How to hire employees in Portugal through an Employer of Record (EOR) [2023 Guide]
Apr 27, 2023
If you’re looking to hire workers in Portugal, you may opt to bring on Portuguese contractors and pay them via bank wire or a global payroll service. However, while bringing on independent contractors is a much simpler process, you may choose to hire full-time employees to avoid misclassification or to expand your workforce. In that case, you’ll need to either establish a legal entity or hire through an employer of record (EOR).
Setting up your own entity in Portugal, commonly known as a subsidiary (sociedades por quotas in Portuguese), can take up to six months. What’s more, the process requires in-person registration, extensive documentation, and an understanding of Portuguese labor laws. Missteps may incur fines or cause delays in establishing your entity—and your ability to onboard your new employee.
Companies expanding operations into Portugal and other countries around the world typically use EORs to handle payroll, tax, employee benefits, and complex international compliance issues.
Here’s a step-by-step guide for hiring through an EOR in Portugal.
Step by step: How to hire through an Employer of Record in Portugal
Step #1: Decide between a Portuguese EOR and a legal entity
Is it best to hire Portuguese employees through your own entity or an employer of record service? The answer varies depending on your company’s resources, size, and plans to scale, as well as its intentions to branch out to hire additional Portuguese employees.
- Legal entity in Portugal. Setting up a legal entity from scratch requires registration with local authorities, opening a local bank account, and consulting with local experts to ensure compliance with tax and labor laws. Entities can take up to six months to set up, depending on how you apply.
- Portuguese EOR. An EOR is a third-party service that operates as an employer on a company’s behalf—meaning you don’t need to set up your own entity. You can hire Portuguese employees through the EOR, which also handles all the legal requirements for complying with Portuguese laws for payroll, contracts, and benefits. EOR services also include calculating and withholding taxes, onboarding and managing employees, and running payroll. EORs carry all the burden of local statutory requirements.
Pros and cons of EORs vs. setting up a legal entity
Cost & Implementation
✔ Less time-consuming to set up.
✘ Becomes costlier as your headcount increases.
✔ You can start hiring within days instead of months.
✘ Takes up to six months to set up—and requires registration fees.
✔ More cost-effective once you’ve hired enough employees in a foreign country.
✔ Quickly set up new hires, often within 1-14 days, depending on the provider.
✔ Supports large-scale expansion in a new market.
✔ Manages all of your compliance work for you, takes on liability, and provides localized employment contracts.
✘ Can’t tailor certain policies, and other HR/legal processes, to the needs of your business.
✘ Requires expert knowledge of local laws and tax regulations and internal legal resources, as your company is liable for all legal and compliance infractions.
✔ Can tailor certain policies, and other HR/legal processes, to the needs of your business.
Payroll & Benefits
✔ Quickly pay and insure employees around the world.
✔ Taxes are filed for you.
✘ Must manually keep track of statutory deductions and employee entitlements for every hire.
Step #2: How to choose the best EOR for your business
Before you choose a platform, you should consider the services you will need, and how much you plan to grow your global hiring presence.
- Is the EOR active in the countries in which you need to hire? The first, and perhaps most obvious consideration when choosing an EOR for global expansion.
- Does the EOR own its own entities in the countries it services? If the EOR does not own the entities, it means they are partnering with a local or third-party provider.
- How does the EOR protect your sensitive and confidential information? It is vital that your EOR has the appropriate data protections in place, as well as secure technology that eliminates potential disclosures of private information.
- Does the EOR offer automated solutions? You may want to look for an EOR that automates the busy work like onboarding and benefits enrollment and other common HR and IT tasks.
- What is the EOR’s support model? It’s essential that your EOR has support staff that are both easy to contact and experts in the regulations of the countries in which you are hiring.
Get the full checklist in our guide: What is an EOR?
Rippling has everything you need to run a global workforce
With Rippling, you can manage your global team in one system, easily localize onboarding flows, and manage compliance policies for your international employees. See Rippling.
