Employee vs. Contractor: How to Classify Workers in Portugal (Quiz included) [2024]


Apr 20, 2023

Interested in hiring workers in Portugal? Then you’ll want to classify them correctly to avoid significant fines, penalties, and other mishaps. 

Whether your workers are based in Lisbon or elsewhere in the country, hiring contract workers in Portugal can bring many benefits as opposed to hiring employees. However, the Portuguese government and the European Union have regulations to protect workers from exploitation.

Misclassification is damaging for workers, as it cheats them out of benefits and protections they're entitled to under Portuguese law, such as vacation pay, minimum wage, sick leave, social security contributions, and workers’ compensation. Misclassifying workers has a negative impact on the company’s reputation, too. 

To deter the misclassification of workers, the Portuguese government allows public prosecutors from labor courts to press charges against employers without involving contractors—this means that employers may be charged and prosecuted even if their contractor does not pursue a lawsuit. Avoid this by classifying workers correctly from the beginning.

This guide will explain how to classify your workers correctly—and stay compliant with Portuguese labor and employment laws.

Table of Contents

  • Classifying workers in Portugal
    • What is an employee in Portugal?
    • What is a contractor in Portugal?
    • Worker classification overview: Employees vs contractors in Portugal
    • How to classify your global workers in 90 seconds
  • Tests to classify workers in Portugal
  • Penalties for misclassifying workers in Portugal

Classifying workers in Portugal

As is the case in many countries, Portugal categorizes employees and contractors differently. If you plan to hire workers in Portugal, classifying them correctly can be the difference between smoothly running your global team and racking up huge fines and penalties.

What is an employee in Portugal?

As outlined in the Portuguese Labour Code, an employee is defined as an individual who works for their employer in return for wages or another form of remuneration. Employees work under supervision and direction from their employer. Employees are entitled to statutory benefits, including:

  • Pension
  • Workers’ compensation
  • Vacation entitlements
  • Paid public holidays
  • Employee training

Portuguese pension plans are handled by the government’s Ministry of Labour, Solidarity, and Social Security. All employees who contribute to social security get covered for healthcare, pension, unemployment, and paid parental leave (maternity leave and paternity leave) from the government. Employees and employers contribute to the plans at the following rates:

  • Employers make a payroll contribution equal to 26.5% of an employee’s wages.
  • Employees have 11% of social security tax deducted from each paycheck. 

Employers also deduct income taxes from payments to full-time employees. 

What is a contractor in Portugal?

A contractor is an individual who provides services to a business or organization but is not their employee. Independent contractors are also known as self-employed individuals, consultants, or freelancers. Contractors are not entitled to benefits, do not have income tax withheld, and make their own social security payments. (The only exception is if a Portuguese contractor earns up to 80% of their revenue from you, in which case you are responsible for a 5% social security tax on any payments made to them.)

Typically, contractors receive a set rate per project or for reaching a specific goal. Per Portuguese law, contractors can only work for a company for up to four years.

Portugal has a few different classifications of contractors (more on those below). 

Worker classification overview: Employees vs contractors in Portugal

The Portuguese courts have created a series of tests to determine whether a worker counts as an employee or contractor. Understand the difference before drafting any employment agreements or contracts.



  • High level of worker control.
    Contractors have the autonomy to determine how, when, and where they complete their work. Remote work is common. The organization may give directions only when it is required commercially, and only if the directions are reasonable.
  • Equipment and tools owned by the worker.
  • Paid for work as completed. Contractors are entitled to receive payments only when they have successfully performed services and have submitted invoices. Typically, they are not given overtime pay.
  • No entitlement to benefits. Contractors are not entitled to the same benefits and protections as employees, and they are responsible for paying their own taxes.
  • Time-bound engagement. Contractors are engaged for a specific project or period of time.
  • Non-exclusive services. Contractors can’t be contractually bound to a single company. They can provide their services to more than one client.
  • Economically independent. A contractor typically doesn’t rely on a single client for their income.
  • No disciplinary action. The organization can’t take disciplinary action against contractors for misconduct, and can only terminate their contractual relationship if the contract is breached.
  • More employer control. Employees are subject to more control and direction from their employer, who will provide guidance on how to perform the work, set work days, and may have stipulations on where the work is conducted.
  • Equipment and tools typically provided by the company. The company may also reimburse the employee for equipment costs.
  • Receive set pay. Employees receive a salary on a regular basis, regardless of the services provided. They may receive additional remuneration, as well as overtime pay.
  • Entitled to benefits. Employees are entitled to employment benefits and protections, such as minimum wage, pension contributions, and vacation pay.
  • Indefinite engagement. Employees are generally hired for an indefinite period of time.
  • Exclusive services. Employees may be contractually bound to provide services to just their employer.
  • Economically dependent. An employee relies on their employer as their primary or sole source of income.
  • Disciplinary action. Employees can face disciplinary action for misconduct.

How to classify your global workers in 90 seconds

Want to know if you’re classifying workers correctly? Find out now.

