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Employment in Portugal

The Portuguese labour market operates in a relatively peaceful work environment. Portugal, as a member of the European Union, embraces similar employment law systems as its EU partners, and has incorporated into its laws a set of European directives on labour relations that better regulates employment relationships.

Portugal also has particular regulations, especially those pertaining to the regulation of collective labour matters, such as collective employment contracts.

The legal framework for employment in Portugal heavily supports equal treatment of foreign employees who work on Portuguese soil, ensuring the same rights and duties apply for foreign nationals as well as Portuguese employees.

  1. Contracts

    Employment contracts in Portugal are not required to be in writing as a general rule, although it is customary to express certain information in writing once the employment relationship has commenced. Certain types of employment contracts must be in written form, including:

    • Foreign worker employment contracts
    • Fixed-term/non-fixed term employment contracts
    • Part-time work
    • Non-continuous work
    • Service commission agreements

    Portuguese employment law does not specify what language the Portuguese employment contracts must be written in, although it is advised to have Portuguese versions of the contract readily available as many Portuguese institutions and official entities only accept documents in Portuguese.

    The terms and conditions within the Portuguese employment contract are not required to be expressly agreed upon, as many provisions are derived from the relevant statutory provisions, collective bargaining agreements (CBAs) and work rules in the Portuguese Employment Code. This means that certain mandatory employment terms may be implied, such as probationary periods and termination of employment. The employer does have the obligation to provide in writing the following information:

    • Full identity of employer
    • Place of work
    • Employee’s professional category
    • Description of activities performed
    • Date of employment
    • Vacation duration
    • Salary amount
    • Working periods
    • Applicable CBAs
    • Notice period for termination

    Types of Contracts

    Fixed term employment contracts

    The minimum duration for this contract is 6 months, extending to a maximum of 3 years. For those looking for a first job, the maximum duration is 18 months, while in specific situations it may be 2 years.

    Fixed-term employees work under the same rights and duties as permanent employees. Fixed-term employment contracts may be renewed up to two times, each which must not exceed 18 months and must not be less than 1/6 of the maximum contract duration.

    Indefinite fixed-term employment contracts

    Indefinite employment contracts remain in force until the event or activity for which the employment contract was entered into to pursue has been completed, such as the return of an absent employee or the completion of a project.

    The maximum duration must not exceed 6 years. If employment is to persist more than 15 days after expiry, the indefinite fixed-term contract is converted to an indefinite-term contract.

    Very short-term employment contracts

    These contracts are most applicable to seasonal or agricultural and are not required to be in writing. Instead, the employer must notify a Social Security office that such a contract has been entered into, stating the identities, signatures and address of the parties, type of work, salary, date of work and place of work.

    The maximum duration of a contract of this nature may not exceed 70 calendar days.

    Part-time employment contracts

    Part-time contracts are applicable for cases where normal working periods are shorter than that of full-time work. The duration may be specified as number of days per week, per month or per year. Part-time employees work under the same rights and duties as permanent employees.

    Intermittent employment contracts

    Intermittent contracts applies to work that carries on in a non-continuous way for activities that have activities are interspersed with periods of inactivity at the start and end of each working period. The work must be full-time for a period of at least 6 months, where 4 months must be consecutive.

    Teleworkers’ contracts

    An employee is employed by a telework contract if their primary work activities occur at a location outside the company’s premise, typically using ICT resources. The contract must expressly mention the teleworking arrangement, the appropriate remuneration and an indicator of normal working periods. Teleworkers work under the same rights and duties as permanent employees.

    Temporary employment contracts

    Temporary contracts are made for fixed or non-specific term between a temporary employment agency and a worker, where the employer is engaged in employment of their services to a third party for remuneration while being employed by the agency.

    For the employer, it allows the company to use temporary labour or a contract for services for a fixed or indefinite duration. The temporary labour contract must contain requirements as outlined in Article 177 of the Employment Code (Codigo do Trabalho [CT]). The employer must also attach some proof of membership for the Labor Compensation Fund (Fundo de compensação do trabalho) or similar institutions. If there is no arrangement, the employer is liable for payment of any compensation that the fund may have paid to the employee on termination of the contract.

    The duration of the temporary arrangement must not exceed a 2 year period, 12 months for exceptional increases in company’s business, or for 6 months in cases of vacancies where hiring has already commenced.

    Occasional assignment contracts

    An occasional contract occurs when an employer supplies an employee to another employer while maintaining a contractual employment relationship in order to provide services. The assignment of the employee must contain provisions as set out in Article 290 of CT. The duration must not exceed one year, although is renewable for periods up to a maximum of 5 years.

  2. Probation Periods

    Notice periods typically are required to be written in the employment contract, and may be rescinded by both parties without need of prior notice or compensation, unless otherwise stated in the contract.

