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Starting a Business In Portugal

Payroll in Portugal

Portugal has been a developed economy with exponential growth across industries for the last few years. The country ranked 34th in the World Economic Forum’s Global Competitiveness Reports in 2019, making it one of the best countries to start a business. It is well connected with all European Union countries providing easy access to these markets. 

Portugal is a high-income economy with a GDP of $255.854 billion. It is ranked 40th in terms of nominal GDP and 42nd in terms of PPP. The country’s human development index stands at 0.866, which is considered relatively high. The service sector employs about 69.8% of the workforce in Portugal. 

The country is ranked 39th out of 190 nations in the ease of doing business index report 2020 published by the World Bank. Hence, setting up a business in Portugal is extremely easy. When you set up a business, you must consider the payroll policies and procedures in Portugal. The payroll system in Portugal must be compliant and should take care of all the employees that are a part of the company.

Read on to understand the payroll policies and procedures in Portugal before you start developing a payroll system for your business. 

How is Payroll Calculated in Portugal?

Gross pay, net pay, allowances, and several other components of the compensation structure are all included in the payroll in Portugal. Taxes, premiums, and social security contributions are different deductions in Portugal’s payroll.

Most businesses calculate payroll using payroll systems that expedite payroll processing. Bigger businesses can afford to employ a specialized team to process payroll manually. As a result, the needs and allotted budget will determine how the organization calculates the payroll.

In Portugal, every business has devised a standardized procedure that aids in calculating payroll for every employee. Additionally, they ensure that payroll policies and procedures in Portugal are followed when calculating payroll.

Important Elements of Salary Structure in Portugal

Let’s look at some of the crucial elements of the salary structure in Portugal:

Cost to Company

The cost to the company is also referred to as the CTC of the employee. It shows the sum of the amount that the company bears when it onboards an employee. The CTC encompasses all the elements of the compensation structure. 

Gross salary

Gross salary has all the essential elements of the payroll contribution. It showcases the maximum amount the employee can earn in a year if employed with the company. 

Net salary

The net salary is the take-home pay of the employee. It factors in the fixed and the variable pay and the applicable deductions.

Basic salary

The basic salary is the element that constitutes about 40-50% of the total compensation. It also acts as a base for calculating several other elements of the compensation structure, like allowances, incentives, etc. An employee’s base pay is decided based on the prevailing industry standards and the company’s policy. 


Portugal has provisions for different kinds of allowances. These allowances provide the workers with financial security and aid in covering work-related costs such as travel, communication, etc. Some commonly given allowances are as follows:

  • Food allowance
  • Travel allowance
  • Phone allowance
  • Bonus

An employee’s annual salary in Portugal is divided into 14 parts, and two additional parts are given as a bonus. The bonus is generally given out at the end of the year and post-June. 

How to Set Up a Payroll in Portugal

If you set up payroll in Portugal, you must take a step-by-step approach as discussed below:

  • Step 1: Choose the company type you want to incorporate in Portugal, depending on the nature of the business activities and the budget. 
  • Step 2: Collect all the relevant documents, like the Articles of Association and the Memorandum and submit them to the relevant authorities. Once all the steps are done, you can collect the certificate of incorporation. 
  • Step 3: Post the business incorporation, register the business and all its employees with the taxation and the social security system. It would be best to ascertain the dates these payments will be made to the authorities. 
  • Step 4: Now, open a bank account in any of the banks in Portugal. This bank account will be used for all your payroll transactions. A local bank account is mandatory to set up payroll in Portugal.
  • Step 5: Now, determine the overtime payments for each employee by looking at their time sheets. You can determine the employees’ gross compensation after you make the necessary overtime calculations. 
  • Step 6: Once you have ascertained the gross pay, you can calculate the other elements of the salary structure, like the net pay, taxes, etc. 
  • Step 7: Now, choose a payroll system that will cover all the needs of the employees. Once you decide on a system, you must also define the payroll procedure in Portugal. 
  • Step 8: As per the payroll rules and regulations in Portugal, choose a payroll cycle. The payroll payments will be made as per the payroll cycle. 

A Step-by-step Process of Payroll Processing in Portugal

Let’s look at the step-by-step payroll procedure in Portugal.

Decide on a payroll system

  • There are different kinds of payroll systems in Portugal. To choose a payroll system, you must define your payroll objectives and the budget for the activity. 
  • The choice of payroll system in Portugal also depends on the organization’s size. 
  • You can choose from manual, outsourced, and software systems. 

Draft a payroll policy

  • A payroll policy is mandatory in the country and guides all the payroll policies in Portugal. 
  • When developing a payroll policy for your company, you must consider all existing labor laws and collective bargaining agreements. 

Add the employees to the payroll system

  • Notify and onboard each employee after choosing a payroll system.
  • Their data, including name, birthdate, phone number, and compensation components, among other things, must be updated in the payroll system.
  • The payroll system should describe the payroll cycle to ensure timely payments are made to the employees. 

