privacy when working from home. One example is prohibiting companies from imposing a duty on employees to keep sound or image connections permanently open during working hours or maintain confidentiality on personal correspondence and messages even when using work email addresses.

Penalties

The labor code in Portugal provides for specific instances of penalties on employers:

  1. Employers will be fined for wrongfully classifying employees as independent contractors for not extending employment benefits per Portuguese labor laws.
  2. Failure to monitor and ensure the health and safety obligations of the workplace can lead to an administrative offense.
  3. Breach of employee data privacy shall hold employers liable for legal consequences and damages.

Compliance Strategies for Employers

Some recommended compliance strategies for companies hiring and managing talents per the Portuguese labor act rules.

Managing employees through employment contracts:

  1. The labor regulations in Portugal prescribe employer obligations towards upholding statutory employee rights and ensuring minimum work conditions.
  2. Entrepreneurs or global companies may negotiate employment contracts to establish unique employment relationships per labor regulations in Portugal.
  3. Employers can use standard templates to draft employment-related documents like offer letters, detailed contracts on work conditions, or termination notices for managing employees in Portugal.

Forming an in-house HR team:

  • Employers usually rely on in-house teams of HR experts specializing in Portuguese labor laws to hire and manage employees in compliance with local rules and regulations.
  • Developing in-house HR teams helps global companies better negotiate salary benefits, working hours, workplace conditions, leave entitlements, employee appraisals, and even perform background checks per labor code in Portugal.

Automating payroll obligations through SaaS-based solutions

  1. Contemporary global businesses increasingly rely upon Employer of Record (EOR) or Professional Employer Organization (PEO) platforms to onboard and manage teams easily.
  2. Such platforms can draft employment-related legal documents, calculate payroll obligations per local laws, disburse salary payments, etc.

How Can Multiplier Help?

Multiplier is a leading PEO-EOR platform offering various HR solutions to businesses in 150+ countries, including Portugal. Through our Software-as-a-Solution (SaaS) platform, entrepreneurs and global companies can easily onboard and manage teams per local laws, thus ensuring a compliant global expansion.  We have optimized our HR solutions following Portuguese labor laws for the scalable performance of businesses of all sizes. From startups to enterprises, global companies will benefit from our automated solutions for drafting legal documents, multi-lingual employment contracts, and payroll management at just the click of a button.

Frequently Asked Questions

Employers may only hire an applicant who follows the request to undertake a medical examination for the job position required by law. However, employers cannot terminate employment contracts based on pregnancy as a reason.

Portuguese employment law treats all employees the same way, irrespective of whether they are full-time, part-time, fixed-term, temporary, or agency workers. However, employers can extend certain benefits, such as leave schemes or holiday entitlements, on a pro-rata basis for part-time or fixed-term employees.

The general rule in Portugal is to award Intellectual Property (IP) rights to the original inventor or creator. However, employers can claim respective Patents or Copyright if negotiated in the employment contract.

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