Step #3: How to hire and onboard your Portuguese employees
Once you’ve picked an EOR that works for your needs in Portugal, you can begin the onboarding process by collecting information from your new employees. This includes:
- Name (matching the account where you’ll deposit their pay)
- Date of birth and date of hire
- Contact information, including their mailing address in Portugal
- Social Security number (número de identificação de segurança social or NISS)
- Tax identification number (NIF)
- Bank account information
- Amount to be paid in euros (including any bonuses)
Though a written contract agreement isn’t technically required for permanent employees in Portugal—meaning that a verbal agreement is technically sufficient—it’s highly recommended that you still draft up an employment contract to outline the key working conditions. This will protect you should legal disputes arise.
An EOR can automatically localize and distribute your employment agreements. The EOR will make sure that the agreements are legally compliant and offer the statutory requirements for probationary periods, working days and hours, benefits, minimum wage, and termination policies, including severance pay.
Example: In Portugal, collective bargaining is very common. There may be industry agreements at the national, regional, or local level; agreements for several companies; or even agreements for a single workplace. If you hire two employees who are covered by different collective bargaining agreements because they live in different regions, they may be subject to different requirements for minimum wage, occupational training, working hours, or workplace flexibility.
When you use an EOR in Portugal, you don’t have to understand these nuances—the EOR will be responsible for generating separate employment agreements to account for the collective bargaining differences. You can onboard new hires anywhere, end to end, with Rippling. Request a demo today.
Step #4: Run payroll
Want the full scoop on global payroll? Read our guide to running international payroll for employees in Portugal.
Once you’ve collected your new hire’s information and both parties have signed employment agreements, the EOR will pay your Portuguese employees in euros (EUR), while withholding legally required taxes from salaries. This includes the following deductions:
- Income tax: Portugal has a progressive tax rate and the percentage withheld varies by income
- Social security tax: 11% from each paycheck
And the following contributions:
- Social security contributions: 26.5% of wages
- Labor accident insurance: 1.75% of gross income
- Wage guarantee fund: 1% of gross income (holiday bonuses and allowances excluded)
- Working Compensation and Working Compensation Warranty Funds: 1% of wages
While the social security contribution rates may seem high, remember that, in Portugal, this covers many benefits which employers frequently cover in other countries, including sick leave, disability leave, unemployment, and parental leave (including maternity leave and paternity leave). With Rippling’s native global payroll system, you can pay employees who work in Portugal—and elsewhere around the globe—in a single pay run.
Frequently asked questions about hiring through an EOR in Portugal
How much does an EOR cost?
EORs typically use one of two pricing structures:
- Fixed monthly fee per employee
- Percentage of payroll plus applicable taxes
Either option may come with administrative fees, onboarding charges, and other costs for supplemental features. Remember: You don’t need to use an EOR for your whole workforce. You can segment its use and only be charged for the employees you employ through the EOR.
What is the difference between an EOR and PEO?
A Professional Employer Organization (PEO) co-employs a company’s workforce and provides administrative services like paying employees, handling compliance, filing payroll taxes, and even administering benefits. The company and PEO are jointly responsible for the workforce, and the PEO may even hire and manage employees. A PEO does not, however, allow you to hire in other countries where you haven’t set up a local entity.
An EOR, on the other hand, is not a co-employer. On paper, they are the sole employer of the portion of your workforce you use it for and, as such, assume all the associated liabilities. An EOR allows companies to work with employees abroad without setting up a legal entity in that location.
Does an EOR protect your sensitive and confidential information?
It depends on the EOR, but this is very important in Portugal, which is subject to the European Union’s General Data Protection Regulation (GDPR) laws on data protection and privacy. This regulation extends to employees, requiring consent for data collection and limiting how sensitive HR data can be processed.
While outsourcing your payroll management to an EOR can spare you time and compliance risk, sharing your data with companies who use third-party vendors leaves you exposed to data breaches from manual uploads.
Seek out EORs like Rippling which prioritize data protection. Look for:
- Compliance with industry-standard privacy regulations in different countries.
