Portugal Employee Benefits

Employee Benefits

Happy and satisfied employees make your business thrive and lead to even better profits. However, the specific benefits for employees in Portugal might not all be familiar to you yet. By using our PEO and EOR service we can provide compliant labour contracts for employees in Portugal including local benefits.

When expanding your company’s presence in a new country, you need to ensure compliance both in your employment contracts and benefit guarantees. These involve social security contributions, sick leave, health insurance, and unemployment, to name a few.

Our guide will explain what benefits and employee compensation are guaranteed, and what can be modified, for any employer who wishes to expand their business into Portugal.

What are the Employee Benefits in Portugal?

Benefits and entitlements for employees in Portugal, both locals and foreigners, are covered by the Labor Code, supplemented by various statutes and decrees, as well as Collective Bargaining Agreements (CBAs). Foreign companies hiring employees in Portugal must comply with this framework of legislation that provides guarantees and safeguards for the workforce.

Minimum guaranteed benefits, either from legislation or agreements, include:

• Minimum wages
• Paid vacations
• Working hours
• Termination, severance, and notice periods
• Sick leave
• Maternity allowances and benefits

The responsibilities of foreign companies reach further than simply complying with tax, social security, and payroll regulations. Failure to comply with specific regulations applying to benefits and entitlements runs the risk of fines and sanctions. It is vital that employers have a firm grasp of what is guaranteed for their employees, as this will affect the employer-employee relationship.

What Compensation Laws exist in Portugal?

The Portugal Labor Code (Código do Trabalho) covers most legislation regarding employees’ statutory compensation and draws together a range of statutes, alongside the Social Security Contributory Code. Both have been amended by various decrees relating to retirement and sickness benefit; parental leave; health and safety and accidents at work; disability and unemployment protection for the self-employed.

The labor legislation watchdog protecting workers is the Working Conditions Authority (Autoridade para as Condições de Trabalho, ACT) which enforces the rules of the Labor Inspectorate. The Ministry of Employment and Social Solidarity oversees the Social Security Institute (Instituto de Segurança Social) concerning social welfare issues. Gender equality is the responsibility of the Commission for Equality in Labor and Employment (Comissão para a Igualdade no Trabalho no Emprego, CITE).

Additionally, employer-employee contractual arrangements are also governed by Collective Bargaining Agreements (Convençōes colectivas de trabalho) CBAs.

The requirement for employers to respect employees’ rights stretches further than simply complying with tax and payroll procedures. Legislation and binding collective agreements apply to such as maternity allowances and benefits, holidays, sick pay and severance payments, minimum wages and working hours.

Drawing up contracts and agreements with employees is tricky enough, but in Portugal it is vital employers are up to speed with responsibilities to their staff over benefits, compensation, and minimum requirements. Written contracts are not mandatory – but are advised – and in their absence employers must provide employees with a written agreement detailing core aspects of the relationship within 60 days of starting work.

Compensation, entitlements, and benefits include the following, all of which can be improved by collective agreements, but not diminished.

• National Minimum Wage: The national minimum wage was set at €705 (US$798) per month from January 2022, an increase from the 2021 rate of €665 (US$752). The Portuguese government announced plans to increase the minimum to €750 (US$848) by the end of 2023
• Sick Leave and Benefit: The Portuguese Social Security Institute (Instituto de Segurança Social) pays employees’ sickness benefit. Beneficiaries must have been employed for a minimum of six months (consecutively or in parts) before claiming benefit, which can be for a maximum of 1,095 days. Benefit is calculated on the employee’s salary and number of sick days: 55% – up to 30 days sick leave; 60% – between 31 and 90 days; 70% – between 91 and 365 days; 75% – over 365 days. Full-time employees’ benefit begins after the third day; for the self-employed or beneficiaries of a voluntary social insurance scheme after 30 days. Sickness must be validated by a doctor or the health services supplying a ‘Temporary Invalidity Certificate (CIT) to the social services, the employer and the employee
• Working Hours and Breaks: Working hours are restricted to eight per day and 40 a week under the Labor Code, although they can be averaged over an agreed period. Average working weeks, including overtime, cannot exceed 48 hours over the agreed period, which cannot exceed 12 months or in the absence of an agreement not more than four months. Collective agreements may provide for better entitlements. New legislation from January 2022 prohibited employers from texting or contacting remote or tele-workers after work hours on work-related matters at the risk of fines
• Overtime: Employees receive 25% above the normal hourly rate for the first hour and an extra 37.5% for additional hours. Additionally, under the Labor Code, working overtime on rest days or vacation days is paid at 150% with a rest day on one of the following three days. Annual overtime maximums are 150 hours for companies employing more than 50 workers and 175 hours for companies employing fewer. Collective agreements may provide for better entitlements
• Paid Vacations: The Labor Code provides a minimum of 22 paid vacations days in a calendar year, after completing one year’s service. They should be taken in that year but can be delayed until April 30 of the following year in special circumstances. During the first year of work, employees are allowed a maximum of 20 days. In addition to receiving their normal salary, employees also receive a ‘vacation subsidiary’ as a 13^th month salary payment. Collective agreements may provide for better entitlements.
• Maternity / Paternity / Parental Benefit and Leave: Maternity leave entitlement is a total of 120 days, and it is mandatory to take at least 42 days after the birth, with the balance used wholly or in part before or after the birth. Benefit is funded by the social security system and paid at 100% of the mother’s salary for the 120 days. Fathers receive 20 workdays leave after the birth, five of which must be taken immediately with the remaining 15 days taken within six weeks after the birth consecutively or in parts. Fathers also have the option of taking a further five workdays as paternity leave. Maternity leave can be extended to 150 days in the case of multiple births: 150 days for twins, 180 days for triplets and 210 days for quads. Additionally, parents can share parental leave for 150 days at 100% of pay or 180 days at 83% of total pay.
• Termination and Severance: Termination generally applies by reaching the end of a fixed-term contract, due to the inability of the employee to perform their job or to retirement. The Labor Code stipulates severance pay equals a minimum of 20 days basic salary and seniority bonus for each full year of employment, or part of a year. The monthly salary amount used to calculate the severance cannot exceed 20 times the minimum national wage, €705 (US$798) as of January 2022
• Notice Periods: Minimum notice periods depend on length of service, as follows: Less than one year’s service – 15 days; between one and five years – 30 days; more than five years up to 10 – 60 days; more than 10 years’ service – 75 days. In probationary periods no notice need be given if the trial period is less than 60 days. Seven days’ notice applies if the trial is more than 60 days, and 15 days’ notice if more than 120 days. Employees must respect the notice period at risk of having to refund the employer pay in lieu

Employer Statutory Costs in Portugal

• Social Insurance:  Employers in Portugal must fulfil their obligation to contribute an equivalent percentage of 23.75% from their employees’ salaries into social insurance funds. Contributions cover family benefits, unemployment assistance and pensions
• Corporate Income Tax:  Complying with Corporate Tax laws is a statutory requirement on employers in Portugal. Resident companies are taxed on their worldwide income. The standard flat rate is 21% plus other charges, including a municipal surcharge of up to 1.5%. Further surcharges apply: 3% on profits between €1.5 million (US$1.8 million) and €7.5 million (US$8.5 million); 5% on profits on the excess up to €35 million (US$39.6 million); 9% on the excess above €35 million
• National Minimum Wages: Employers must comply with the national minimum wage for their employees, although collective agreements may set higher limits, which will be binding. From January 2022 the national minimum was increased to €705 (US$798). Employers must also be prepared for an increase to this statutory cost, as the Portuguese government has pledged to increase the minimum to €750 (US$848) by the end of 2023