Payroll Calculator in Portugal: How to Never Miss a Payment
Expanding your business to Portugal takes a village. And though you have a lot to worry about, one of the firsts should be handling the payroll calculator every month. You can use a bulletproof system, an external service (which does it all for you), or even venture into doing it yourself – even though you shouldn’t.
The bigger your team is, the more complex it gets. There are a lot of salaries and taxes to handle. But let’s first answer some of your main doubts about doing payroll in Portugal. Once you master all the answers, you’ll never miss another payment or tax.
What You’ll Learn:
Payroll Calculator: The Main Doubts
How to Calculate Payroll Taxes
How to Calculate Payroll Hours
How to Calculate Employer Payroll Taxes
Salaries and Taxes: How They Relate When Doing Payroll
What Is a Good Salary in Portugal?
How Much Tax is Deducted from Salary in Portugal?
What is the 14-month Salary in Portugal?
Can an Employee Live in Portugal on $3000 a Month?
Can an Employee Live in Portugal on $2000 a Month?
Payroll Calculator: The Main Doubts
Doing payroll in Portugal is mandatory when hiring a team in the country, but it can be tricky, as there’s a lot to worry about:
The tax deadlines
The monthly salaries
The documentation to fill in
Update each employee’s data
And so on…
As you handle workers’ payments, it’s critical never to miss one – otherwise, everyone will ask you why they weren’t paid on time (and that’s something to avoid at all costs, as it questions your seriousness). And let’s not forget about the risk of having tax inspection entities knock on your door.
That’s enough reason for your business to need a payroll calculator and be on time. So, before understanding what to bear in mind, know the payroll basis from A to Z.
How to Calculate Payroll Taxes
You must stay on top of your business’s financial responsibilities – from salaries to Social Security (SS) and IRS, passing through IRC, and the primary payroll tax: withholding.
Everything begins with employees’ onboarding. So, here’s a general process on how to calculate payroll taxes in Portugal:
Step 1: gather all your team’s data and documentation in one place (it could be an all-in-one platform). Ask yourself: is the whole squad settled in Portugal? Does anyone have Visas or residence permits? Is the documentation updated?
Step 2: collect the complete number of hours worked by each employee, in case you use a timesheet system. If more flexible, consider that agreed system.
Step 3: calculate each person’s gross salary based on the hourly rate (if any) or your agreed system. To make the process easier, calculate it online to know the full employment costs in Portugal (without hidden fees).
Step 4: invoice each payslip and make sure you withhold the respective taxes (SS and IRS). Send each to your employees.
Let’s now dive deeper into the hourly system to simplify your math.
How to Calculate Payroll Hours
Time is money, and so are accurate payroll hours. So, to calculate an employee's gross salary, imagine this example:
Let’s say the employee’s hourly rate is €10
Suppose they work 40 hours per week
Then, the gross salary calculation would be 10 x 40
This means that the employee earns €400 per week
Then, all you need to do is multiply that value by the number of weeks worked. But that’s not all. Then, it’s time to withhold SS and IRS, which you hand to the government on each employee’s behalf.
How to Calculate Employer Payroll Taxes
Though they’re often seen as “taxes on the employer’s side,” the truth is that they’re only the employer’s responsibility – the ones your business must handle on behalf of employees, called Withholding Taxes.
They’re composed of 2 taxes: Personal Income Tax (IRS) and Social Security (SS). Though the latter is fixed at 34,75% (23,75% paid by the employer and 11% by the employee, and handled by the employer), the first may differ depending on each worker’s situation – if married or not, with or without children, amongst other aspects.
The overall math can get overwhelming at some point. But the good news is that you can hire without an office in Portugal – through the Employer of Record setup, simplifying the whole process (with a third-party entity guiding you through the entire process).
Salaries and Taxes: How They Relate When Doing Payroll
When doing payroll in Portugal, salaries and taxes are indivisible (as in most countries). That said, you must understand the relation between both. That’ll allow you to better calculate monthly payroll, besides knowing the difference between the gross and net salaries.
That’s crucial not only to your business budget but also to your team.
You must be as transparent as possible when hiring someone. That implies knowing how much you’ll offer each employee to join your company, the taxes you’ll withhold on their behalf, and those you’ll pay as a company.
So, let’s answer some general questions to help you calculate payroll in Portugal.
What Is a Good Salary in Portugal?
Well, that depends on each employee – whether a Portuguese citizen or foreigner, with past financial struggles, expense habits, whether living with someone, with or without kids, and so on.
The truth is that, in June 2023, 44% of people stated their income mostly didn’t cover their expenses – opposing the 16% who said they had no problem covering their living expenses.
So, yes. A good salary in Portugal depends on many factors.
In 2022, Portugal's average gross annual salary was €20,323.30 (approximately €1451.66 per month before taxes). According to the latest data, this number sits very close to the country’s minimum wage in 2023.
That means each employee needs to do some math. A €2000 monthly net salary can already be considered reasonable in the country, but it all comes down to each person’s expenses and way of life.
How Much Tax is Deducted from Salary in Portugal?
Besides your business taxes, you must hand your employees’ SS and IRS to the Government every month. Those are the deducted (i.e., withheld) taxes from each worker’s salary.
In Portugal, IRS rates are progressive (varying from 13.25% to 48%). They depend on factors such as income, number of people in the household, if married or not, with or without children, amongst others – and they’re generally updated every year (something you can’t forget when calculating payroll).
In turn, SS sits at 11% for every employee.
What is the 14-month Salary in Portugal?
In Portugal, the 14-month salary is a common practice, and employees typically receive two additional months' salaries – typically in December and July. These mandatory bonuses are called Christmas and Holiday Subsidies, respectively.
Can an Employee Live in Portugal on $3000 a Month?
Living in Portugal on $3000 a month is feasible for many people, but living costs depend on location, lifestyle, and personal spending habits. Cities like Lisbon and Porto have much higher living costs than smaller towns. So, here’s a summary of the general cost of living in the country in 2024 (according to Numbeo):
A family of 4 estimated monthly costs are €2,332.2 without rent
A single person's estimated monthly costs are €660.8 without rent
The cost of living in Portugal is, on average, 36.4% lower than in the United States
Rent in Portugal is, on average, 43.2% lower than in the United States
Can an Employee Live in Portugal on $2000 a Month?
Living on $2000 a month in Portugal may be possible, especially in less expensive areas. However, it would require budgeting and adjusting one's lifestyle to meet the cost of living, which varies across regions.
As you know, calculating payroll involves many factors. Doing it alone can be challenging, so we always advise you to seek professional help. For instance, if you partner with an Employer of Record in Portugal, reach out – we can handle your payroll (a service not all EORs provide).
Managing a business is challenging, especially when expanding abroad.
Mastering a payroll calculator (that gets bigger as your team grows) makes the challenge even more complex. Ensuring timely payments, meeting tax obligations, and maintaining the trust of your team is hard.
As you venture into the complexities of payroll in Portugal, remember that using the right tools, resources, and expertise makes everything easier. Consider contacting professionals like BRIDGE IN to ensure accuracy, compliance, and a smooth payroll operation that contributes to the success of your business expansion in Portugal.
