Compliantly Engage Contractors in Portugal
Our workforce compliance guide to Portugal covers everything you need to compliantly hire, onboard, manage and pay independent contractors and employees in Portugal.
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Our workforce compliance guide to Portugal covers everything you need to compliantly hire, onboard, manage and pay independent contractors and employees in Portugal.
Worksuite offers a whole range of professional services and compliance tools, making it easy to compliantly engage independent contractors in Portugal
We work with the best legal partners in Portugal to create contract templates that are compliant with local laws to protect you and your contractors from fines and penalties.
Our bespoke onboarding workflows and screening questionnaires will help you determine the worker status in compliance with Portuguese law, based on which you can decide to engage a worker as a contractor or full-time worker—all without needing to set up your business entity.
Any business hiring in Portugal should understand the important legal distinction between who classifies as an independent contractor and who can be hired as an employee. Fines or penalties may be issued to businesses that are hiring independent contractors under the guise of employment.
Understanding the distinctions between employees and independent contractors is critical to compliantly engaging workers in Portugal. It is important to work with a partner like Worksuite to ensure you put in place an engagement framework that accurately classifies freelancers as independent contractors for you and lets you know when freelance talent must be engaged as a payrolled independent contractor or employed directly.
This is critical to compliantly engaging workers in Portugal and thereby avoiding severe legal, financial, and other penalties.
Portuguese Labor Code; Portuguese Civil Code; Social Security Contributory Code; various social security and labor acts and frameworks; collective bargaining agreements; judicial precedent (case law)
Some provisions from the Portuguese Civil Code may apply to independent contractors when the contract has not already covered them.
Hiring practices are similar to many other countries. Candidates will typically submit a CV (which may include a photo) and a 1-page cover letter. Hiring steps include one or more rounds of interviews and, often, assessments. Employers issue successful candidates with an offer letter, after which the employment contract is signed.
Independent contractors can be hired directly or via an intermediary, such as a staffing agency or umbrella company. Independent contractors may be found via word of mouth, job boards, social networks, industry bodies, or other forums. Although the hiring practices vary, the independent contractor may be asked to provide a CV, portfolio, and references, and possibly sign an NDA.
The two most common categories of independent contractor are:
Employees are subject to income tax which is withheld at source. This means employees are typically not required to submit any tax forms in relation to their income earned via employment, unless they have additional sources of income that are not taxed at source.
In 2021, the government introduced an additional “solidarity tax” of 2.5% on income over EUR 80,000 per year, and 5% on income over EUR 250,000 per year.
Contractors who are residents and operating on a self-employed basis pay progressive personal income tax, while non-residents pay a flat rate of 25%. Contractors operating as a business pay a flat corporate tax rate of 21%, while SMEs pay a flat rate of 17%. Contractors operating as a business and earning over EUR 10,000 must register to pay (VAT) (Imposto Sobre o Valor Agregado (IVA)). The “solidarity tax” also applies to contractors earning above EUR 80,000 per year.
The tax year runs from 1 January to 31 December. Tax returns for the prior year must be submitted by 30 June, and taxes must be paid by 31 August. Tax returns and tax payments must be submitted via the tax authority’s Tax Portal (Portal das Financas).
The tax year aligns with the calendar year (1 January to 31 December). Employees’ income tax is deducted from their salary at source by their employer. Social security contributions in Portugal are 34.75%, of which the employee pays 11% and the employer pays 23.75% (or 22.3% for non-profit organizations)
Independent contractors pay their own social security contributions at 29.6% of income. However, if 80% or more of the contractor’s income is derived from a single client, that client must also pay 5% of the contractor’s annual fees as social security contributions.
For contractors who also work as employees (although not for the same company) , they may not need to pay additional social security contributions where this is already covered by the employment deductions.
NA
NA
Employees are paid on a monthly basis.
Independent contractors are paid according to a schedule defined within the contract.
