Hire Contractors In Portugal

In recent years, Portugal has witnessed a surge in skilled laborers, drawing the attention of young professionals seeking work opportunities in Southern Europe. This can be attributed to the country's favorable climate, forward-thinking digital infrastructure, and immigrant-friendly policies. 

One small example is the Digital Nomad Visa, introduced by the Portuguese government in 2022. It allows remote workers to stay in Portugal for more than a year and potentially lead to citizenship.

Furthermore, Portugal has started several training initiatives. These are aimed explicitly at skilled individuals to facilitate their integration into the labor force. 

Both of these factors have proved quite advantageous for businesses, particularly when it comes to hiring. A skilled workforce can improve productivity, creativity, and quality of work.

However, most businesses continue to struggle with employment in Portugal.

In this article, we will illuminate a few examples of such challenges in hiring an independent contractor in Portugal and share some insights on how to navigate them successfully.

How to Hire Contractors in Portugal

The most common ways to hire independent contractors in Portugal are either directly or through an agent of record in Portugal. 

Direct Hiring

• One traditional method of hiring contractors in Portugal is direct hiring. This involves establishing a physical presence with an entity, registering yourself as an employer, and setting up a subsidiary.
• This approach benefits you by giving you more autonomy in hiring and managing payroll, company culture, and contractor management.
• However, the downside is that you will incur expensive initial costs and require local expertise to guide you through the tax and other legal requirements.
• Therefore, direct hiring is best suited for organizations that intend to hire multiple contractors and have a long-term commitment to the Portuguese market. 

Hiring Contractors Through Skuad AOR/Contractor Management Software

• A simple and cost-effective alternative to hiring directly is to hire contractors in Portugal via Skuad’s AOR solutions.
• An AOR, or agent-of-record, is a service provider responsible for engaging, onboarding, and paying contractors on your behalf. 
• Skuad’s all-inclusive platform features various capabilities, such as drafting country-specific contracts vetted by legal experts, making accurate and timely payments, and safeguarding your company’s IP under the contractor laws in Portugal.

Best Way To Pay Contractors in Portugal 

Traditionally, businesses used to process payments directly to international contractors through bank transfers, mobile wallets, and paycheques.

However, this approach has the downside of an increased risk of non-compliance with Portugal's local tax requirements. Additionally, you need to be adept at handling and understanding the current currency exchange rates and other international payment nuances. 

To avoid such complexities, the best way to pay contractors in Portugal is through Skuad’s platform. Our AOR solution makes international payment processing easy and hassle-free. Some of our many functionalities include,

• Payroll in 100+ currencies
• Automated invoicing and payments
• Expense reimbursement and compliance monitoring
• Competitive FX rates, and more.

Hiring Contractors Directly vs Hiring Contractors via Skuad

If you are still confused about how to hire an independent contractor in Portugal (direct or outsourcing), here is a table detailing the pros and cons of both approaches.

How Much Does it Cost to Hire a Contractor in Portugal?

The total cost of hiring contractors in Portugal depends on various factors, including the method you use to hire. 

For example, if you are hiring directly, the cost will be significantly higher since it will include setup expenses and compliance fees, among other things. If you wish to hire through an AOR, the total cost will be lower, but you will need to pay the due service fees. 

In addition, the cost of hiring can also differ based on the experience level of the contractors themselves. The rate for someone with many years of work experience will be comparatively higher than that of an individual who has recently started freelancing.

How to Convert a Contractor into an Employee in Portugal

Here is a step-by-step guide on converting an independent contractor into a full-time employee in Portugal.

• Evaluate the job duties: The first step is to evaluate the independent contractor's job duties and responsibilities and check whether they are in sync with the full-time employee position. This can include drafting a new job description or setting performance expectations and metrics.
• Research the employment laws and regulations: Carefully review the employment laws in Portugal and their requirements to understand all the guidelines that need to be followed. For example, unlike self-employed individuals, a full-time employee in this country can work for only 40 hours per week.
• Discuss compensation and benefits: Determine the appropriate salary and mandatory benefits and convey the same to the independent contractor. 
• Draft an employment contract: Once all the negotiations have been completed, draft a formal agreement that details all the terms of this newly formed employment relationship. This will include the working hours, leave policies, notice period, etc. 
• Add the contractor to your payroll: Once the employment contract has been signed, you can begin the employee onboarding process and add them to the company payroll system.

