There are very few countries in the world that can rival Portugal in terms of natural beauty. Portugal’s capital is one of the best places to live. However, before you make any decisions about moving to Portugal or opening your business to Portuguese employees, it’s important to know how you’ll need to navigate Portuguese labor laws and tax requirements. In this blog we have created guidance on how to master payroll in Portugal.
This guide on how to master payroll in Portugal will help you become familiar with local laws and requirements related to employment benefits, compensation and taxes.
Taxes on Wages
Employees pay a tax to the government that depends on their monthly salary. Employee’s wages are withheld on a monthly basis; with employers responsible for paying the employee and the government tax.
All companies employing workers under a contract of indefinite duration; or employment must withhold social security taxes from their employees’ payrolls and keep them up to date with regard to changes to the work force, wages paid, social security contributions and related information.
Under Portuguese law employees must receive a written employment contract. The contract should include: work schedule, salary, duties and responsibilities. If you fail to meet these obligations, an employee can file a lawsuit against you for breach of contract.
Keep in mind that employment contracts must always be dated and signed by both parties and registered with the Labor Court; of your region. This should all be done before you are legally permitted to start paying your employees.
Injury at Work
Under Portuguese law, when employees are injured at work, employers must file a report with the Labor Inspection Department; (Inspecção-Geral do Trabalho) within 24 hours. Failure to do so may result in fines and other penalties. The report should contain information regarding: (1) The nature of injury; (2) How it occurred; and (3) Whether medical attention was sought by employee or whether an ambulance was called by employer.
Unemployment Insurance Fund (FSE) Contributions
The fund is administered by the Labor and Employment Ministry, or Ministério do Trabalho e Emprego (MTE). Employers are required to contribute 3 percent of their total payroll for each employee on an annual basis. Employees also pay 2 percent of the gross salary as a contribution into the unemployment insurance fund.
In 2016, the minimum amount of mandatory contributions is set at 654 euros per year; although contributions can be more than that if they’re agreed upon by both employer and employee.
State Pension Insurance Contributions
Social Security contributions from workers are mandatory in Portugal and paid to pension funds on a monthly basis. Employers pay half of that amount, and must withhold an additional 20 percent from employees’ salaries for Social Security. In addition to Social Security, employers must also contribute another 8 percent toward health insurance costs on behalf of their employees. It is these contributions from employees which appear on their payslips as PPRS (Portuguese acronym for State Pension Insurance).
Sickness Benefits (SNE) Contributions
There are four separate instances where employers must pay sickness benefits which are; illness, childbirth, injury and accident. These benefits can be collected for up to 42 weeks. Employers must make contributions for employees who work and employers must reimburse employees for payments made when employees are not working due to illness.
Employees must also contribute 4 percent of their monthly wages towards sick leave. For example, if an employee earns 1,000 euros per month, they will contribute 40 euros per month towards sick leave.
Individual Retirement Savings Scheme (PPR) Contributions
To promote long-term saving and investment, as well as retirement security, Portuguese law requires employers and employees to contribute equally on a monthly basis for three months each year into an Individual Retirement Savings Scheme (PPR). These contributions are automatically deducted from employees salaries. A failure to comply can result in fines for both employers and employees. The IRFS is a tax-exempt savings account that can be accessed at retirement without penalty. The amount of contributions you’re required to make depends on your employment status.
How RHJ Accountants Can Help
We recognise more than ever that individuals and businesses from the UK and other countries may be globally mobile. We aim to make you aware of the tax-efficient opportunities, available tax relief and structure finances for life at home and abroad.
Our international team of specialists operate from offices in the UK and Portugal. We work together synergistically to provide tax efficient solutions to our clients to help them grow their business whilst keeping tax liabilities to a minimum.