- Secure infrastructure with around-the-clock maintenance.
- Carefully vetted personnel.
You can also establish a Data Processing Agreement (DPA) with a payroll service that mandates sound privacy practices and provides legal protection.
Does an EOR help with Portuguese tax filings?
Yes, an EOR will automatically calculate and file taxes in Portugal. Required tax paperwork for companies with full-time employees includes:
- Monthly returns (declaração de remunerações): This reports social security statements and monthly salary amounts to the Tax and Customs Authority.
- Annual statements (declaração anual de rendimentos): At the conclusion of the calendar year, this summarizes your employee’s annual income, the amount of taxes withheld, and social security contributions. This form will help your employee file their taxes.
- Corporate income tax return (imposto sobre o rendimento das pessoas coletivas, or IRC): Even if you’re registered outside of Portugal, you must still pay corporate tax on any Portuguese income that isn’t subject to personal income tax.
An employer of record service should file these forms on your behalf.
What are the mandatory benefits for Portuguese employees?
In Portugal, the following employee benefits are mandatory:
- Workers’ compensation
- Employee training
Portuguese employees are also entitled to a minimum of 22 vacation days, as well as 13 public holidays, plus several regional and optional holidays, which are separate from those 22 days of paid leave. This includes religious holidays, such as the Feast of Corpus Christi, the Feast of the Immaculate Conception, and All Saints’ Day.
Portugal’s social security system covers sick leave, disability leave, unemployment, parental leave (including maternity leave and paternity leave), and orphan/widow pension. Still, employers may choose to extend more benefits to their workers to entice top talent, such as supplementary or specialized health insurance.
For more information on benefits in Portugal, check out our full guide.
Are there any complications around running payroll for employees in Portugal?
Yes. Per Portuguese labor law, salaries are split into 14 payments throughout the year rather than 12. Pay is typically doubled as Christmas holiday and summer bonuses. There are two common ways to pay out these bonuses. Either:
1) Pay 50% of the allowances before the summer holidays (typically in June) and before Christmas, with the remainder paid out throughout the other pay periods of the year.
2) Pay the subsidies in full before the respective holidays.
However you choose to issue these payments, outline it in your employment agreement. If you use an EOR, they will handle issuing these holiday bonuses.
Do I need an entity or an EOR to hire a contractor in Portugal?
No, you don’t need an entity or EOR in this case. This is one of the many benefits of hiring a Portuguese contractor. Additionally, contractors are not owed benefits and do not have taxes deducted from their paychecks. Instead, the contractor handles their own tax remittance and social security payments. (The only exception is if a contractor earns up to 80% of their revenue from you. In those instances, you are responsible for a 5% social security tax on any payments made to that contractor.)
However, proceed with caution, as misclassifying workers in Portugal brings huge risks. If an independent contractor claims that they are a misclassified full-time employee, you could be responsible for the following:
- Retroactive contributions to social security and the Wage Compensation Fund
- Compliance with work accident insurance requirements
- Retroactive credits for paid holidays, Christmas and holiday bonuses, and other benefits afforded to full-time employees
- Fines upwards of €9,000
Learn more about how to classify workers in Portugal.
What are the employer costs for full-time employees in Portugal?
In addition to the cost of establishing an entity and running payroll or, alternatively, using an EOR, employers are also responsible for deducting the following from their full-time employees’ paychecks:
Varies by income
Social security tax
11% from each paycheck
Employers are responsible for contributing:
Social Security Contributions
Payroll contribution of 26.5% of wages
Labor Accident Insurance
1.75% of gross income
Wage Guarantee Fund
1% of gross income (bonuses and allowances excluded)
Working Compensation and Working Compensation Warranty Funds
1% of wages
Employers must carry worker’s compensation insurance. Should you not have this coverage, you could be fined and would also assume responsibility for any claims that may arise from a workplace accident. The cost of this insurance varies depending on your industry and the extent of the coverage.
Rippling helps you hire, pay, and manage people worldwide. Request a demo today.
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.