    The probation period duration is variable according to the type of contract:

    Non-fixed contracts:

    • General employment – 90 days
    • Positions of technical complexity – 180 days
    • Directors and top executives – 240 days

    Fixed contracts:

    • 6 month or more – 30 days
    • Less than 6 months / unspecific term – 15 days
  3. Termination Procedures

    All rules on termination procedures are mandatory. The employer cannot unilaterally terminate employment without a just cause. The nature of whether termination was through “just cause” can be objective or subjective depending on the nature of dismissal.

    An objective cause is where termination was not due to the employee, but due to economic, market, structural or technological reasons. A subjective just cause is due to a breach of the employee’s employment contract, in that they failed to fulfil or violated their contractual obligations which renders the employment relationship impossible. The Labour Code assists in the identification of the nature of a just cause.

    Contracts of employment may be terminated for different reasons:

    Termination by employee

    The employee may terminate the contract if a just cause is provided by the employee, such as failure to pay the employee for the given work, inadequate health or safety conditions, or any personal attacks to the employee. The notice of termination must be given with 30 or 60 days’ notice depending on whether the employee has been working less or more than 2 years.

    Dismissal with just cause

    The employee is dismissed if the employer has proved that one or more incidences have rendered the employment relationship impossible, such as failure to obey orders or loss of confidence in the employee.

    Dismissal through job extinction

    Under Article 368 of the Labour Code, dismissal may be on the grounds of commercial, economic, operational, structural or technological reasons that the company faces which renders the employment relationship impossible. The employer is responsible for providing non-discriminatory reasons for termination of the employee.

    Dismissal for inadequacy

    Under Article 375 of the Labour Code, the employee may be terminated on grounds of inadequate performance for the position, making continual contractual relations impossible. This method of termination is only valid under certain situations specified by the Code, including:

    • Ongoing reduction in productivity/quality
    • Repeated damage to property
    • Safety or health risk of the employee to others
    • Insufficient skills to achieve objectives

    Termination via this method results in no right to compensation for the employee, unless training has been provided.

    Notice periods

    In fixed-term contracts, the employee is given 8 days’ notice of termination if the contract is up for renewal, or 15 days’ notice of termination if the contract is expiring.

    In definite-term contracts, the notice period may be 7, 30 or 60 days, depending on the term of the contract.

    Disciplinary procedure

    • The employer notifies the employee on the grounds for dismissal in writing.
    • The employee has 10 business days to acknowledge or challenge the facts of the notice.
    • The employee may request the employer to produce documents as evidence.
    • The notification must be given the Works Council and the Trade Union if employee is a Trade Union representative.
    • The final result may be challenged in the Courts by either the employer or employee.
  4. Compensation

    According to Article 366 of the Labour Code, an employee is entitled to 20 days’ remuneration and seniority payments in the event of termination of their employment contract. The total basic monthly remuneration cannot exceed 20 times the guaranteed monthly minimum remuneration (RMMG) of €9,700, while the maximum amount of compensation cannot exceed 12 months or 240 times the minimum wage, at €116,400.

    Compensation is paid by the employer and by any associated employment compensation funds. If no scheme is in place, the employer is responsible for the entire compensation payment.

  5. Statutory Leave

    Annual Leave

    All employees are entitled to a period of paid annual leave for each calendar year. The right to holidays commences the January 1st after the contract of employment has been entered into. The employee is entitled to 22 working days’ holiday per calendar year which cannot be replaced with compensation. An employee’s rest days that lie on working days, weekends or public holidays may add onto the number of annual leave days per year.

    Accumulated holidays are not rolled over to the next year, although it may be extended up to 30 April of the following year if defined in the contract.

    The employer has the duty to assign when the annual leave days take place, although it is accepted that it is agreed upon between the parties. If no agreement takes place, it is to fall between 1 May and 31 October. It is common for certain industrial sectors to close factories for the whole or half of August, while in service industries staff numbers are reduced for the break.

    Sick Leave

    Absences may be allowed under certain circumstances outlined in Article 249 of the Labour Code. Any absences taken outside of these conditions may be met with disciplinary consequences such as reduced pay for the period of absence or even dismissal if 5 consecutive days or 10 non-consecutive days of unjustified absence occurs in one calendar year.

    Absence due to sickness does provide paid leave for the employee, where 60% is paid by Social Security for the daily amount of remuneration. There are no established customs for the employer’s portion of the employee’s paid leave, where no payment or full payments are both possibilities.

    Maternity Leave

    Maternity and paternity provisions are of notable importance in Portugal. The newer Employment Laws encourage sharing parental leave of both father and mother, where either may take up to 1 years’ leave.

