6 Steps To Using An Employer of Record In Portugal

An Employer of Record (EOR) is a third-party organization that takes on the legal and administrative responsibilities of employing workers in a foreign country. This service allows companies to hire employees in Portugal without establishing a local legal entity. The EOR handles crucial tasks such as payroll, taxes, benefits administration, and ensuring compliance with local labor laws.

With its strategic location and growing economy, Portugal has become an attractive destination for international businesses. The country boasts a highly skilled workforce in technology, tourism, and renewable energy sectors. According to the Boston Consulting Group’s 2021 Decoding Global Talent report, Portugal has become one of the most attractive destinations for foreign workers and foreign direct investments globally. This shift, coupled with the country’s commitment to renewable energy (covering 30% of energy demand in 2019) and its goal to be climate-neutral by 2050, presents significant opportunities for businesses looking to expand their operations.

Here are the 6 steps to using an EOR in Portugal:

1. Find talent to hire in Portugal
2. Compare using an EOR to setting up a legal entity in Portugal
3. Get the information needed from your talent
4. Choose an EOR provider with expertise in Portugal
5. Communicate your hiring needs to the EOR
6. Have the EOR set up the contracts and hiring procedure

An EOR in Portugal manages various aspects of employment, including payroll processing, tax withholding and remittance, and benefits administration. They also ensure compliance with Portuguese labor laws, which can be complex and differ significantly from those of other countries. For instance, Portugal has specific regulations regarding working hours, paid holidays, and severance pay that must be carefully navigated.

When hiring remotely in Portugal, it’s crucial to consider the country’s labor laws, governed by the Portuguese Constitution and the Labor Code. These laws aim to balance employee rights with employer freedoms. Key considerations include the prohibition of discrimination based on various factors, regulations on working hours (typically 40 hours per week), and generous leave entitlements, including 22 days of paid annual leave.

The hiring process in Portugal typically involves drafting a detailed employment contract, which should include specifics about the role, compensation, working hours, and other key terms. While verbal agreements are technically valid, written contracts are strongly recommended and required for certain employment arrangements. The probationary period in Portugal varies depending on the type of contract, ranging from 15 days for short-term contracts to up to 240 days for management positions in permanent contracts.

1. Find talent to hire in Portugal

Employers can leverage various platforms and strategies to find talent to hire in Portugal. The country has a well-educated workforce, with a significant portion of the population fluent in English, making it an attractive destination for international companies.

Online job boards are popular in Portugal, with platforms like Net-Empregos, ITJobs (for tech roles), and Expresso Emprego being widely used. LinkedIn is also a valuable resource for professional networking and recruitment. International job search engines like Indeed and Monster also have a presence in Portugal.

For more specialized roles, particularly in tech and IT, platforms like Landing.jobs and JOBBOX.io are tailored to the Portuguese market. These sites often feature roles in startups and tech companies, which are growing sectors in Portugal’s economy.

Recruitment agencies can be particularly helpful for foreign companies unfamiliar with the local job market. Agencies like Hays, Michael Page, and Randstad have a strong presence in Portugal and can assist in finding qualified candidates.

Networking events and job fairs, especially in major cities like Lisbon and Porto, can be excellent opportunities to connect with potential employees. Universities in Portugal often host career fairs, which can be a great way to find young, educated talent.

According to a report by AICEP Portugal Global, the country’s official agency for investment and external trade, Portugal has seen a significant increase in foreign investment in recent years, particularly in sectors like IT, shared services, and renewable energy. This has led to a growing demand for skilled professionals in these areas.

When searching for talent in Portugal, it’s important to consider the country’s strong emphasis on work-life balance and quality of life. Many Portuguese workers value factors like flexible working hours and opportunities for professional development alongside competitive salaries.

2. Compare using an EOR to setting up a legal entity in Portugal

When working with employees in Portugal, you need to consider working with an EOR to set up your own legal entity. This comparison will help you make an informed decision based on your company’s specific needs and long-term goals in Portugal.

