How to hire and pay remote workers in Portugal

Portugal is an attractive market for sourcing remote workers thanks to a combination of factors — low cost of living, flexible digital nomad policies, and an abundance of qualified talent. The challenge, however, is to make sure you're hiring and paying remote workers in Portugal compliantly. 

To hire internationally, you'll have to have a good understanding of local labor laws and tax legislation and pay your workers in their local currency, on time. You also have to avoid misclassifying workers, or it could lead to hefty fines and penalties.

It's a cumbersome process, but you don't have to stress. In this article, we're going to navigate these issues so that you can recruit and pay workers in Portugal with confidence.

Ready to learn more? Grab yourself a hot drink and let's dive in.

How do foreign businesses pay remote workers in Portugal?

Remote workers in Portugal generally fall under these categories:

• Individual/self-employed freelancers

• Registered as a limited company under their name

• Affiliated with an umbrella company or contractor management company

Umbrella companies act as local management agencies that help contractors with administrative tasks such as payroll. You can pay remote workers in Portugal directly, through a local legal entity, or by working with a global employment partner.

Pay Portuguese workers as contractors

If you want to hire independent contractors and deal with them directly, you can agree on the terms of the contract, including compensation. However, you must comply with local regulations mandating workers be paid at least once a month (typically every two weeks).

Directly working with freelancers and independent contractors is usually the first step toward managing a larger and more distributed remote workforce. If your goal is to engage multiple remote workers at once, it’s a good idea to find a contractor management service that can handle complex management and administration issues such as recruitment and payroll. 

Open a legal entity in Portugal

If your purpose for hiring employees in Portugal is to conduct business activities within the country for over a year, you should incorporate local permanent representation as branches or subsidiaries. Opening a legal entity may also be ideal for recruiting larger teams of remote workers.

This option comes with all the birthing pains of opening a local fixed establishment. You’ll have to figure out corporate taxes and other compliance requirements, such as registration with social security and the labor inspectorate.

Work with a global employment partner

Alternatively, if you don’t require a local entity but would benefit from a managed service approach, you should work with a global employment partner like Remote.

Remote's global employment services allow you to efficiently hire and pay workers abroad without establishing a local office or branch in Portugal. This route gives you the best of both worlds — less risk, compliance mandates, and corporate tax concerns, with a structured management approach to complex business processes.

In what currency do companies pay remote workers in Portugal?

Portugal's official currency is the Euro; therefore, contract terms should be in the Euro too. This does not mean you cannot pay in the equivalent currency of your or your remote workers' choice, as most payment providers can either accept or automatically convert foreign currencies. However, fixing compensation in the local currency also addresses potential fluctuations in exchange rates that may affect your workers’ net pay.

What are the tax rates for tax brackets in Portugal?

Workers in Portugal pay taxes based on a progressive scale. In 2023, income tax rates in Portugal range from 14.5% to 48%, bracketed depending on income:

• €0 to €7,479 = 14.5%

• €7,479 to €11,284 = 21%

• €11,284 to €15,992 = 26.5%

• €15,992 to €20,700 = 28.5%

• €20,700 to €26,355 = 35%

• €26,355 to €50,483 = 43.5%

• €50,483 to €78,834 =45% 

• Over €78,834 = 48%

Incomes from €80,000 to €250,000 and those exceeding €250,000 also incur additional solidarity rates of 2.5% and 5%, respectively.

Which parts of salary in Portugal are taxable?

All Portuguese residents must pay income tax on their earnings, and this includes all payments made by an employer. However, some components of workers’ salaries only incur partial taxes due to the exemptions listed below.

All Portugal residents follow the same scheme for all income, including those received abroad. For non-residents, the tax scheme applies to all Portuguese-sourced income only. Non-habitual residents, on the other hand, work with a flat rate of 20% tax rate on income, and under specific conditions, foreign-sourced income may be exempt.

Components of Portugal salary that incur full taxes

• Salary

• Holiday allowances

• Fringe benefits

• Bonuses and commissions

• Redundancy payments

• Pensions and early retirement

Components of Portugal salary that incur partial taxes

• Per diem allowances

• Cash shortage allowance (5% of monthly salary is exempt)

• Mileage allowance on owned cars (up to €0.36 per kilometer is exempt)

• Lunch allowance (up to €4.77 per day is exempt)

• Meal vouchers (up to €7.63 per day is exempt)

The tax rates are generally slightly lower in Madeira and the Azores.

Is per diem taxable in Portugal?

Per diems — allowances meant for expenses incurred when traveling for work, which include mostly lodging and meals, but also incidentals — are partially taxable in Portugal within exempted limits:

• For per diem within Portugal up to 50 kilometers from the workplace, up to €50.20 per day is exempt (€69.19 per day for directors)

• For per diem for foreign travel, up to €89.35 per day is exempt (€100.24 per day for directors)

Per diem payments in Portugal require an expense report along with proof that the workers were in the indicated location. They do not necessarily need to supply actual receipts, however, as the per diems are based on a daily rate, instead of documented expenses.

Is there a difference between allowance and reimbursement in Portugal?

