How to Hire Workers in Portugal: a Practical Guide
Sourcing talent in Portugal? Hiring contractors, employing via a local Employer of Record or registering your company in Portugal - here are the pros and cons of each.
Photo by Alex Kotliarskyi on Unsplash
In 2022, Portugal was ranked #1 in the list of best countries to work remotely in the world. Lisbon, Porto, Braga, Ericeira, Funchal and many other cities have effectively become a magnet for digital nomads and remote workers. But is Portugal as attractive to potential employers?
If you are looking for advice on how to hire workers in Portugal, we assume you already know why Portugal is so attractive to foreign startups. And if you don’t, we invite you to find out the 5 top reasons that make Portugal the next stop for your business. That being said, while Portugal offers top talent, the rules and bureaucracy around hiring workers can be complex to navigate without proper guidance. So what are the options available for hiring companies?
Hiring and Employing Workers in Portugal
In essence, workers in Portugal fall under one of two classifications: contractors or employees. There are important legal differences between them and businesses hiring contractors under the guise of employment (also known as employee misclassification) face potential fines and penalties.
An independent contractor is someone who undertakes work or provides a service for one or multiple companies, being paid for achieving a result that is stipulated in a contract. On the other hand, an employee is bound to their employer, and the employer has multiple obligations towards the employee. Learn the difference between contractors and employees in Portugal and the dangers of misclassifying your workers.
So, what are your options when looking to hire workers in Portugal? You can go via the contractor route, or via the employee route. If you choose to hire workers in Portugal as employees, you have two options: either using a local Employer of Record or setting up an entity and registering as an employer.
And what are the pros and cons of these three options? Let’s see.
Using contractors
Hiring contractors in Portugal is fairly simple. The contract between the company and the contractor is straightforward since the terms come down to an agreement between the two parties, namely the duration and scope of work, intended results or services, deadlines, etc.
In this case, it is up to the contractors to pay social security contributions at, typically, 21.4% of the total income. However, there are cases where the employer is responsible for part of these contributions. If between 50% and 80% or more of the contractor’s income comes from a single organization, that organization will have to pay a percentage (between 5% and 10%) of the contractor’s annual fees as social security contributions.
Pros
Flexibility: hiring contractors offers more flexibility. Companies can hire contractors according to business needs: on a project basis, on commission, or for a set amount of time, with no further commitment beyond the contract.
Controlled cost: the option to hire workers in Portugal as contractors is more predictable than to hire employees since this does not require employers to pay social contributions, benefits, vacation time or any of the other obligations an employer might have towards an employee. Additionally, your business does not need to set up any type of local employment apart from agreeing to a contract and a payment method.
Diversified skillsets: contractors tend to have specific and diversified skillsets and experience in their niche areas. These can be education-acquired or culture-related. Many businesses opt to hire workers in Portugal because of good international language skills and an excellent education system.
Cons
Inconsistent availability: since the work developed by a contractor relies on achieving a specific result, the contractor may not always be available, or prone to changes in project scope. This will all depend on the terms agreed upon in the contract. These contractors can take on other projects for other clients (including direct competitors), or even have work hours that aren’t necessarily compatible with those of your business.
Disconnection from company culture: independent contractors may not be as in touch with company culture, business direction, and goals as employees. They can have a hard time adhering to different management styles and internal standards.
More complicated management: hiring a contractor also means that you have less control over how contractors develop their work, making it more difficult to coordinate with other teams and departments, anticipate obstacles, or predict the time of completion of a certain task.
Using a local Employer of Record in Portugal (EOR)
Now, if you are intending to hire workers in Portugal as employees, there are a few extras to consider, such as taxes, social security and benefits. The easiest, most straightforward way to hire workers in Portugal as employees and comply with local labour laws is to go through an Employer of Record (EOR). Once you decide to engage the service of an Employer of Record, you have to consider whether to go with an international or a local provider. The difference between these two options lies in one word: compliance.
