Employing in Portugal: The Breakdown of Every Cost
The costs of employing in Portugal go beyond corporate and VAT taxes. Besides annual gross salary, there are other employment costs to consider, like the Portuguese Social Security or even labor insurance – not to mention Portugal’s mandatory employee benefits, such as Christmas and Holiday subsidies.
So, if you’re considering expanding to the country, it’s time to know all the associated costs.
What You’ll Learn:
Employing in Portugal: The Breakdown of Every Hidden Cost
Base Gross Salary in Portugal
Meal Allowance
TSU (the Social Security contribution)
Labor Insurance
Health and Safety at Work
Other Costs
Employing in Portugal: The Breakdown of Every Hidden Cost
Hiring abroad should be all about transparency, right? We agree.
So, don’t rush. And don’t stop at a basic Google search if you want to hire workers in Portugal. You must network with other business owners – who have already gone through the process you’re about to enter.
Why? Because you must consider all costs and compare them with your budget.
That way, you’ll never be caught by surprise. You’ll know firsthand what you can expect when employing in the country, even if you’re not physically there (or even if you want to hire without an office). These are the main associated costs with employing in Portugal:
Base gross salary
Meal allowance
TSU (the Social Security contribution)
Labor insurance
Health and safety at work
Amongst other costs
So, let’s break these down one by one.
Base Gross Salary in Portugal
First things first: you need to set an overall budget for how much you’ll pay employees per year.
That base gross salary is crucial to understanding all the other costs – not to mention being indispensable when offering a position to a potential employee.
How much will you pay per year?
In Portugal, the annual gross salary isn’t just the sum of the monthly wages but also includes 2 mandatory subsidies: the Christmas and Holiday bonuses. Employers have two options for disbursing these bonuses: either as 2 extra monthly payments – resulting in a total of 14 salary installments for the year – or by evenly distributing their value across the regular 12 monthly installments.
Regardless of the number of chosen months, picture this scenario:
You pay €1000 per month to an employee
That represents an annual cost of €14,000 per year to you (the employer)
Divide the €14,000 by 12 to get the monthly gross base salary (€1000)
That represents a monthly cost of €1,166.6 to your company
Got it? It’s time to add the allowances.
Meal Allowance
This allowance isn’t legally mandatory or previewed in the Portuguese Labor Code. Despite that, most companies include meal allowances in their employees’ salaries. This means you can decide how much you pay each worker and in what way.
So, yes. The overall costs vary and depend on your decision and the taxes applied.
Most companies pay meal allowance because, when following certain criteria, it becomes tax-exempt (from IRS and TSU, i.e., Social Security) for employees. So, that exemption only applies to up to €6 per day when paid in cash and up to €9,60 when paid with a meal card.
Set up a daily amount, decide how you’ll pay it, and calculate what that’ll cost your company.
TSU (the Social Security contribution)
TSU means Taxa Social Única in Portuguese. And it’s another mandatory contribution for companies established in Portugal. However, this one is a little different, as it’s divided between employer and employee:
In total, the TSU corresponds to 34,75% of the employee’s base gross salary
The employer pays 23,75% of that
The remaining 11% is deducted from the employee’s monthly salary
So, if we recover the previous €1000 gross monthly salary, your company will pay €237,50 of TSU to Social Security. In short, the annual TSU cost rises to €3,325.00 (considering the 14-month salary).
But you must be asking: “Are there reductions and exemptions?” Yes, there are, but only in extremely specific cases.
Labor Insurance
Also known as “Workers' Compensation Insurance,” it is mandatory for any company.
Bonuses vary depending on several factors, such as the worker’s age and the risks of each activity. But, on average, labor insurance is 1% of the income to be insured.
So, if an employee earns a base salary of €1,000, the monthly workers' labor insurance will be around €10 (1,000 x 1% = 10). But, to calculate its annual cost, you must multiply the monthly value by the 14-month salary.
So, assuming a monthly base salary of €1.000 and a low-risk activity, the annual labor insurance represents a cost of €140 per employee to your company.
Health and Safety at Work
Health and Safety at Work depends on many factors, but it’s mandatory. It can represent an annual cost of up to €100 or over. You must also keep in mind the mandatory yearly medical exam (and the mandatory 40 hours of accredited training per year for each employee – or the correspondent payment instead).
So ensure you consider these costs, too, when employing in Portugal.
Other Costs
You can also see these as extra benefits for your employees. So, they ultimately depend on you and your business. But here are some examples of what you can also offer them:
Transport allowance
School voucher
Childcare voucher
Private health insurance
Life insurance
Work from home allowance (this can turn out to be mandatory when employees are working 100% remotely)
Technical equipment
Gym pass
Company car
To sum up, expanding your business to Portugal involves understanding the nuances of employing in the country beyond the base salary. Hidden costs include TSU (the Social Security contribution), labor insurance, health and safety expenses, and other benefits like meal allowances. So, consider all costs to avoid surprises when employing in Portugal.