Employees’ rights include: strong termination protections; a maximum 40-hour work week (this may be reduced by collective bargaining); mandatory severance compensation;
There are no statutory benefits for independent contractors.
Statutory employee benefits include: paid holiday leave (minimum of 22 days); maternity and paternity leave; marriage leave; and sick leave. Additional benefits come from collective bargaining and include: school allowances; social benefits; transports allowances; and meal allowances.
Independent contractors’ benefits are governed by the content of the contract.
Employees are paid on a monthly basis directly into their bank account
Independent contractors send an invoice (or other form of payment request) and typically require payment within 14 days or 28 days of submission unless otherwise stipulated in the contract. Independent contractors are not paid by payroll in most cases.
Portuguese Labor Code; Portuguese Civil Code; Social Security Contributory Code; various social security and labor acts and frameworks; collective bargaining agreements; judicial precedent (case law)
Hiring practices are similar to many other countries. Candidates will typically submit a CV (which may include a photo) and a 1-page cover letter. Hiring steps include one or more rounds of interviews and, often, assessments. Employers issue successful candidates with an offer letter, after which the employment contract is signed.
Employees are subject to income tax which is withheld at source. This means employees are typically not required to submit any tax forms in relation to their income earned via employment, unless they have additional sources of income that are not taxed at source.
In 2021, the government introduced an additional “solidarity tax” of 2.5% on income over EUR 80,000 per year, and 5% on income over EUR 250,000 per year.
The tax year aligns with the calendar year (1 January to 31 December). Employees’ income tax is deducted from their salary at source by their employer. Social security contributions in Portugal are 34.75%, of which the employee pays 11% and the employer pays 23.75% (or 22.3% for non-profit organizations)
NA
Employees are paid on a monthly basis.
Employees’ rights include: strong termination protections; a maximum 40-hour work week (this may be reduced by collective bargaining); mandatory severance compensation;
Statutory employee benefits include: paid holiday leave (minimum of 22 days); maternity and paternity leave; marriage leave; and sick leave. Additional benefits come from collective bargaining and include: school allowances; social benefits; transports allowances; and meal allowances.
Employees are paid on a monthly basis directly into their bank account
Some provisions from the Portuguese Civil Code may apply to independent contractors when the contract has not already covered them.
Independent contractors can be hired directly or via an intermediary, such as a staffing agency or umbrella company. Independent contractors may be found via word of mouth, job boards, social networks, industry bodies, or other forums. Although the hiring practices vary, the independent contractor may be asked to provide a CV, portfolio, and references, and possibly sign an NDA.
The two most common categories of independent contractor are:
Contractors who are residents and operating on a self-employed basis pay progressive personal income tax, while non-residents pay a flat rate of 25%. Contractors operating as a business pay a flat corporate tax rate of 21%, while SMEs pay a flat rate of 17%. Contractors operating as a business and earning over EUR 10,000 must register to pay (VAT) (Imposto Sobre o Valor Agregado (IVA)). The “solidarity tax” also applies to contractors earning above EUR 80,000 per year.
The tax year runs from 1 January to 31 December. Tax returns for the prior year must be submitted by 30 June, and taxes must be paid by 31 August. Tax returns and tax payments must be submitted via the tax authority’s Tax Portal (Portal das Financas).
Independent contractors pay their own social security contributions at 29.6% of income. However, if 80% or more of the contractor’s income is derived from a single client, that client must also pay 5% of the contractor’s annual fees as social security contributions.
For contractors who also work as employees (although not for the same company) , they may not need to pay additional social security contributions where this is already covered by the employment deductions.
NA
Independent contractors are paid according to a schedule defined within the contract.
There are no statutory benefits for independent contractors.
Independent contractors’ benefits are governed by the content of the contract.
Independent contractors send an invoice (or other form of payment request) and typically require payment within 14 days or 28 days of submission unless otherwise stipulated in the contract. Independent contractors are not paid by payroll in most cases.