Here’s a comparison of key factors:

Using an EOR in Portugal offers a faster and more flexible solution for companies hiring a few employees or testing the market before committing to a full-scale operation. It significantly reduces the complexity and risk of navigating Portuguese labor laws and tax regulations.

On the other hand, setting up a legal entity in Portugal provides greater control over operations and may be more cost-effective in the long run for companies planning a significant, long-term presence in the country. It allows for more customization in employment terms and direct management of all aspects of the business.

The choice between an EOR and setting up a legal entity depends on factors such as the scale of your planned operations in Portugal, your timeline for expansion, and your company’s resources for managing international operations. For many companies, starting with an EOR and transitioning to their own legal entity as operations grow can be an effective strategy for entering the Portuguese market.

3. Get the information needed from your talent

To hire employees in Portugal, you need information about them to ensure compliance with local labor laws and tax regulations. This process is crucial for both the employer and the employee, as it forms the basis of the employment relationship and ensures all legal requirements are met.

To begin with, you’ll need to gather basic personal information from your prospective employee. This includes their full legal name, date of birth, nationality, and contact details. In Portugal, it’s common for individuals to have multiple first or last names, so ensure you capture the complete name as it appears on official documents.

Next, you must collect the employee’s tax identification number (NIF – Número de Identificação Fiscal). This information is crucial for tax purposes and is required for all financial transactions in Portugal. The employee may need to obtain an NIF before starting work if the employee is a foreign national.

The employee’s social security number (NISS – Número de Identificação de Segurança Social) is another essential piece of information. This number is used for social security contributions and benefits. Foreign workers who haven’t previously worked in Portugal must register for a NISS.

You’ll also need to gather information about the employee’s qualifications and work experience. This includes educational background, professional certifications, and previous employment history. In Portugal, requesting copies of degree certificates and professional qualifications is common.

For payroll purposes, you’ll need the employee’s bank account details for salary payments. In Portugal, it’s standard practice to pay salaries via bank transfer.

You must verify the employee’s right to work in Portugal if the employee is a foreign national. This may involve collecting information about their visa status or work permit.

Lastly, it is important to gather information about any specific employment terms agreed upon, such as salary, working hours, job title and description, and any special arrangements, like remote work agreements.

Remember, when collecting and storing this personal information, you must comply with data protection regulations, including the General Data Protection Regulation (GDPR), which applies in Portugal as part of the European Union.

4. Choose an EOR provider with expertise in Portugal

When choosing an EOR provider to work with in Portugal, selecting a partner with deep expertise in the country’s employment laws, tax regulations, and business culture is crucial. This expertise can significantly impact the success of your operations and ensure full compliance with local requirements.

First and foremost, look for an EOR provider with a strong track record in Portugal. They should have experience working with companies in your industry and be able to provide references or case studies of successful partnerships. A provider with a physical presence in Portugal, rather than just a network of partners, can often offer more direct and responsive service.

Consider the range of services offered by the EOR provider. In Portugal, a comprehensive EOR service should include payroll processing, tax withholding and reporting, social security contributions, and management of mandatory benefits such as holiday pay and Christmas bonuses. They should also be well-versed in Portugal’s collective bargaining agreements, which are common in many industries and can affect employment terms.

The EOR provider should demonstrate a thorough understanding of Portugal’s labor laws. This includes knowledge of working hour regulations, leave entitlements, termination procedures, and anti-discrimination laws. They should be able to guide you through the nuances of Portuguese employment contracts, which, while not always legally required to be in writing, are strongly recommended.

Technology and data security are also crucial factors. Look for an EOR provider that uses modern, secure systems for managing employee data and payroll. This is particularly important given the stringent data protection requirements under GDPR, which apply in Portugal.

Customer support is another key consideration. Choose a provider that offers responsive, multilingual support. Given the time difference between Portugal and many other countries, 24/7 support can be particularly valuable.

