Imagine you’re ready to expand your business into Portugal—a country with a dynamic economy, a talented workforce, and a growing market. However, as you start dealing with Portuguese employment laws, tax regulations, and compliance requirements, you realise that a straightforward process is a labyrinth of rules and paperwork. Partnering with an Employer of Record (EOR) can make all the difference.

In Portugal, an Employer of Record (EOR) takes on the full range of employment duties, including payroll processing, contract management, and compliance with local regulations. This allows your company to concentrate on growth and expansion without the complications of establishing a regional entity. This guide will explore how an EOR can streamline hiring in Portugal, minimise risks, and help your business thrive.

Understanding the Employer of Record (EOR) model

Think of an Employer of Record (EOR) as your company’s behind-the-scenes partner.. While you still manage your team’s daily tasks and work responsibilities, the EOR handles the legal aspects of payroll, taxes, employee benefits, and compliance with Portuguese employment laws.

Imagine your company wants to bring on a customer support representative in Lisbon. Rather than going through the lengthy process of establishing a local entity and handling all the related legal and administrative work, you can collaborate with an EOR. The EOR will:

• Hire the employee on your behalf, taking care of all the necessary documentation and employment contracts.
• Oversee payroll and ensure accurate deductions for taxes and social security contributions.
• Manage employee benefits like health insurance and paid leave.
• Ensure adherence to Portuguese employment laws, covering areas like minimum wage, working hours, and anti-discrimination policies.

This setup allows businesses to establish a presence in Portugal without the complexity of creating a local entity, making it a practical choice for companies aiming to expand swiftly and smoothly.

Streamlining talent selection and employment setup with an EOR

Expanding into Portugal means securing the right talent to fuel your growth, and working with an EOR lets you maintain full control over the hiring process. Whether you’re relocating employees from your headquarters or recruiting local talent, you can build a team that aligns with your goals. Once you’ve made your hiring decisions, the EOR steps in to manage all legal and administrative responsibilities.

I remember working with a Dutch business that expanded into Lisbon and struggled to set up compliant employment contracts. Thanks to the EOR’s expertise, they not only created compliant contracts but also  managed payroll, and ensured new employees were onboarded seamlessly. This allowed the company to focus on its core activities while the EOR handled the complexities.

5 benefits of using an EOR in Portugal

1. Understanding complex labour laws

Portugal has strict labour laws covering employment contracts, working hours, minimum wage, and employee benefits. Employment regulations vary depending on contract type and industry. An EOR helps your business comply with these rules, minimising the risk of legal complications.

For instance, a software development company from Germany wanted to hire a remote team in Porto but didn’t realise immediately the importance of providing annual paid leave and correct social security contributions. With the EOR’s guidance, they were able to adjust their contracts and benefits, ensuring compliance and avoiding any penalties.

2. Simplifying payroll and tax compliance

Managing payroll in Portugal involves varying tax rates and social security contributions. Each employee’s obligations depend on factors like income level and residency status. In Portugal, the tax system includes varying income tax rates that depend on an employee’s earnings, ranging from lower brackets for minimal incomes to higher percentages for top earners. Employers must also make social security contributions, which generally amount to 23.75% of an employee’s gross salary. These contributions cover areas like healthcare, pensions, and unemployment benefits. Compliance with these obligations is crucial to avoid penalties and ensure that employees receive the benefits they’re entitled to under Portuguese law.

I remember one business that expanded into Portugal but was overwhelmed by the country’s tax system, which required careful calculations to avoid underpayments. The EOR took over payroll management and tax calculation, ensuring contributions were made correctly and allowing the business to avoid potential penalties and focus on growth.

3. Reducing employment risks

Hiring in Portugal comes with risks, especially when dealing with legal disputes or misunderstandings of local employment laws. For example, an American firm faced a legal challenge when they tried to terminate an employee in Lisbon without realising the notice period and termination pay requirements. The EOR stepped in, handled the process, and ensured compliance, saving the company from a potential lawsuit.

This is exactly where an EOR proves invaluable.Beyond handling employment contracts, the EOR manages terminations, and any legal disputes that arise, protecting your business from costly legal issues and ensuring compliance with Portuguese regulations.

4. Faster market entry

Setting up a legal entity in Portugal can be time-consuming and involve multiple registrations and compliance requirements. One French retailer I worked with wanted to expand quickly into Portugal to capitalise on growing demand for their products. With the help of an EOR, they hired staff and began operations within weeks in the new market, avoiding the lengthy process of setting up a local subsidiary.

5. Flexible workforce management

An EOR provides flexibility in workforce management. Whether you need full-time employees, contractors, or temporary staff, an EOR can handle different employment arrangements and ensure compliance with local laws. This flexibility is precious in Portugal, where regulations may vary based on the type of contract.

For example, a marketing agency I collaborated with planned a short-term campaign in Portugal and needed a temporary team on the ground in Lisbon. EOR helped them to quickly hire local talent, get the contractors up to speed, and hit their project deadlines. Once the campaign wrapped up, the EOR smoothly handled contract terminations, freeing the agency from navigating Portuguese labour laws on their own.

The EOR hiring process in Portugal

The EOR hiring process in Portugal typically involves several key steps, each designed to ensure compliance and provide a smooth onboarding experience for employees.

1. Needs assessment and consultation: The process begins with a consultation between your business and the EOR to assess hiring needs, such as the number of employees, their roles, and the timeline.

2. Employment contract preparation: The EOR prepares employment contracts in compliance with Portuguese laws, including details like salary, benefits, working hours, and termination clauses.

3. Payroll and benefits setup: The EOR sets up payroll systems to manage salary payments, tax withholdings, and social security contributions. Employee benefits like health insurance and pension plans are managed according to Portuguese regulations.

4. Employee onboarding: The EOR handles the onboarding process, including collecting documents, setting up work permits if needed, and ensuring employees understand their rights and responsibilities under Portuguese law.

5. Ongoing management and support: The EOR provides continuous support, including payroll processing, compliance monitoring, and HR assistance. They manage any issues that arise, such as contract amendments or employee disputes.

6. Regular reporting and communication: The EOR communicates regularly with your business and provides reports on payroll, compliance, and other key metrics.

Start reducing risk & simplify hiring in Portugal

Expanding into Portugal offers exciting opportunities, but it also comes with challenges, particularly in handling the country’s complex labour laws and compliance requirements. An Employer of Record in Portugal can be a valuable partner in this process, providing expertise, reducing risks, and simplifying the hiring process.

If you’re considering expanding into Portugal and want to reduce risks while simplifying your hiring process, contact us today to discuss how we can support your business expansion and help you succeed in the Portuguese market.