    Mothers are allowed up to 30 days’ parental leave before birth. Either the father or mother is allowed 4-5 months parental leave after the child is born with full compensation. If this period is shared between both, the duration extends to 6 months leave at 80% compensation.

    Fathers are entitled to parental leave of 10 working days in the month after the child is born, 5 of which occurs immediately after birth.

    Working Hours

    Normal working hours are a standard 8 hours a day, 40 hours per week maximum. All employees are entitled to a rest period between 1 and 2 hours during the day and guaranteed minimum of 11 hours rest between two work days. It is possible to change the terms related to normal working hours and rest periods under the collective employment regulations (Banca de Horas) up to a 60 hour week, with a maximum of 4 hour increase per day for busy periods of the year, which should be offset by reduced working hours in other periods.

    Employees are required to work overtime if requested except for certain circumstances, such as pregnant women or disability. Overtime is restricted to 2 hours per normal working day, and an annual maximum of:

    • 150 hours in SMEs and large companies
    • 175 hours in micro and small enterprises
    • 80 hours for part-time employees
    • 200 hours under a collective bargaining regulation

    The increase pay from overtime is 50% for the first hour, 75% for subsequent hours and 100% for work on a weekly rest day or public holiday.

  6. Pensions and Benefits

    Social Security

    The contributions to the employees’ pension is the responsibility for the employer, who must send a Statement of Remuneration (declaração de remunerações, “DR”) to Social Security (Segurança Social) every month for each employee in their service. The DR must state the amount of remuneration subject to deductions, number of working hours and the applicable contribution rate. The DR must be submitted online by the 10th day of each month to Social Security Direct (Segurança Social Direta) and is only valid when they are received by them.

    The employer is responsible for contribution payments to Social Security for all employees in the company. Contributions are obligatory and are calculated by applying a general rate to the employee’s remuneration, determined by the Social Support Index (indexante dos apoios sociais, “IAS”), which updates every month. They are paid monthly by the employer between the 10th and 20th day of the month.

    Although employer contributions are compulsory, the employee may still benefit from alternate private pensions or medical assistance schemes. Foreign employees who contribute to obligatory schemes in their home country may continue to do so for up to 2 years while employed in Portugal.

    Types of Schemes

    • Welfare Subsystem: A contributory scheme which covers most employees and self-employed individuals. The aim is to provide financial support to employees who lose their income due to sickness, maternity/paternity leave, unemployment, occupational diseases, invalidity, old age and death.
    • Solidarity Subsystem: A non-contributory scheme. Guarantees essential citizenship rights with an aim to eradicate poverty and exclusion by providing support to individuals or families who are not covered by the welfare subsystem.
    • Family Support Subsystem: Covers most Portuguese workers through providing assistance for families who have increased expenditure from disability or dependency.
    • Social Action System: Provided by local authorities and private non-profit institutions to provide special protection to vulnerable groups like children, young workers, workers with disability and the elderly.
    • Supplementary System: An optional scheme which is made up of a supplementary group-initiative scheme, an individual initiative scheme and a public capitalization scheme that allows voluntary participation by workers.

    Social Security Contribution Rates:

    Employees Employer Employee Total
    Employees in general 23.75% 11% 34.75%
    Home workers 20.3% 9.3% 29.6%
    Members of governing bodies of corporate entities 20.3% 9.3% 29.6%
    Employees under very short-term contracts 26.1% 26.1%
    Disabled workers 11.9% 11% 22.9%
    Agricultural workers 22.3% 11% 33.3%
    Local fishing and coastal vessel employees 21% 8% 29%

Outsourcing Employment Through a GEO Employer of Record Service

Compliance with local employment requirements is just one of the issues foreign companies face when employing staff in Portugal. For companies which intend to employ their staff directly through their incorporated Portuguese entity, professional legal advice is recommended. Shield GEO provides an alternative path for companies to outsource the employment of their staff in Portugal.

As a Global Employer Organization (GEO), Shield GEO acts as the Employer of Record and ensures the employment is compliant with host country regulations regarding employment. In addition Shield GEO will handle payroll processing, tax and immigration. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Portugal.

The Shield GEO solution is an attractive alternative where

– the company is looking to employ staff quickly

– the company doesn’t have an appropriately incorporated entity in Portugal

– the company wants to work within a defined budget

– the company wants to limit its initial commitment in Portugal

– the company needs help with tax, employment, immigration and payroll compliance in Portugal

Shield GEO can contract directly with the company to employ and payroll their staff in Portugal. Shield GEO supplies local employment contracts for the staff which ensure that local statutory requirements are met covering issues such as termination, probation periods, leave entitlements and statutory benefits.  Shield GEO is able to advise companies how to cover local employment regulations whilst still providing consistent global employment policies. Understand more about outsourced employment through Shield GEO.


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