Employer compliance checklist: taxes and employment laws in Portugal

Managing Portuguese employment regulations can be complex for international employers, but getting it right is essential to avoid costly penalties and ensure smooth operations. Portugal’s legal and tax landscape includes detailed rules on contracts, working hours, Social Security contributions, and payroll obligations.

This guide breaks down these critical areas in a step-by-step manner. It explains how working with a Portuguese Employer of Record (EOR) can simplify compliance, especially for businesses without a local legal entity.

Labour law basics for employers in Portugal

In Portugal, employment relationships are clearly defined by law. Contracts can be permanent or fixed-term and typically include a probationary period. Employers must adhere to rules regarding working hours, paid leave, and public holidays. Regular working hours are capped at 8 hours per day and 40 hours per week, with entitlement to at least 22 working days of paid annual leave, plus national holidays.

Employees are also protected against discrimination, with laws in place to ensure fair treatment regardless of gender, age, nationality, or other protected characteristics. Many sectors operate under collective bargaining agreements (CBAs), which may impose additional terms such as higher leave entitlements or sector-specific salary scales. Employers must determine whether their industry is subject to a collective bargaining agreement and apply any relevant provisions.

Employment contracts: legal requirements

Every employee in Portugal must receive a written contract, drafted in Portuguese or accompanied by a translation. Contracts must clearly outline the job title, duties, working hours, pay, probation period, termination terms, and applicable collective bargaining agreements.

Fixed‑term contracts must specify their duration and reasons for being temporary. Failure to comply with language requirements, including mandatory clauses, or meet probation limits can render a contract unenforceable or expose the employer to legal risk. When employees leave the company, the contract must reflect proper termination procedures. Miswritten or oversimplified agreements are a common source of non‑compliance.

Tax and Social Security obligations for employers

To hire employees in Portugal, companies must meet several key tax and social security requirements. Before the first salary is paid, the employer must register with the Portuguese Tax Authority (Autoridade Tributária) and obtain a Social Security identification number (NISS).

Each month, employers must:

• Withhold Income Tax (IRS) from employee salaries
• Contribute to Social Security (Segurança Social) on behalf of both the employee and the company

Employer Social Security contributions usually exceed 23.75% of gross salary. These benefits include pensions, family allowances, sickness coverage, and workplace accident insurance.

In addition, businesses are required to submit monthly payroll reports to both the tax and social security authorities. These reports must detail salary amounts, deductions, and contributions.

Failure to meet any of these obligations, such as late registration, underpayment, or incorrect reporting, can result in misclassification issues, financial penalties, interest charges, and compliance problems that affect both the employer and the employee.

Compliance risks and employer liabilities

Employers in Portugal must remain vigilant regarding legal compliance. The Labour Conditions Authority (Autoridade para as Condições do Trabalho) actively inspects businesses to ensure employment laws are followed.

One significant risk is the misclassification of workers, such as hiring a freelancer when the working relationship actually qualifies as employment. In such cases, employers may be forced to reclassify the individual, pay back taxes and Social Security contributions, and face significant fines.

Late or inaccurate filings with tax or social security authorities can also result in penalties and disrupt operations. To avoid this, companies must keep up-to-date and well-organised records, such as employment contracts, payroll data, and employee histories.

Many international employers underestimate the frequency of changes to labour laws or collective bargaining agreements (CBAs) in Portugal. Staying compliant requires continuous attention to legal updates and evolving sector-specific regulations.

How an Employer of Record ensures full compliance in Portugal

A Portuguese Employer of Record (EOR) acts as the legal employer of your team while your company retains day‑to‑day oversight. Here’s how an EOR ensures compliance and reduces administrative workload:

• Draft fully compliant employment contracts in Portuguese, including mandatory terms and relevant CBAs.
• Registers the company and its employees with the Tax Authority and Social Security.
• Runs payroll, calculates IRS and Social Security deductions, and files monthly and annual reports.
• Acts as the legal point of contact, ensuring that all entitlements, leave, public holidays, termination, are correctly managed.

This model is ideal for companies hiring remote teams, pilots, or single employees in Portugal and wanting a frictionless path to compliance without setting up a Portuguese entity.

For example, a US-based company needed to hire its first employee in Portugal but lacked a local legal entity in place. By using a Portuguese Employer of Record, they quickly onboarded the employee with a compliant contract and handled all tax and Social Security obligations. This helped them stay fully compliant while avoiding legal and administrative burdens.

6-step checklist for employers hiring in Portugal

To ensure full compliance, employers must:

1. Draft a Portuguese‑language employment contract that includes all necessary clauses and CBAs.
2. Register with tax and Social Security authorities before the first hire.
3. Deduct IRS and Social Security correctly and file reports monthly.
4. Keep detailed and accurate employment and financial records.
5. Monitor legal updates in labour law and sector‑specific CBAs.

Consider working with an EOR to outsource contract drafting, registration, and ongoing payroll obligations.

Stay compliant with ease

Employer obligations in Portugal span labour law, contract compliance, tax deductions, Social Security, and regular reporting. Errors can result in severe financial penalties, reputational damage, and operational disruptions.

Partnering with a Portuguese Employer of Record enables you to stay fully compliant and claim local expertise without the ongoing cost and complexity of setting up a local entity. Hiring in Portugal should not be a compliance risk. Get in touch to explore how an EOR can safeguard your rights, responsibilities, and reputation while helping you scale your international workforce.