Introduction to Payroll in Portugal
The pioneering seafarers of centuries ago are doing well in today’s Economic Freedom Index. Ranked 31st globally, Portugal is improving as a promising jurisdiction to attract business and retain talent. Its economic prospects are even more promising for international employers.
If you are an international employer planning to prepare, or already preparing, your payroll and benefits packages for remote workers living here, now is the time to explore payroll solutions in Portugal.
Using Skuad, an established employer of record, you can create custom payroll and benefits in Portugal to:
- Manage compensation for all employee classifications
- Autopilot your payroll process and compliance in a built-in and user-friendly dashboard
- Manage social security, corporate and income taxes, withholdings and employee contributions, and more
- Secure confidential payroll data migrating across different servers, systems, and platforms
Understanding payroll in Portugal, and, by extension, employer payroll taxes in Portugal, requires some knowledge of how the Portugal payroll and benefits process works.
Here is how.
Payroll Process in Portugal
In a pre-pandemic world and under normal work conditions and arrangements, the payroll process, and, by extension, HR payroll in Portugal in general. is not different from payroll processes elsewhere.
Put simply, the payroll process in Portugal can be outlined as follows:
- Setting up statutory compensation components
- Setting up a payment schedule
- Collecting employee information
- Calculating payroll manually or using a payroll system
- Paying and processing salaries or wages
- Conducting payroll accounting activities
- Performing payroll reporting and compliance activities
These can be broken down into: (i) pre-payroll, (ii) payroll calculation, and (iii) post-payroll phases as follows:
This phase involves securing basic business requirements to proceed and manage payroll for employees and independent contractors.
That is, before you even plan to set up your payroll process and software, if any, you need to consider first of all:
Obviously, you need a registered business including tax numbers and forms. The registration number, or numbers if you've got more than one business under your name, is needed to process the forms required by taxation and regulatory authorities.
Just as obviously, your business address should be clearly stated and available for any regulatory communications, inspections, or meetings.
As a business, employee leaves should be coded into your corporate policy, if only for payroll calculation and accounting purposes.
Using biometric devices, or not, an attendance policy is a must not only for payroll calculation purposes but also to accommodate, any flexible work arrangements if and when needed.
Despite a comprehensive Labor Law defining statutory payroll components, Portugal's regulatory and labor laws and frameworks are constantly evolving. This should call for more compliance vigilance for any international employer operating or outsourcing services in Portugal.
In addition to any minimum salary or wage requirements, you, as an international employer, need to structure your payscale to attract and retain talent.
Obviously, employees or independent contractors need to know when payment is due. Unless you're mandated by law to pay on a given day or within a certain time frame, your pay schedule should be super clear and well communicated to all.
As part of your payroll management process, you need, of course, to collect employee information — such as full name, department, subsidiary, country of operation or residence (if different from or based outside your registered business address), etc. — not only to process payments but also for reporting purposes.
Payroll Calculation Phase
Whether you're going manual or cloud, payroll calculation is a crucial step in payroll management process. Essentially, payroll calculation is about the statutory withholdings, taxation amounts, and social security commitments required of you aas an employer.
This phase, where most employers misstep and incur penalties that should be easily avoidable, includes:
Salary or wage payment are processed using conventional bank deposit or an automated payroll system.
Once you've processed salary or wage payments, you must record them, You must keep records of all payroll-related outlays, both to track data internally and to facilitate mandatory reporting to the relevant tax and regulatory authorities.
Payroll Reporting and Compliance
Here is where employers frequently run into difficulty.
Lacking adequate in-house legal expertise or financial resources, many employers fail to keep up with payroll reporting and compliance requirements.
In Portugal, where labor laws are receiving a fresh makeover, reporting and compliance may not only be a burden but a legal risk.
So, if you are reporting payroll independently, compliance should be an utmost priority of your payroll considerations.
This traditional structure of payroll process mentioned above is giving way, though, to radically different payroll management processes resulting from the trend to digitize public and private services, the codified adoption of telework, and recent mandatory changes in work arrangements in response to COVID-19.
Moreover, using payroll systems is more likely to accelerate payroll outsourcing in Portugal.
Here is where Skuad payroll in Portugal can offer the best value for international employers.
Payroll Processing in Portugal
Using a payroll system in Portugal, just as anywhere else, is not a novelty.
The new payroll normal in Portugal, though, is how to integrate recent, progressive remote work laws and regulations to make the most of any payroll systems in place.
To do so, you as an international employer may have to process payroll on your own or outsource part or all of your payroll needs.
If you opt for outsourcing, you must secure not only just an amazing piece of software but the in-depth legal expertise and extensive market presence to back up whatever solutions you choose.
Payroll Processing Company in Portugal
Using Skuad, you as an international employer gain access to an industry-disruptive HR platform that helps you
- Hire, onboard, and pay talent anywhere, anytime
- Manage employee and contractor payments: safely, smoothly, and promptly
- Streamline your payroll processes onto one user-friendly dashboard in 160+ countries and across a portfolio of 100+ currencies
- Make compliance a matter of clicks, not form-filling and backlogs
- Customize benefits case-by-case and country-by-country
- Secure your intellectual property (IP) rights and proprietary corporate data
Payroll Management in Portugal
Managing payroll in Portugal, just as in any jurisdiction, is essentially about statutory tax management and compliance.