Verify the timesheets

  • You must review the employees’ timesheets to determine the compensation components, such as gross pay, overtime payments, etc.
  • Deduct all the necessary contributions to determine the employee’s net salary.


  • Payroll reconciliation is essential for preventing errors and implementing real-time adjustments.
  • You must check employees’ information before paying them their salaries.

Release the payslips

  • Once you complete all the payroll calculations, you must provide all your employees with a digital or a physical payslip. 
  • The best way to disburse these payslips is through payroll management software.

Payroll Contributions

The payroll contributions are determined based on the payroll rules and regulations in Portugal. Here are some essential payroll contributions that employees and employers have to make

Minimum wages

  • In Portugal, the minimum wage is the most significant component of worker compensation. Every company must give employees compensation equal to the minimum wage set by the Government.
  • Portugal’s minimum wage is now set at €760 per month. 


  • Employees who work beyond 40 hours are entitled to an overtime payment in Portugal.
  • The annual maximum limit for overtime is 150 hours, with a weekly cap of 48 hours and a daily maximum of 2 hours.
  • The first hour of overtime compensation is worth 125% of the regular hourly wage. The overtime compensation rises to 137.50% after that.
  • Workers are entitled to extra pay equal to 150% of their regular salary if they work on a holiday.

Employer contribution

All the employers in Portugal make multiple contributions towards different social security funds for their employees. These contributions are directly paid to the bodies that manage these funds. Let’s look at these contributions:



Social Security


Labor Accident Insurance


Wage Guarantee Fund


Hence, the employer’s total cost equals 26.50%. 

Employee contribution

Employees also contribute to various plans that might support them in retirement and during unexpected medical expenses. Let’s look at some deductions from the employee’s gross compensation.



Social Security



Every employee in Portugal is obligated to pay taxes on their earnings. The employee’s salary helps pay these taxes directly to the tax authorities. Yet, the employees are required to submit their yearly tax returns.

Portugal follows a progressive tax system, meaning the tax rate rises as income does. Portugal’s current tax rates are as follows:

Income slab

Tax Rate



€7,116.01 to €10,736


€10,736.01 to €15,216


€15,216.01 to €19,696


€19,696.01 to €25,076


€25,076.01 to €36,757


€36,757.01 to €48,033


€48,033.01 to €75,009





  • Portugal provides two annual bonuses to all employees. 
  • The two extra payments are made as a holiday bonus before the employee’s annual leave, typically in June, and as a Christmas bonus due on December 15th.

Payroll Cycle

Portugal follows a monthly payroll cycle where employees receive their salaries at the end of every month. Once the employees receive their salary, you must disburse their payslips. 

Portugal Payroll Options for Companies

There are several payroll options for businesses operating in Portugal. You must compare all the options before you decide on a payroll option for your company. You should also finalize a budget for the payroll option and list all your requirements to make a better choice. Some common payroll options in Portugal are:

  • Internal payroll: Large businesses with a huge workforce with a specialized team for handling payroll pick this option. Here, the company manages the payroll by itself. 
  • Remote payroll: A subsidiary business can choose to onboard all its employees to the payroll system of the parent company. However, you must adhere to the payroll policies in Portugal when you go with this option. 
  • Payroll processing companies: You can get help with the payroll process from several payroll processing businesses. However, you must take care of all compliance concerns.
  • Global PEO: If you want to pass on the responsibility of handling your company’s payroll, you must contact a global PEO like Multiplier. 

Entitlement and Termination Terms

The employment contract should outline the employee’s rights and contain termination provisions to avoid problems. Employees’ rights include pay, working conditions, vacation time, and other benefits.  The employer must justify an employee’s termination. Before firing employees, employers should have a strong legal justification:

  • Both the employer and the worker should mutually decide to terminate the agreement.
  • While employed there, the person acted dishonestly.
  • If the company undergoes a structural change

The cause for termination must be stated in the letter of termination that the employer gives to the employee. Severance pay is a benefit that businesses are required to provide to dismissed employees.

Portugal Payroll Processing Company

Although developing your business in a country like Portugal is simple, you must be familiar with the regional regulations and customs. You can speak with subject matter specialists to walk you through the process.

Contact a PEO business like Multiplier for more details on the regional laws and regulations governing Portugal’s payroll systems. Keep your options open if you want the best payroll support.

How Multiplier Can Help with Global Payroll

Adhering to the local labor rules and regulations is essential when setting up a payroll in Portugal. But, with the correct guidance and expert assistance, you can quickly set up a compliant payroll system. To find out more about your payroll requirements, get in touch with a global PEO like Multiplier. Numerous companies have utilized Multiplier worldwide to develop a successful and effective payroll system. Our team of experts will help you set up an effective and efficient payroll system that meets the needs of the employer and the employees.

Frequently Asked Questions

The financial and calendar years are the same, and the companies follow a January to December calendar.

All the payroll payments in Portugal must be made in Euros.

Yes, employees get paid for public holidays in Portugal.

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