Payroll in Portugal: Why You Shouldn’t Do It Alone
Knowing how to expand a business to Portugal without failing is critical nowadays, as the country is getting more and more noticed. But, as the scene grows, so do the complexities of taxes, laws, and payroll requirements. That’s why you shouldn’t go to war all by yourself – unless you know the whole process by heart, from how to use payroll software to paying everyone on time (while not forgetting about compliance).
It gets tricky along the way. That’s why we’ve prepared a comprehensive guide about payroll in Portugal. Get ready to understand better what payroll is all about, what you need to consider every month, and how it works in Portugal.
What You’ll Learn:
Payroll in Portugal: Is it Different from Everywhere Else?
What is Payroll?
What is Payroll Tax?How to Do Payroll in Portugal
Payroll in Portugal: The Step-by-Step Process
1. Choose a payroll system
2. Understand payroll policies
3. Add the employees to the payroll system
4. Verify the timesheets
5. Reconcile
6. Release the payslips
Payroll in Portugal: Is it Different from Everywhere Else?
At its core, it isn’t. So, before diving into the intricacies of payroll in Portugal, there are a few things to consider.
In Portugal, employers are required to register with the Tax Authority and the Social Security system. This registration is mandatory and must be done before hiring and employing anyone. Once registered, you’ll need to provide your employees with a contract outlining their employment terms, including the contract type, salary, benefits, and any other relevant details.
Employers must also keep accurate records of their employees' working hours, overtime, and absences. This information must be updated and made available to employees and relevant authorities upon request. Failure to comply with these requirements may result in sanctions and fines. Now that you are all set, we can start talking about payroll.
What is Payroll?
Payroll refers to the total salaries a company pays its employees during a specific period – an essential step of hiring and employing in Portugal and elsewhere. This includes everything from basic salaries to bonuses, allowances, and benefits (and taxes).
This is the process every company needs to go through, especially if it manages a remote team, as it may require (even) more knowledge in the field. When done right, payroll ensures employees get paid on time, that nothing’s missing from each payslip, and that all procedures are in compliance with local laws and tax obligations. That’s why many companies hire dedicated professionals to handle this responsibility.
And then, there’s tax.
What is Payroll Tax?
Payroll tax refers to the taxes levied on wages, tips, and salaries, which are paid by both employees and employers. For employees, these taxes are deducted from their paychecks, and the employer is responsible for remitting them to the government.
Percentages vary depending on the country, but generally, they’re always paid by companies.
In Portugal, part of these taxes play a vital role in sustaining the country's Social Security system – which covers health, unemployment, and retirement benefits. That’s a crucial contribution that, amongst others, contributes to increasing the real costs of employment in Portugal.
In fact, employers in the country are responsible for several payroll taxes besides social security, including work accident insurance – in which employers contribute to insurance programs covering workplace accidents (when working in-house), to protect employees in case of injuries.
But payroll and its taxes aren’t just a way of paying people. It’s a crucial system that allows companies to fulfil their financial obligations and avoid legal complications. It’s also the moment when most businesses fail when hiring abroad. There are too many complexities in understanding each country’s law and fiscal rules.
How to Do Payroll in Portugal
First, you can’t do payroll in Portugal if you don’t know how the salary structure works in the country. So, take a moment to understand it better:
Cost to Company: employing someone (not only in Portugal but elsewhere) implies costs. The cost to the company is one of those – commonly known as “CTC of the employee.” This value represents the amount the company bears when onboarding an employee. This means that the CTC includes salary and taxes. In short, it’s the total value a business pays to employ and maintain a worker.
Gross salary: it includes the total payroll contribution. It represents the maximum amount a person earns in a year when employed by a company. Often, an employee’s annual salary in Portugal is divided into 14 parts, and two additional parts are given as subsidies – one for vacation and the other for Christmas.
Net salary: also known as liquid salary, is what the employee actually takes home. It’s the amount earned after all taxes are paid.
Allowances: Portugal has some requirements when it comes to allowances. These give the workers a certain feeling of financial security, as they cover some work-related costs, such as travel, meals, and communications. The most common allowances in Portugal are food, travel, phone, and remote work.
Provide clear payslips: make sure your employees receive clear, detailed payslips that show their salary, deductions, and any other relevant information. This will help them understand their earnings and ensure transparency in their financial management.
Stay up-to-date with changes in legislation: Portuguese employment legislation can change frequently, so it is important to stay up-to-date with new requirements or regulations.
Seek professional advice: if you have questions about any aspect of payroll management, or HR – Human Resources – it is always a good idea to seek professional advice from an experienced firm – BRIDGE IN has in-house experts that can shed light on any doubts you may have.
Payroll in Portugal: The Most Common Procedures
There are different ways of doing payroll in Portugal. Each company and its professionals have their own processes, but these would be the most common steps to go through:
Choose a payroll system: will you process salaries in-house or externalize to another company, specialized in payroll? To make your decision easier, define your payroll goals, how much knowledge you have about the specific market you are about to run payroll in and the budget you need for your company’s activity. And consider your company’s size, as that’ll also determine your decision. If you need a hand in Portugal, check our payroll services.
Know Portugal’s payroll policy: this is mandatory, as each country has a specific payroll policy. Ensure you know every requirement before everything else – which means following all the ongoing labor laws.
Add the employees to the payroll’s software: notify and onboard each employee after choosing a payroll system, adding essential information about each person – including name, birthdate, phone number, important data, and compensation components, among other things. Don’t forget that whenever something changes, you need to update it on this software.
Verify the timesheets: each employee should have one that you must review to determine the compensation components (like gross pay, overtime payments, and other aspects). This is also when you deduct all the contributions (mainly Social Security and personal income tax) that will later determine the employee’s net salary.
Reconcile: this is when you verify, and verify again, that all the information you entered is correct – a process known as payroll reconciliation. Check everything before paying each employee.
Release the payslips: when you complete all the payroll calculations, you must deliver a physical or digital payslip to your employees. This is relatively easy when you use payroll management software.
Every company needs to follow specific rules, and payroll policies in Portugal are no exception. So, if you have a business, consider partnering with an expert to ensure everyone gets paid on time – and that you don’t forget any allowance or mandatory contribution.
