Mastering payroll in Portugal: A comprehensive guide for international businesses

Entering a new country as a business leader can be confusing. Knowing what to pay, to whom, and when is crucial from the first moment. And though payroll in Portugal is simpler than in other countries (and you can even use a payroll calculator to confirm that), you must understand what each cost represents. 

Besides base salaries, what are the benefits? Allowances? And what about taxes and contributions? How much will you pay in total? Let’s answer these and other common doubts so you know what to expect when expanding to Portugal.

What you’ll learn:

• Payroll in Portugal: Why you shouldn't go solo

  Payroll in Portugal: the benefits of hiring expert local partners

• Payroll services in Portugal: What to expect

• Payroll in Portugal: The mandatory taxes and contributions

Payroll in Portugal: Why you shouldn't go solo

The total salary in Portugal includes elements like base payment, benefits, subsidies (like meal, vacation, and Christmas), and private health insurance. Then, depending on the sector and employer, other subsidies may be added (like the transportation one).

So, yes: you’re right to think that payroll in Portugal can be complicated.

And here’s something you must know from the start. Furthermore, the Portuguese regulatory landscape is dynamic, with frequent legislative updates and nuanced interpretations—mainly regarding employment and social security. So, unless you're an expert on Portuguese tax and labor laws, managing payroll requirements increases the risk of non-compliance and legal repercussions.

Many international businesses fail to handle payroll alone because they underestimate the complexities involved.

Payroll in Portugal: the benefits of hiring expert local partners

Given the inherent complexities of Portuguese payroll, attempting to manage it without specialized expertise can indeed prove overwhelming for international businesses.

This is where partnering with a dedicated local expert becomes invaluable. BRIDGE IN not only handles all essential payroll functions but also ensures your complete understanding of the underlying processes—providing clarity and peace of mind. 

Beyond just cost savings, outsourcing your payroll in Portugal to us helps you:

• Achieve robust compliance: Ensure adherence to Portuguese labor and tax laws to minimize the risk of penalties, audits, or legal disputes.

• Guaranteed expertise: Gain access to a team of professionals who are always up-to-date with the latest legislative changes and best practices.

• Focus on your business: Free your team from administrative payroll tasks, allowing them to concentrate on strategic business growth and operations.

• Seamless integration: Benefit from integrated HR and payroll solutions that streamline processes, from onboarding to offboarding.

Now, it’s time to understand a bit more about how this works.

Payroll services in Portugal: What to expect

Payroll services in Portugal can vary widely depending on your provider. That’s why it’s important to clearly understand what each one offers before making a decision.

You've got options: local or international payroll companies, dedicated accountants, or even Employers of Record (EORs)—that offer a more holistic approach, including hiring guidance and HR management, while managing all your team’s salaries, benefits, and taxes.

But this one-stop-shop approach only happens if you know the payroll services and tasks in Portugal that each company offers, like:

• Step-by-step management: Payroll companies handle everything from calculating salaries and processing tax withholdings to managing deductions. This includes processing monthly salaries, overtime (if needed), bonuses, and handling employment terminations.

• Scope of services: The biggest payroll providers offer a wide array of services. Beyond just salary calculation, they manage employee compensation and benefits, handle mandatory contributions and deductions, process expense reimbursements, and ensure timely and accurate payments.

• Cost factors: The price tag varies based on your business size, the provider, the number of employees you have, and the complexity of your payroll needs. Generally, the more employees you have, the lower the per-employee fee will be. Costs can also include base subscriptions, setup fees, ongoing support, and additional charges for compliance or reporting requirements. So ensure you know this by heart before reaching a decision.

• Accountants vs. Specialists: While some accountants can handle basic payroll, they might not offer the deep specialization or full scope of services that a dedicated payroll specialist provides. Specialists often offer integrated services beyond basic payroll, such as HR administration (including managing employee files, documentation, and providing HR consultancy) and labor law support (designing HR processes, drafting employment documentation, and resolving employment-related matters).

Payroll in Portugal: The mandatory taxes and contributions

When building and managing your team in Portugal, understanding the full scope of mandatory employer contributions and obligations is crucial to calculating all employment costs. As an employer, your responsibilities extend to:

• Social Security (Segurança Social): This is a significant contribution, typically 23.75% of the employee's gross salary.

• Labor Accident Insurance (Seguro de Acidentes de Trabalho): This covers workplace accidents and occupational diseases, and it varies depending on the industry and risk level.

• Professional training: Currently, businesses are required to provide 40 hours of professional training per employee annually. This commitment not only supports employee development but also ensures your workforce remains skilled and adaptable within the Portuguese market.

But there’s more. Not only in terms of payroll in Portugal, but also overall taxes and contributions. In fact, we’ve prepared an eBook with all the mandatory corporate costs in the country.

Plus, you mustn’t forget about your team’s benefits and the tax withholdings you must do in every payslip. Here’s a quick overview:

• Base salary: The agreed value you pay every month.

• Meal allowance: Often paid daily, via meal card or directly in the payslip. The tax-exempt amount varies depending on the payment method (e.g., a higher exemption for meal cards).

• 13th and 14th salaries: Although not mandatory, it’s common practice to pay both salaries when employing in Portugal, typically in June-July (vacation allowance) and December (Christmas allowance). They’re calculated based on the monthly salary and are subject to the same social security and IRS deductions (as regular salaries).

Not to brag, but this is (also) how we can help you at BRIDGE IN. Understanding payroll in Portugal can seem overwhelming, but with the right guidance, it becomes much clearer. Partnering with a local expert provider saves you time and money.

So you can focus on what matters: growing your business.