In Portugal, moreover, international employers need not only report to the Custom and Tax Authority. or “Autoridade Tributária e Aduaneira (AT)” but also account for a range of payroll management considerations including:
- Resident, non-resident, and cross-border workers
- Tax exemptions including employment income or pensions up to €8,500, subsidies or grants under the Common Agricultural Policy of an annual value of €1,743.04, and isolated acts (“atos isolados”) of an annual value of €1,743.04
- Deadline for filing return, between April 1 and June 30
- Automatic tax returns under certain criteria such as residency in Portugal, income generated in Portugal only, no tax benefits (excluding statutory social benefits), and more
- Deadline for tax payment, on August 31
- Dual taxation avoidance
Far from exhaustive, all the above considerations must be accounted for in all payroll management activities that you perform as an international employer hiring and paying talent in Portugal. This makes compliance a matter of business necessity.
Payroll Compliance in Portugal
Payroll compliance in Portugal, just as in any jurisdiction, is not an option. Fail to comply in Portugal, and you're up against a long list of tax penalties including but not limited to:
€600-€7,500 — for failure to establish business commencement, changes, or conclusion of activities
€300-€3,750 — for failure or delay in filing tax returns
€6,000-€165,000 — for any inaccuracies reporting statements of transferred funds to jurisdictions having a more favorable tax regime
30%-100% of overall tax value — for failure or delay in paying due taxes
€1,000-€10,000 — for failure to file reporting statements by or within the tax reporting deadline
€450-€22,500 — for failure to provide software to extract tax files (also known as Standard Audit File)
€3,000-€18,750 — for failure to use certified invoicing software
€300-€3,750 — for failure or delay in invoice or receipt issuance
€540-€27,000 — for failure to maintain a bank account, if or when mandatory
€360-€4500 — for making payments in cash above mandated maximum limits
Payroll Components in Portugal
Before addressing payroll components in Portugal, you as an international employer need to know what laws, regulations, and policies govern labor relations and rights in Portugal.
Essentially, Portugal has a definitive labor code governing labor relations and rights: Labor Code 7 of 2009 (“Código do Trabalho”). This law, extensive and far-reaching in scope as it is, has seen several amendments and is regulated by an evolving body of bylaws in recent years.
In addition, COVID-19 has introduced major changes in some modes of work, making telework, for example, mandatory, as in Article 165 of the Labor Code.
Therefore, any list of labor laws in Portugal would be indicative at best and far from exhaustive.
Here is a quick snapshot of minimum statutory benefits in Portugal:
- Applies only to employees but not to independent contractors or self-employed persons
- Must be at a national minimum monthly amount of €882.50 or an equivalent of a 14-month salary or wage
- Set at a maximum of eight hours per day and 40 hours a week or a maximum of 12 months
- Can be increased to 50 to 60 hours per week based on a mutual agreement between employers and employees
- Paid at 25% for any first hour of additional hours and 37.5% for any subsequent additional hours
- Paid at 50% for any additional hours during mandatory weekends or public holidays
- Must be paid according to proper employee classification and work arrangements
- Covers up to 30 days at 65% allowance rate of normal salary or wage for urgent and necessary assistance to take care of a child, spouse, or any sick or injured household member
- Covers COVID-19-related sickness at
- 100% rate of paid salary for up to 14 days of absence due to concerns about contraction
- 100% rate of paid salary for up to 28 days of absence in case of testing positive
- Calculated at 34.75% rate of employment income with 11% paid by employees and 23.75% paid by employers
- Covers a maximum of three years of paid allowance
- Requires Certificate of Incapacity to Work (CIT) for eligibility
- Covers an allowance set as a rate of employee salary or wage as follows:
- 55% — for a leave up to 30 days
- 60% — for a leave between 31 and 90 days
- 70% — for a leave between 91 and 365 days
- 75% — for a leave over 365 days
The parental leaves in Portugal are regulated as follows;
- Granted for 120 to 150 days at a 100% rate of paid salary or wage
- Granted for up to 180 days at an 83% rate of paid salary or wage
- Granted for 30 additional days for each additional birth case
- Granted for mothers for up to 30 days before childbirth
January 01 — New Year's Day
April 15 — Good Friday
April 17 — Easter
April 25 — Freedom Day
May 01 — Labor Day
June 10 — Portugal Day
June 16 — Corpus Christi
August 15 — Assumption Day
October 05 — Republic Day
November 01 — All Saints' Day
December 01 — Restoration of Independence
December 08 — Immaculate Conception Day
December 25 — Christmas Day
In Portugal, payroll taxes vary based on residency status:
Residents — 48% plus social security surtax of 2.5% for a taxable income over €80,000 and 5% for a taxable income over €250,000
Non-residents — 25%
In addition to Portugal's flagship Labor Code, a recent rule has been passed banning employers from texting employees after work hours.
The rule, along with a set of measures approved by Portugal's parliament, is a labor victory for remote workers, more so for employees with children who can opt in or out of remote work automatically whenever needed.
Even more, remote workers are entitled to contributions from employers to pay for higher household bills such as utility and internet bills.
To accommodate an ever-evolving set of laws, regulations, and rules in Portugal, Skuad has extensive industry expertise and in-depth legal knowledge to navigate you around.
Employee Benefits in Portugal
In addition to all statutory benefits to which employees are entitled in Portugal, additional benefits include a meal allowance, exempt from mandate social security contributions, of up to €4.77 per day if paid in cash or €7.63 per day if paid in food stamps.
Having read so far, you may have placed your payroll needs in a more grounded context.
The decision is yours to go solo or pick an expert payroll service provider.
Whichever way you turn, Skuad is your best guide to walk you around a range of payroll solutions and insights you are not going to find anywhere.
Take your time or hurry up. Skuad is always around to get you payroll-informed and operational in Portugal and beyond.
The Euro (€), Portugal's official currency as a Eurozone country, exchange rate against USD ($) is 1.05.