Understanding Payroll in Portugal: What Global Companies Need to Know About Portugal's Payroll
Apr 12, 2017
Portugal has definitely seen some trouble with their economy in the past few years, with rising unemployment, a falling GDP, and feelings of unrest amongst its people. However, the country is starting to make its way back slowly but surely. The average salary in Portugal is about €20.740 ($22,000; £17,616) with its main growth industries are service (tourism), agriculture, and energy.
With more than 10 million people living in the country and an average age of 44, there is a lot of talent waiting to the tapped into. Portugal is eager to welcome new business with their corporate tax. If you're looking to set up a business though, there are some things you'll need to learn about the culture and the finances. Payroll is thankfully not as complicated in Portugal as other countries, but there are a number of things to keep straight between Social Security, Tax Authorities, and how and when to withhold.
Registering a company in Portugal means establishing a legal entity first, and can be done almost immediately if you have legal representatives in the country. You must register with the Tax Authority and Social Security. If a company does not have legal representatives in the country, they will need to hire a power of attorney before registration is complete. This can take up to 30 days to complete.
It is possible to set up a non-resident company, the the only requirement being a power of attorney and a set of proper documentation. However, the company will not be allowed to conduct commercial activity. Companies will need an in-country bank account in order to make payments to the tax and social security authorities. Banks typically make it easy to set up an account for businesses, so this step should not take very long.
Collective bargaining will typically determine how much employees are paid based on their skill level and experience. Overtime is defined as anything over 8 hours a day or 40 hours a week. Rest periods must be a minimum of one hour, and employees cannot work longer than 5 consecutive hours. Probationary periods are normally set for 90 days, with 180 days being the absolute maximum.
One thing to note about Portugal is that there is no such thing as "at will" dismissal. Contracts need to stipulate the terms of employment from beginning to end with both employee and employer in full understanding and agreement. While temporary employment is entirely legal, do not use a temporary contract as a means to subvert hiring a full-time employee.
The minimum wage is €485 ($514; £412) While there is no mandatory custom for wage growth or bonuses, employees and employers can discuss and come to terms with payment structures for the foreseeable future. In the case of severance, employees get 3 months of pay or more based on their seniority level. Most employees negotiate more time than this, especially in the case of a mass lay-off.
Pay is withheld at the source for employees, and includes both personal income and social security tax. The totalization agreement between the US and Portugal states that if an employee is sent to Portugal for less than five years and still remains an employee of the US company, they will only have to pay social security in the US. Otherwise, the rate of social security is 11% for employees and 23.75% for employers. The employee's tax rate is dependent upon their total income, and if they're considered a resident of Portugal. Corporate tax is as low as 17% for small and medium businesses on the first€15.000 ($15,910; £12,743) of taxable income, and up to 21% thereafter.
Leave, Maternity, and Sick Time
Mothers can take up to 120 days off with their full salary paid for by Social Security. They can take the full time after giving birth, or they can take 30 days before giving birth and 90 days after. Fathers can take up to five days off, and all parents have extended rights when it comes to caring for ill children. An approved extended leave for major illness is typically paid at 65% of the employee's salary (also paid by Social Security), with the first three days of leave left uncovered by either Social Security or the employer. Employers are not required to give a certain amount of sick time, but vacation days must be at least 22 a year. Those 22 days can be used as personal time off rather than strict vacation, but employers can also designate additional time for illness. There are 12 national holidays in Portugal, though if one falls on a weekend, it is not required to observe it on the following Monday.
|Date||Portugal's Public Holiday Schedule|
|January 1st||New Year's Day|
|Friday before Easter Sunday||Good Friday|
|April 25th||Freedom Day|
|May 1st||Labor Day|
|June 10th||Portugal Day|
|Second Thursday after Whitsun||Corpus Christi|
|August 15th||Assumption Day|
|October 5th||Republic Day|
|November 1st||All Saints Day|
|December 1st||Restoration of Independence|
|December 8th||Immaculate Conception Day|
|December 25th||Christmas Day|
While business in Portugal can open up a wealth of opportunities for start-ups and conglomerates alike, the international payroll details can still be complex. A global payroll solution can manage the finances and taxes between the company, employees, Social Security, and the Tax Authority. By utilizing an outside service, you eliminate the time spent on getting up to speed with the local and national finance regulations. Time is truly money when it comes to taking a risk in a new country, and it can be a tremendous aid to have the right helping hand when it comes to making the right decisions to meet all payroll regulations.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.