While per diems are daily allowances provided for work-related travel, reimbursements are expenses paid for by workers that they can recoup by having their employer cover the costs.

Workers can claim reimbursements for expenses for which they can submit receipts. However, they cannot claim food or accommodation costs for expense reimbursement on the same day they claim per diems.

What payroll deductions are employers required to make in Portugal?

In Portugal, employers are required to withhold not only income tax but also social security contributions, labor accident insurance premiums, and unemployment benefits calculated as rates due on the employee’s gross income.

• Social security: It encompasses family benefits and pension among others and is split between the employee, who covers 11% of the deductions, and the employer, who covers 23.75% (22.3% for non-profits).

• Labor accident premiums: Rates vary based on the type of work and risk, but they are typically 1.75%.

• Wage guarantee fund: It is a 1% split between two unemployment benefit funds.

What is the minimum wage in Portugal?

The minimum wage for Portugal is €760 per month, working out to €10,640 per year. 

The minimum wage for full-time workers, domestic employees, and rural workers aged 18 years or older is €760 per month but payable in 14 payments (including mandated 13th and 14th-month pay), culminating in a total of €10,640 annually.

How much is overtime pay in Portugal?

Overtime work in Portugal is paid the standard rate plus 25% for the first hour and an additional 37.5% for every hour afterward during regular working days. On rest days and holidays, the additional is 50% on top of the regular hourly rate.

Overtime work beyond the standard 40-hour workweek is generally limited to two hours per day, with the maximum length of the workweek being 48 hours. Annually, companies with under 50 employees are allowed 175 hours of overtime work, but those with more than 50 people are afforded only 150 hours.

What are the local labor laws in Portugal?

Aside from payroll management, you'll need to observe local labor laws for your remote workers in Portugal.

Employment contracts in Portugal can be agreed upon by the involved parties verbally or in writing, and not necessarily in Portuguese, as long as both parties thoroughly understand the terms therein. It would be convenient to keep a Portuguese version handy, however, as most government offices in the country work primarily in their native tongue.

In general, the types of employment contracts are:

• Fixed-term

• Unspecified duration

• Indefinite duration

• Short duration

• Part-time

• Temporary work

• Provision of services

The details that need to be clarified in a contract include: 

• Employer and employee identification

• Primary work functions

• Compensation details

• Important dates (e.g., starting and termination dates for fixed-term contracts)

• Duration of the contract with justification

• Job location

• Working hours

Probationary periods may be omitted from employment contracts but remain enforceable as they are a nationwide standard and are understood to be implied:

• 15 days for fixed-term contracts less than 60 days, 30 days for fixed-term contracts which are 60 days or longer

• 90 days for typical workers

• 180 to 240 days for roles with high responsibility or complexity

There are 22 working days of annual leave entitlement and 12 public holidays, with two more optional ones.

How to pay contractors in Portugal?

If you’re working with a contractor, you can pay them directly according to the payment terms stated in the contract. However, there is the risk of misclassifying workers if local authorities view them as employees based on how their work is managed or structured. Furthermore, any workers you would formally employ under a legal branch or representative office are entitled to the mandated range of labor protections and benefits, with which you are required to comply.

Estimates state that 10% to 20% of businesses in the US misclassify their remote employees. With worker misclassification — even if unintentional — you risk bearing heavy penalties and fines, paying back missed wages and benefits, and associated legal issues.

A better solution is to work with a contractor management and payroll service like Remote, which can handle contractor payments for you. Remote simplifies international payroll and helps you pay your contractors in Portugal quickly and compliantly. And, remember, if you're considering converting your contractors to employees, Remote can help.

How to pay remote employees in Portugal?

If you hire employees in Portugal through a global employment service, the concerns of your remote workers will also be handled by your service provider. On the other hand, employing your workers via a local entity means that you have to comply with local regulations and understand the consequences of permanent establishment.

If there are sufficient indicators that your company is established enough in a country where you work with employees remotely, you are at risk of permanent establishment. Permanent establishment comes with its own set of compliance requirements and corporate taxes. In Portugal, the corporate tax rate is 21%, with slightly lower rates in Madeira and the Azores.

This is also why partnering with an EOR is the simplest and safest solution to hiring and paying remote workers. Aside from mitigating all compliance-related risks, an EOR ensures that protects you against the dangers of misclassifying workers or permanent establishment.

To understand the key features of an EOR and the crucial advantages it offers in terms of managing risks, read our helpful guide on choosing an EOR for your business needs.

Pay remote workers in Portugal with Remote

Portugal's highly skilled workforce, its proximity to Europe, and favorable digital nomad policies make it an ideal location to expand your business. However, you’ll have to understand local employment laws, remain compliant with tax and payroll regulations, and establish a reliable payment system.

While hiring and paying remote workers in Portugal can seem complex, a global employment partner like Remote can make international hiring stress-free. Whether you're recruiting employees or contractors, Remote can handle every aspect of hiring, onboarding, and payments — benefits, payroll deductions, tax legislation, compliance, intellectual property protections, and more!

Ready to start growing a world-class team? Download our practical guide on hiring remote employees for insightful advice. Or sign up with Remote to begin onboarding remote workers in Portugal right away!