Challenges of Hiring Contractors in Portugal

Before we discuss the solutions, let’s first understand some of the most common challenges faced by businesses that wish to hire contractors in Portugal.

Decoding the Portuguese Labor Code

The main law governing employment relationships in Portugal is the Labor Code. It includes several regulations and policies pertaining to both employees and independent contractors. Understanding these guidelines, let alone maintaining compliance, can often become too complicated without the assistance of an experienced legal team. 

Let’s take a look at this provision, for example,

Under the Portuguese Labor Code, you need to draft a proper employment contract when hiring contractors. It can either be written or verbal. It must include all details related to the rights and duties of both parties, the work to be performed, and the corresponding remuneration. 

The contract for providing services is the primary document used by self-employed workers or independent contractors who provide services for different clients. 

However, this is just one example of many. When onboarding contractors in Portugal, you must comply with all such legal obligations. Failure to achieve the same can lead to hefty penalties/fines, imprisonment, and reputational damage. 

A potential solution to this is to partner with contractor management software that can guide you through the legal processes in this country. However, it can be quite expensive and resource-intensive, especially for SMEs.

Understanding the Tax Requirements for Self-Employed Individuals in Portugal

Unlike an employee, an independent contractor/self-employed person (Trabalhador independente) in Portugal is required to file and pay their own taxes. 

Any individual wishing to carry out self-employed work in Portugal must first declare the state of their activity with the Finance department. Upon rendering a service, the person must then issue a green receipt. 

A green receipt is typically an invoice used by independent contractors in Portugal when they offer a service to a customer or sell a product. 

Portugal's current personal income tax rates range from 13.25% to 48%. Additionally, as of 2024, taxpayers with income exceeding EUR 80,000 and EUR 250,000 are subject to an additional solidarity rate of 2.5% to 5%.

The responsibility of overseeing that all these different obligations are met directly falls on your shoulders as an employer. However, it can get extremely complicated, especially without contractor software that can guide you and ensure complete adherence to such legal requirements. 

Rigid NISS Application Requirements

The NISS (Número De Segurança Social) is the social security number mandatory for everyone (employees and independent contractors) working in Portugal. It is primarily used for various purposes, such as social security and taxation. 

Traditionally, foreign workers simply had to submit their personal information and ID to obtain the NISS in advance. However, recently, the government introduced a series of changes to this process that have caused delays and confusion for most businesses hiring in Portugal.

For example, workers are now required to provide two important documents,

• Proof of employment status and
• Proof of immigration status (residence permit and application of residence permit).

The Portuguese Social Security Department will approve the applicant’s supporting documentation. There can be a long wait before the applicant receives the official document stating their social security number.

Hire Contractors in Portugal with Skuad

Skuad’s global employment and payroll platform enables you to hire anyone, anywhere. Boasting expertise in 160+ countries, we feature the best solutions for all your international hiring needs. 

With Skuad’s platform, you can onboard any new hire within minutes. Whether drafting employment agreements under the Portuguese Labor Code or complying with tax regulations, we do it all.

Additionally, we feature a one-click payroll mechanism, meaning you no longer have to deal with a lot of paperwork and can always guarantee timely and accurate payments to all your workers.

‍Connect with us today and transform your global employment experience with customized solutions.

FAQs

1) What is the difference between an employee and a contractor in Portugal?

Ans: One of the main differences between an employee and a contractor is that the former can only work for one company and is, therefore, subject to the rules and regulations set forth by that organization. The latter, on the other hand, enjoys greater flexibility in working for multiple clients/organizations simultaneously. 

2) Can I hire a foreign contractor?

Ans: Yes, you can hire a foreign contractor as long as you adhere to the laws and regulations of your country and the contractor’s country.

3) Is it cheaper to hire employees or independent contractors?

Ans: Hiring contractors is much more cost-effective than hiring full-time employees. This is because, with contractors, you do not have to worry about disbursing mandatory employee benefits or spending resources on procuring tools/equipment to carry out a specific task. 

4) How do I pay a foreign contractor?

Ans: The best way to pay a foreign contractor is to partner with an AOR to guide you through the country-specific tax and labor regulations. This reduces the risk of non-compliance and saves you the headache of dealing with currency exchange rates.

5) What is the difference between a contractor and a freelancer?

Ans: Contractors typically work for one client at a time instead of balancing multiple gigs simultaneously. A freelancer, on the other hand, is an individual who works for multiple clients on a project-to-project basis simultaneously.