Classifying your workforce accurately is essential to comply with the employment regulations of Portugal and other countries around the world. Rippling’s free classification quiz helps you mitigate the potential business risks and ensure you’re correctly classifying employees and contractors—and the quiz takes just 90 seconds.

Tests to classify workers in Portugal

If you want to classify workers yourself, you should use a series of tests to define the employment relationship. Portuguese courts will look at all aspects of the working relationship—which includes the contract agreement as well as the working relationship in practice. They also may compare contractor agreements with your employment contracts to see if the correct distinctions are made. 

No single test should be considered conclusive for classifying a worker but, if two or more of these factors are met, then your worker should likely be considered an employee. You should also make sure that your contractual relationship is in alignment with any collective bargaining agreements for the area or industry, especially if there are collective bargaining rules around contract work. 

Control and subordination

How much control do you have over your worker? Control is one of the main factors dividing contract work from employment. Employees are subject to direction from their employer about working days, working hours, where they work, and how they work. Contractors, meanwhile, should work independently and at will.

Is the work shaped by orders and instructions? Contractors should not be subject to training or management, whereas employees may have their output influenced by their employers.


Is your worker integrated into your organization? If your worker is a part of your organizational structure, has a manager, works alongside your employees, or even manages your employees, they should likely be considered an employee, not a contractor.

Tools and equipment

Who owns the tools or equipment? Contractors should own their own equipment, while employees may be provided or compensated for tools.


How is your worker paid? Employees receive a set wage or salary periodically, regardless of what work they accomplish during that period. They are also subject to minimum wage. In contrast, contractors are paid for work completed and set their own rates. Typically, contractors do not receive fixed amounts of payment. 

Classification factors to consider

Some other factors to consider when classifying workers in Portugal include:

  • Economic dependence. Contractors are economically separate from the businesses or clients they work for. They pay their own income taxes and do not receive employee benefits.
  • Exclusivity of service. Contractors may have multiple clients and can freely provide services to other organizations, while employees typically work for just one organization.
  • Length of engagement. Contractors can be contracted for a fixed term or on a per-project basis, with a limit of a four-year engagement. Employees typically have an indefinite working arrangement.

Classifying workers in Portugal can seem complex—that’s where Rippling can help. Check if you're classifying them correctly with our free quiz.

Types of contractors in Portugal

You may contract a worker as an individual or contract their services under their legal business structure. There are three common types of contractor entities in Portugal:

  • Sole Proprietor (Empresário em Nome Individual)
  • Single Shareholder Limited Liability Company (Sociedade Unipessoal por Quotas)
  • Individual Limited Liability Establishment (Estabelecimento Individual de Responsabilidade Limitada)

Learn about each type in more detail below. 

Sole Proprietor (Empresário em Nome Individual)

In Portugal, this is a type of independent contractor who operates their own business as an individual and provides services under their business. There’s no distinction between the assets of the contractor and their business, meaning they carry responsibility for any losses.

Single Shareholder Limited Liability Company (Sociedade Unipessoal por Quotas)

This entity is like a sole proprietorship but may be run by either an individual or a partnership. The individuals who form this proprietorship are only liable for the amount of capital held by the entity, at a minimum of EUR 5,000. Entities with this formation will have "Sociedade Unipessoal" or "Unipessoal" before "Limitada" or the abbreviation "Lda.” in their name.

Individual Limited Liability Establishment (Estabelecimento Individual de Responsabilidade Limitada)

An individual operates their business activity through the entity, except this formation also allocates independent business assets to the entity. In simple words, there is a legal distinction between the individual’s assets and the business’s assets. In this case, the business name will include the name of the owner, possibly mention their service or activity, and include the words "Estabelecimento Individual de Responsabilidade Limitada" or abbreviation "E.I.R.L.”

Manage contractors effortlessly under a single system with Rippling

Penalties for misclassifying workers in Portugal

There are many benefits to hiring Portuguese self-employed contractors rather than full-time employees. However, misclassifying Portuguese employees as contractors brings major risks. Should an independent contractor or prosecutor raise a misclassification claim, the Portuguese courts will look at both the contract agreement as well as the working relationship in practice. If you’re found guilty of misclassification, penalties may include:

  • Retroactive contributions to Social Security and the Wage Compensation Fund.
  • Compliance with work accident insurance requirements.
  • Retroactive credits for paid holidays, Christmas and holiday allowances (statutory bonuses), meal allowances, and other benefits afforded to full-time employees. If the worker was unlawfully dismissed from their work, severance pay may be owed.
  • Fines upwards of 9,000 euros.

In addition to those financial burdens, there are other, long-term impacts of misclassification. Companies may suffer from lower employee morale, difficulty recruiting talent, legal disputes, and increased scrutiny from government agencies.

Hire and pay contractors in Portugal with Rippling—quickly and compliantly

Running a global workforce is hard work—especially when it comes to understanding and complying with local labor laws.

But with Rippling, you can onboard and pay contractors in Portugal in a single system with localized onboarding, flexible payments in local currency or USD, and country-specific consulting agreement templates.

See Rippling in action 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.

last edited: May 22, 2024

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The Rippling Team

Global HR, IT, and Finance know-how directly from the Rippling team.