If you want to work with the talent in Portugal, complying with local payroll laws is essential. Here’s what foreign employers need to know about Portugal payroll, taxes, compliance, and more.

Payroll in Portugal: Wages and other payments

Let’s take a look at the key details of running payroll in Portugal, from when workers are paid to how many paid sick days they get.

Payroll cycle

The fiscal year in Portugal runs from January 1st to December 31st, and the payroll cycle is typically monthly. It’s common for employees to be paid on the last day of each month.

Minimum wage

Portugal has a minimum wage of  EUR 870 per month.

When it comes to overtime, the Código do Trabalho states that employees cannot work more than 8 hours of overtime per week. Rates for overtime are as follows:

Day	Rate
Weekdays (1st hour)	125% of the regular hourly rate
Weekdays (subsequent hours)	137.5% of the regular hourly rate

Sick pay

In Portugal, sick pay is covered by Social Security. 

The sick pay rates are as follows:

Duration of sick leave	Percentage of regular wages received
4 to 30 days	55%
31 to 90 days	60%
91 to 365 days	70%
More than 1 year (365 days)	75%

Employees are eligible for sick pay as long as they have contributed to Social Security for 6 months before their illness.

Parental leave pay

Parental leave is paid for by Social Security. There are 3 types of parental leave in Portugal:

• Maternity leave
• Paternal leave
• Shared leave

Mothers receive a mandatory paid leave period of 42 days directly after the birth of their child. 

Fathers and partners are entitled to 28 mandatory paid days. The first 7 must be taken immediately after the birth, and the remainder must be taken during the mother’s 42 days of leave.

The full amount of shared parental leave adds up to 120 days. Once the mother and father/partner have taken their mandatory days, the remainder can be split between them as they wish.

New parents can also choose to take a total of 150 days of paid parental leave. If they choose to take 150 days, they are paid 80% of their reference salary. 

Severance packages

Severance payments are an essential part of Portugal payroll to understand. 

Workers in Portugal are entitled to severance pay in the event of a contract termination to help them transition into new jobs. The amount of severance pay depends on the employee’s length of service. 

Bonus payments

There are 2 mandatory bonus payments in Portugal, 1 in the summer (June) and 1 in the winter (December). 

These bonuses are intended to provide employees with extra money for summer vacations and Christmas. 

Payroll taxes in Portugal

There are also several Portugal payroll taxes that employees must withhold or pay.

Income tax

As an employer, you need to withhold income tax from your employees’ salaries and pay it to the Portuguese tax authorities. Portugal has progressive income tax rates depending on each employee’s salary. 

The income tax rates are progressive from 13.25% to 48%, and an additional surcharge for higher income.

Social security

Employers and employees both contribute to Social Security in Portugal. Social Security covers benefits such as parental leave, pensions, and unemployment allowances.

• Employers contribute 23.75%
• Employees contribute 11%

Portugal payroll compliance best practices

Hiring overseas can be complicated, and it’s essential to make sure you’ve got all your bases covered. Here’s what you need to remember:

• Monitor changes in tax laws, labor laws, and statutory requirements.
• Run regular payroll audits to keep your processes up to date and yield accurate results.
• Provide ongoing Portugal payroll training to staff (and any other overseas locations you hire in).

Your options for payroll services in Portugal

There are three ways you can hire and pay employees in Portugal as a U.S. company:

• Set up a local entity: Setting up a local entity is the most robust (but also the most expensive and time-consuming) choice, allowing you to hire employees directly and operate as a normal business in Portugal. This isn’t the best option for smaller businesses or companies that want to hire across many different countries.
• Hire independent contractors: Hiring independent contractors can be a good option for project-based work, but you have to be careful not to treat contractors as employees. Misclassifying employees can lead to significant penalties. 
• Work with Payoneer Workforce Management: Payoneer Workforce Management helps streamline onboarding, employment contracts, payroll, benefits, taxes, leave policies, and more.

To learn more about how Payoneer Workforce Management works, book a demo today.

FAQs

1) How does salary work in Portugal?

The fiscal year runs from 1st January to 31st December in Portugal, and workers are paid at the end of every month. Income tax and other contributions must be withheld by the employer and paid to the Portuguese authorities.

2) What are Portugal payroll taxes?

Portugal payroll taxes include income tax and Social Security contributions (of which you pay 23.75% of your employee’s gross income). Depending on the nature of your business, there could be additional contributions.