Portugal at a Glance

Maximum daily and weekly working hours are 8 hours per day and 40 hours per week. If the employee has a managerial position or a job of trust, or usually performs their work outside the company’s premises, an exemption regime may be agreed upon by the parties, in which case those limits shall not apply. Typically, employees under the exemption regime are entitled to an exemption bonus.

Overtime is allowed for dealing with an extraordinary increase in workload, or to prevent serious damage, or if due to force majeure. It is subject to maximum limits:

• 2 hours when performed on a normal working day,
• the equivalent to the daily normal working period when performed on a rest day or on a public holiday,
• 150 (medium-sized and large-sized companies) or 175 (small-sized companies) hours per year.

Overtime must be compensated with additional payment (increase of hourly rates):

• work on normal working days = 25% increase for the first hour and 37.5% increase for additional hours;
• overtime on rest day or holiday is normal hourly rate plus 50%
• overtime on the normal rest days (typically, Sunday) also entitles the employee to time off equivalent to 1 day.

Overtime work exceeding 100 yearly hours must be compensated as follows (increase of hourly rates):

• work on normal working days: 50% increase for the first hour and 75% for additional hours
• work on rest days or holidays: 100% increase for each hour

CBAs may establish more beneficial treatment for employees.

The employer can, under certain circumstances, terminate the contract with ‘just cause’. The concept of just cause includes disciplinary dismissal and other forms of dismissal, provided they are justified according to the law.

The Labour Code foresees the following types of dismissal:

• dismissal based on unlawful conduct of the employee,
• redundancies or dismissals resulting from the elimination of jobs,
• dismissal for failure to adapt, where the employee is found to be incapable of adapting to the job and, because of the way in which the employee works, making it in practice impossible to maintain the working relationship.

Collective dismissal rules will be triggered if the dismissal involves at least 2 employees (in a company with up to 49 employees) or 5 employees (in a company with 50 or more employees) within a 3-month period.

When a contract of employment ends, the employer must provide the employee with a certificate of employment indicating the dates of commencement and termination and the post or posts occupied, and other documents for official purposes, particularly for Social Security.

If the notice period is not honored, payment in lieu of notice is required. Garden leave is possible upon agreement of both parties.

Unfair dismissal – The employee may challenge the validity of the dismissal before the labour courts. In case of unfair dismissal, irrespective of the cause, the employee is entitled to:

• Payment of back wages (from the dismissal until the date of the court decision)
• At the employee’s option, reinstatement or payment of severance compensation (varying from 15 days to 45 days of base salary per year of service).

Protected employees – Employee representatives and pregnant or nursing employees enjoy special protection rights regarding termination of employment.

Under the Portuguese Labour Code, at the moment of termination or resignation, the employer is required to apply the relevant statutory rules, in particular Article 245(1). This framework distinguishes between the following components:

• Matured vacation days and the corresponding holiday allowance relating to the previous year, which become fully vested on 1 January of the following year.
• Pro‑rata vacation days accrued in the year of resignation/termination.
• Accrued training hours, calculated according to seniority

Given the above, termination costs typically amount to approximately 2–3 months of salary, depending on the employee’s hire date, accrued entitlements, and training obligations.

The employee is free to resign, subject only to certain prior notice periods as follows.

For permanent employees:

• 30 days for contracts which have been on force for up to 2 years;
• 60 days for contracts which have been on force for more than 2 years;

For fixed (or unfixed) term(temporary) employment agreements:

• 15 days for contracts, which agreed (or expected) duration is less than 6 months;
• 30 days for contracts, which agreed (or expected) duration is equal to (or longer than) 6 months.

Each entity type has its own minimum shareholder requirements:

Subsidiaries should have a minimum of one shareholder, which can be an individual or a corporation. This is not required for branch offices.

Minimum paid up share capital needed:

For subsidiaries, the share capital amount is freely set forth in the AoA and it corresponds to the sum of shares subscribed by all shareholders. The min. nominal value of each share is of €1.00. Thus, the min. capital legally required is €1.00 for single shareholder. This requirement is not applicable for branch.

Minimum number of Directors:

There must always be at least one individual person as director for subsidiaries. There is no residency or nationality requirements for the director which can be either an individual or a corporate. However, non-resident administrators may face administrative hurdles, particularly in tax filings and banking operations.

Insurance:

Workman’s Compensation Insurance Policy must be put in place for subsidiaries and branch offices, if the entity wishes to hire any employees.

Although no physical office presence is required, if employees can work from home, a registered address in Portugal is needed.

For 2023, an additional solidarity rate which varies between 2.5% and 5%, applies to taxpayers with a taxable income exceeding EUR 80,000.