What are the best EOR providers to use in Portugal?

These providers have been selected based on their expertise in the Portuguese market, range of services, technological capabilities, and customer reviews. However, it is important to evaluate each provider based on your specific needs and circumstances.

5. Communicate your hiring needs to the EOR

Communicating your hiring needs to the EOR is important to ensure a smooth and effective hiring process in Portugal. This step is crucial as it sets the foundation for a successful employment relationship and helps the EOR accurately represent your company’s interests.

Start by providing a detailed job description for the position you’re looking to fill. In Portugal, job descriptions typically include the responsibilities and qualifications required and information about the company culture and values. This is important as Portuguese workers often value the work environment and company ethos.

Clearly outline the terms of employment you’re offering. This should include the proposed salary, which should be stated in euros, the local currency. Be aware that it’s common practice in Portugal to pay salaries in 14 installments per year, including extra payments in June and December. Communicate whether you plan to follow this practice or stick to a 12-month payment schedule.

Specify the working hours and any flexibility options. Portugal has recently implemented laws promoting work-life balance, including the “right to disconnect” outside of working hours. If you’re offering remote or hybrid work options, which have become increasingly popular in Portugal, make this clear.

Discuss any benefits you wish to offer beyond the statutory requirements. While Portugal has comprehensive social security coverage, additional private health insurance or pension contributions can attract potential employees.

Communicate any specific skills or qualifications essential for the role, such as language requirements. While many Portuguese professionals speak English, specifying the level of proficiency needed is important.

If there are any unique aspects of your company culture or working style that you want to maintain, communicate these to the EOR. This could include things like regular team-building activities or specific communication practices.

Provide information about your timeline for hiring and onboarding. Portuguese business culture can sometimes move slower than in other countries, so setting clear expectations about timeframes is important.

Lastly, be open to guidance from your EOR provider. They may have insights into local market conditions or cultural nuances that could affect your hiring strategy in Portugal.

6. Have the EOR set up the contracts and hiring procedure

Once you have chosen which provider to work with and communicated your hiring needs, the EOR will set up the contracts and manage the hiring procedure following Portuguese labor laws and regulations.

The EOR will draft an employment contract that complies with Portuguese law. While verbal contracts are technically valid in Portugal, written contracts are strongly recommended and mandatory for certain employment arrangements, such as fixed-term contracts. The contract will typically be in Portuguese, though an English translation may be provided for your reference.

Key elements that the EOR will include in the contract are:

• Job title and description
• Start date and, if applicable, end date for fixed-term contracts
• Salary and payment schedule (including the 14-month payment structure common in Portugal)
• Working hours and location
• Probationary period (which can vary from 15 to 240 days depending on the contract type)
• Leave entitlements (including the statutory 22 days of annual leave)
• Notice periods for termination

The EOR will also ensure that the contract complies with any relevant collective bargaining agreements, which are common in many Portuguese industries and can affect terms of employment.

Next, the EOR will handle the registration process. This includes registering employees with the Portuguese Social Security system and the Tax Authority. If the employee doesn’t already have them, they will obtain the necessary tax identification number (NIF) and social security number (NISS).

The EOR will also set up the payroll system to ensure timely and accurate salary payments, including the correct withholding of income tax and social security contributions. In Portugal, employers are responsible for withholding these amounts from employees’ salaries.

The EOR will assist with any necessary work permit applications if the new hire is a foreign national. Portugal has straightforward procedures for EU citizens, but non-EU citizens may require more extensive documentation.

Finally, the EOR will manage the onboarding process, ensuring that all necessary documentation is completed and the employee is properly integrated into your company’s systems and procedures.

Throughout this process, the EOR acts as the legal employer, taking on the associated risks and responsibilities while allowing you to manage the employee’s work daily.

What help does an EOR provide in Portugal’s payroll, taxes, and benefits administration?