INTERNATIONAL VS LOCAL EMPLOYERS OF RECORD
INTERNATIONAL EOR
An international EOR operates in different countries, making it a convenient option for those looking to hire workers in many countries without engaging with multiple providers.
Inevitably most international EORs don’t have the level of familiarity with a specific market as a local EOR, who’ll have robust systems in place to receive real-time employment legislation changes, as well as changes in working conditions. Furthermore, international EORs may either have their own operations in every country or, more often, outsource to several local Employers of Record while centralising the client-facing operations. This means you’re ultimately going with a local PEO, but likely paying a higher price for it.
DOMESTIC EOR - LOCAL EXPERTS
A local EOR is one that operates in one country and serves only businesses looking to expand into that country. They will have one head office with a team of dedicated HR, Payroll and legal experts serving the local market. They will have a deep and real-time knowledge of local regulations, ensuring you stay compliant.
A local EOR is on the ground in your country of expansion and works in the same or similar time zones as your employees, being able to offer a level of support to your workers when they need it the most and basically acting as an extension of your business.
Most local EORs will also support custom benefits that might be required for your team and help you plan for a benefits package that is tailored to the specific country's laws and optimize tax efficiency.
Let’s have a look at the pros and cons of engaging the services of a local Employer of Record in Portugal
Pros
Loyalty and commitment: an employee will usually have a greater sense of commitment to a company than a contractor. Using an Employer of Record provides employees with all the benefits they may expect as having been hired directly.
Fast hiring process: the process of hiring and onboarding is fast and seamless as the EOR is already in place with extensive knowledge of local regulations and talent pools.
Low set-up cost: using the services of an EOR represents a much lower cost than setting up an entity. Considering that the EOR will ensure all the process is compliant with national laws and regulations, this setup can potentially save money in the long run.
Easier management: an employer can have more control over their employees’ work time and methods, as well as real-time management.
Easy exit: terminating employees’ contracts and exiting the country via an EOR is straightforward since it is handled by the EOR.
Cons
Third-party reliance: some employers feel less involved in the hiring process, as most of the legal, bureaucratic, and administrative aspects have been dealt with by the EOR.
Setting up a subsidiary in Portugal
Finally, as a more complex and more definite way to hire workers in Portugal as employees, you can establish a physical presence with an entity and register as an employer, that is, establish a subsidiary in Portugal.
This option is mostly used either by multinationals that intend to have multiple workers and a long-term commitment to the Portuguese market or by companies that have started using an EOR for a small team and then ended up employing several workers over time. Nevertheless, any company may opt for this option to grow their existing teams with a similar skillset, shared language, and close proximity.
Read more on company incorporation in Portugal.
Pros
More autonomy: opening a subsidiary in Portugal equals becoming a valid employer entity. This gives your company full independence and control in hiring and running payroll, as well as in company culture and employee management.
Potential incentives: many countries welcome foreign investors with open arms and provide incentives and streamlined processes in order to encourage foreign companies to establish operations locally.
More direct access: to skills, talent, local knowledge and expertise, and expansion opportunities. While being in touch with a certain market will indubitably give your business growth opportunities, being in the market will make growth much easier and attainable.
Cons
Extensive initial costs: setting up a subsidiary is costly, be it in terms of time, resources and monetary investments.
Need for local expertise: setting up a local subsidiary requires an expert to handle every legal, tax, social security, payroll and insurance process. Read more about the challenges of foreign investors in Portugal.
Difficult exit: if the time comes that you wish to leave the country, having a subsidiary means this process is not easy or quick.
BRIDGE IN helps you hire workers in Portugal
BRIDGE IN is the perfect partner to help you hire workers in Portugal. We are a local Employer of Record and Payroll provider in Portugal allowing you to hire entire teams in Portugal at speed while being in compliance with all the local rules. Should you opt for subsidiary incorporation in Portugal, we also take care of the necessary steps involved in registering a company locally and offer support as interim country managers. Payroll, expenses, taxes, social security, insurance, legalities… you name it, BRIDGE IN can help you get started and get settled.
Get in touch with BRIDGE IN and let us tell you how we can help you.