Both employer and employee have to pay contributions to the Social Security in Portugal to cover different protections (sick leave payment, maternity leave payment, unemployment benefit and retirement pension). The employer must withhold the contribution due by the employee and deliver both contributions (employer and employee) to Social Security every month.

*Portuguese residents and non-resident employees in Portugal are liable for social security contributions at a rate of 11% on their gross remuneration (9.3% for board members who are not “Administradores” or “Gerentes”). For the other side, the employers are liable for social security contributions at a rate of 23.75% on the same gross remuneration (20.3% for members of the board who are not “Administradores” or “Gerentes”).

**The above rates serve as a broad guideline. Actual rates charged will differ.

Statutory – Employees are entitled to a holiday bonus (13th month), which includes basic pay and other payments representing consideration for the specific means of carrying out the work, equal to one-month salary and payable before the holiday leave period (usually paid in June).

In addition, employees are entitled to a Christmas bonus, equal to 1 month’s pay, which must be paid by December 15th each year (14th month).

Contractual / Discretionary – It is common in Portugal to reward employees through contractual or discretionary bonuses. The employer is free to define the scope and regime of the bonus plans or schemes through which bonuses are paid out to its employees, there being no specific restrictions or guidelines on what bonuses can be awarded, provided they are not discriminatory.

• Fair dismissal based on objective grounds (redundancy) or dismissal due to unsuitability for the job: 14 days’ salary per year of service, up to 12 months’ base salary. The severance is partially (50%) paid by a fund (FCT) administered by Social Security, to which the employer has to make contributions.
• Fair disciplinary dismissal: no severance.
• Higher severance payments may be agreed and are usual as a way to avoid litigation.

Post-termination restraints aimed to protect the employer’s legitimate business interests can be enforced, provided that the activity carried on by the employee may cause a potential loss to the employer. These types of obligations can be included in the initial employment contract:

• An undertaking on non-competing and/or non-solicitation by the employee.
• The scope of the obligation (activity, territory).
• The period of the limitation (the legal maximum is 2 years, or 3 years in cases of jobs of trust or jobs with access to information of particular relevance).
• The amount to be paid to the employee during the period of the limitation – the law does not provide any criteria, but usually it varies between 50% and 80% of the last monthly remuneration.
• In case these legal requirements are not fulfilled, the employee shall not be validly bound.
• Non-competes – Permissible under the above-mentioned rules.
• Customer non-solicits – Permissible under the above-mentioned rules.
• Employee non-solicits – Permissible under the above-mentioned rules.

Portugal has 14 salaries (see below ‘Bonuses’). Salaries/wages are usually paid by bank transfer. The employer is responsible for transferring the amounts withheld to the social security and tax authorities. Payroll tax submissions and payments are generally due by the 10th of the following month.

Irrespective of the form of payment, the employee is entitled to a payslip that shows the remuneration (gross pay, lunch allowance, etc.) and deductions (personal income tax [IRS], social security contribution to be made by the employee, and any other contributions the employee has authorised to be withheld, such as union dues).

The employer gives the employee a statement in January of the year after the money was earned. Employees require this for submitting their annual tax return to the tax authorities.

According to the Portuguese Law, as a general rule, employees are entitled to a minimum 22 working days of holiday per calendar year. This right falls due on 1 January and relates to work performed in the previous year (CBAs may establish a longer holiday period, typically 25 days).

In the calendar year of admission, the employee is entitled to 2 working days of holidays for each month of the duration of the contract, up to a maximum of 20 working days. These days may be taken after 6 full months of execution of the contract but may be taken earlier by agreement between the employer and the employee.

In the year following the admission, the employee is entitled to 2 working days of holiday for each month of the duration of the contract up to 22 working days. In these two years, the vacation period is a reflection of the working time of each calendar year and not the previous year.

Specific stipulations exist for employees who have fixed-term contracts:

1. Employees who have been working under contract for less than one year, but more than six months are allotted two working days of leave for each month of their employment, up to 20 days.
2. If the calendar year ends before an employee works six months, the accrued leave may be used before the following June 30th, however, a maximum of 30 working days may be used in a single year.
3. Contracts that are less than six months, entitle employees to two days of paid leave for every full month stipulated in the contract.

Scheduling of annual leave is decided through an agreement between employer and employee. Annual leave is usually taken in full as an uninterrupted period, but it can also be broken up into periods of no less than 10 days.

Carry Over Rules

• In the event that the calendar year ends and the days of holidays to which the employee is entitled, have not been taken, they may be taken further until April 30th of the following year, and in the same calendar year there may not be enjoyed more than 30 working days of holidays.
• If the year of admission ends and the days to which the employee is entitled have not been taken, the holidays can be taken until June 30th of the following year.