The EOR will support with Portugal’s payroll, tax, and benefits administration, ensuring full compliance with local regulations and timely execution of all required processes. This comprehensive service is crucial for navigating the complexities of the Portuguese employment system.

Regarding payroll, the EOR typically handles the calculation and disbursement of salaries every month. They manage the unique aspect of Portuguese payroll, where employees usually receive 14 salary payments per year—12 monthly salaries plus additional payments in June (holiday subsidy) and December (Christmas subsidy). The EOR ensures these payments are correctly calculated and distributed.

For taxes, the EOR handles income tax withholding and remittance to the Portuguese Tax Authority (Autoridade Tributária e Aduaneira). They calculate the correct amount of tax based on the employee’s salary and personal circumstances, applying progressive tax rates that range from 14.5% to 48%. The EOR also handles the monthly tax declarations and annual tax returns required by Portuguese law.

Regarding social security contributions, the EOR manages the employee’s contribution (11% of gross salary) and the employer’s contribution (23.75% of gross salary). They ensure these are correctly calculated and paid to the Portuguese Social Security Institute (Instituto da Segurança Social).

The EOR also administers mandatory benefits as stipulated by Portuguese labor law. This includes managing annual leave entitlements (minimum 22 working days per year), public holidays, and sick leave. They ensure compliance with Portugal’s robust worker protection laws, including regulations on working hours, overtime, and rest periods.

In addition, the EOR can help administer any supplementary benefits you choose to offer, such as private health insurance or pension plans. They can guide competitive benefit packages in the Portuguese market.

The EOR stays updated on changes to Portuguese labor laws and tax regulations, ensuring ongoing compliance. For instance, they would implement changes like the recent “right to disconnect” law, which limits employer contact outside working hours.

Finally, the EOR provides regular reporting on payroll and tax matters, giving you clear visibility into your employment costs and obligations in Portugal.

What labor laws do you need to consider when hiring in Portugal?

When hiring in Portugal, there are a few key labor laws to consider. Portugal has a comprehensive employment legislation framework, primarily governed by the Portuguese Labor Code (Código do Trabalho). This code and various collective bargaining agreements form the basis of employment regulation in the country. Portugal tends to have strong employee protections, and employers must be aware of these regulations to ensure compliance.

Employment contracts

Employment contracts in Portugal can be permanent (open-ended) or fixed-term. While verbal contracts are legally recognized, written contracts are strongly recommended and mandatory for certain employment arrangements. The contract must specify key details such as job title, duties, salary, working hours, and place of work.

Working hours and paid holidays

The standard workweek in Portugal is 40 hours, typically over five days. Employees are entitled to a minimum of 22 paid vacation days per year, in addition to public holidays. Portugal has recently introduced the “right to disconnect,” limiting employer contact outside of working hours.

Minimum wage

Portugal has a statutory minimum wage, which is reviewed annually. As of 2023, the monthly minimum wage is €760 for a full-time employee.

Termination and severance

Employment contract termination in Portugal is strictly regulated. Employers must provide a valid reason for dismissal, such as employee misconduct or economic reasons. The notice period and severance pay depend on the service length and the contract type.

Collective bargaining agreements

Many industries in Portugal are covered by collective bargaining agreements, which can set terms and conditions that are more favorable to employees than the statutory minimums.

Is Portugal a relatively easy country to hire employees remotely through an EOR?

Yes, Portugal is a relatively easy country to hire employees remotely through an EOR. Portugal has a well-developed legal framework for employment, a highly educated workforce with good English proficiency, and a growing tech sector that has embraced remote work.

The country’s membership in the European Union simplifies many aspects of hiring, particularly for companies already operating within the EU. Portugal has also been actively promoting itself as a destination for digital nomads and remote workers, implementing policies to attract international talent and businesses.

In conclusion, while there are some complexities to navigate, using an EOR service can significantly simplify the hiring process in Portugal, making it an attractive option for companies looking to expand their remote workforce in Europe.