Self-employment as an independent contractor is a popular income model for many individuals, and the self-employment rate in Portugal is higher than the EU average. The Covid pandemic has prompted an even greater increase in the number of Portuguese individuals working as self-employed independent contractors.
Portuguese law distinguishes between employees and independent contractors. In essence, an employee undertakes work in exchange for a salary, while an independent contractor is hired and paid for achieving a specific end result as stipulated in their contract. The level of direction and supervision (“legal subordination”) of the individual is the key criterion in making this distinction in Portugal, with employees working under very close supervision and contractors enjoying far greater freedom in how they achieve the results required of their contract.
If the real substance of the company-contractor relationship proves to effectively be an employment relationship, the hiring company may suffer legal and financial penalties (including payroll taxes). It is therefore important to leverage an employment service partner like Worksuite when hiring in Portugal in order to ensure that independent contractors fall under the correct working relationship with your business.
The Portuguese Labor code and case law outline three core elements determining that an individual is an employee: (1) undertaking work, (2) for financial compensation, (3) under direct authority from the employer (i.e., “legal subordination”). While legal subordination is the key criterion in distinguishing between an employee and an independent contractor, in reality this can be difficult to determine and therefore a range of factors are looked at. Individuals are generally considered to be independent contractors if they:
If a dispute about the status of an individual is brought before the Portuguese courts, the burden of proof will automatically fall upon the hiring company to demonstrate that the individual qualifies as an independent contractor rather than an employee.
There are two main categories under which independent contractors operate in Portugal:
There are two main types of contracting model for working with independent contractors in Portugal.
A. Direct engagement of the contractor as self-employed or registered via their own company. Under this model, the hiring company engages directly with the independent contractor – either as an individual sole trader, or as a limited company (see above) – and establishes a direct contract for the provision of services. The hiring company then pays the independent contractor directly, in accordance with the terms of the contract.
B. Third party. These firms come in two forms and both are specially designed to vet and engage freelancers compliantly as either contract employees or independent contractors on your behalf.
Companies hiring independent contractors in Portugal should avoid making payments directly through their payroll system. Beyond these guidelines, there are no specific legal requirements related to paying contractors in Portugal. The contract should stipulate the preferred payment method agreed upon by both parties.
Employees’ income tax is deducted from their salary at source by their employer. The tax rate in Portugal is variable. Moreover, in 2021 the government introduced an additional “solidarity tax” of 2.5% on income over EUR 80,000 per year, and 5% on income over EUR 250,000 per year.
Independent contractors who are residents and operating on a self-employed basis pay progressive personal income tax, while non-residents pay a flat rate of 25%. Contractors operating as a business pay a flat corporate tax rate of 21%, while SMEs pay a flat rate of 17%. Contractors operating as a business and earning over EUR 10,000 must register to pay (VAT) (Imposto Sobre o Valor Agregado (IVA)). The “solidarity tax” also applies to contractors earning above EUR 80,000 per year.
The tax year in Portugal aligns with the calendar year (1 January to 31 December). Independent contractors, and employees who have additional income that is not taxed at source, must file tax returns (IRS) by 30 June and pay any taxes that are due by 31 August. Tax returns and tax payments must be submitted via the tax authority’s Tax Portal (Portal das Financas).
Social security contributions in Portugal are 34.75%, of which the employee pays 11% and the employer pays 23.75% (or 22.3% for non-profit organizations). Independent contractors pay their own social security contributions at 29.6%. However, if 80% or more of the contractor’s income comes from a single client, that client must also pay 5% of the contractor’s annual fees as social security contributions.
We can simplify hiring full-time workers in Portugal by acting as the Employer of Record (EOR) on your behalf, handling everything from contracts, onboarding, documentation, payroll, benefits, and workforce management. Reduce your time-to-hire by 90%, slash your overheads, and remain fully compliant.