• Employees are entitled to time off from work for illness or injury, which is paid by the state social security protection schemes, provided they meet all the eligibility requirements. In some cases, collective labour agreements provide specific rules covering employee illness or injury.
• The state social security protection schemes pay sick pay to employees who are absent from work as a result of illness or injury. The employee can receive sick pay for a total of 1,095 days. Sick pay is calculated based on the employee’s remuneration reference for Social Security purposes and varies between 55% and 75% depending on the period of illness.
• Employees have the obligation to communicate absences due to sickness as soon as possible and the employer may request medical documentation attesting the sickness within 15 days from the communication of absence.
• The employer must continue to pay the salary during the first 3 days of absence, after which payment of the sickness allowance falls to Social Security.
• Employees can self-report sick leave through the National Health Services website or app, up to twice a year. This only applies to short-term sick leave, up to 3 working days.

Training leave – The employer may grant the worker at their request unpaid leave for attending a training course administered under the responsibility of an educational or vocational training institution.

Employees who have been employed and made contributions to the social security system for at least six months are entitled to between 120 and 180 days of paid maternity leave.

Maternity leave

Mothers may take up to 30 days’ voluntary leave before the birth, and 42 days (6 weeks) of compulsory leave after the birth. These two periods form part of the initial parental leave, which can last up to a total of 120 or 150 days.

Paternity leave

Fathers are entitled to 28 days’ leave, taken consecutively or non-consecutively, with at least 7 of these after the baby’s birth. The first 7 days must be taken consecutively and immediately after the birth. The remaining 21 days must be taken within 6 weeks (42 days) of the birth. Fathers are also entitled to a further 7 working days of voluntary leave, taken consecutively or non-consecutively, taken at the same time as the mother.

Shared parental leave

• If the parents opt to share the initial parental leave, and each parent individually takes one period of 30 consecutive days (not at the same time), or two separate periods of 15 consecutive days after the mother’s compulsory leave of 6 weeks, an additional 30 days will be added to the initial 120 or 150-day period.
• The 30 additional days may be taken individually by only one of the parents, or both parents may take 15 days at the same time, with a further 15 days for the mother or father only.
• If the duration of the leave is 120 + 30 days, the parental allowance covered by social security will correspond to 100% of the reference income.
• If the leave lasts 150 + 30 days, the parental allowance paid by social security will correspond to 83% of the reference income. The initial parental allowance will be increased from 83% to 90% of income where the father takes 60 days’ paternity leave.
• If the parents opt for initial parental leave of more than 120 days, i.e. if they decide to take 150 or 180 days, they can, after the first 120 days, combine the remaining days of leave with part-time work. The additional 30 days will always be the final period of the leave, whether it is taken only by one parent or shared by both.

Adoption leave

If the child is under the age of 15, working adoptive parents are entitled to leave for 120 or 150 consecutive days.

If more than one child is being adopted, the leave period is increased by an additional 30 days for each subsequent adoption. The leave starts from the moment the adoption process is formalised.

Initial parental leave may be extended by up to 3 months for the father and for the mother. Extended parental leave must be taken immediately after the initial parental leave.

In such cases, social security will cover an allowance equal to 25% of the reference income. If parental responsibilities are shared during the leave, the allowance will increase from 25% to 40%.

The number of days an employee is entitled to for bereavement leave in Portugal depends on the degree of kinship. As per Article 251 of the Portuguese Labor Code, the entitlement is as follows:

• 20 calendar days: For the loss of a child, stepchild, or spouse (including de facto union or common-law partner).
• 5 calendar days: For the loss of parents (including stepparents and parents-in-law).
• 2 calendar days: For the loss of grandparents, great-grandparents, grandchildren, great-grandchildren, and siblings (including those of a common-law partner).

At present, there are 13 public holidays in a calendar year. Public holidays are not included in statutory holiday entitlement.

Mandatory employee benefits in Portugal include:

• Workers Compensation Insurance – All employees are covered for accidents at work and disability or death as a consequence of such accident, through insurance coverage;
• Holiday Pay;
• Meal Allowance for each workday.

Other Benefits

Employers have no legal obligation to provide complementary/supplementary social benefits in addition to the social coverage provided for by the social public scheme. Popular supplementary employee benefits in Portugal include company cars, meal allowance cards, childcare vouchers, workplace canteens, bike to work, gym membership, health and pension schemes

The employer has the obligation to permanently ensure employee health and safety conditions at work. To comply with such duty, the employer must follow a set of general principles focused on the prevention of work accidents and professional illnesses, and thus to comply with several duties. In general terms, the employer must put in place and ensure:

• Technical work accident preventive measures;
• Employee training, information and consultation on workplace safety;
• Internal or external health and safety services.

There are also health examinations prior to commencing employment and at regular intervals is mandatory for the employee to fulfil.