Hiring employees in Portugal without a local entity: how to do it

Portugal has become an increasingly attractive destination for international businesses seeking to hire skilled professionals. Known for its competitive labor market, high-quality infrastructure, and tech-savvy workforce, the country offers significant expansion opportunities. However, understanding the legal landscape of hiring can be challenging for companies that don’t yet have a legal entity in Portugal – such as a branch, subsidiary, or registered local office. Employment laws, tax requirements, and social security contributions all come into play, creating potential compliance risks if not handled correctly.

Many businesses face the dilemma of whether to set up a legal entity or explore alternative options for hiring locally. The good news is that establishing a Portuguese company isn’t the only way to employ workers in the country. With the right approach, international companies can hire employees in Portugal while remaining fully compliant. This article will guide you through the legal limitations, compliance risks, and most importantly, the role of Employer of Record (EOR) services in making it all possible.

Can you hire employees in Portugal without a legal entity?

Hiring employees in Portugal without a local company registration presents some significant challenges. Portuguese labor laws require employers to offer formal employment contracts that adhere to national standards. Without a legal entity, your company may lack the authority to issue such contracts, register employees with social security authorities, or manage payroll according to Portuguese regulations.

One common workaround, classifying workers as independent contractors, is fraught with risks. While independent contractors in Portugal are responsible for handling their own taxes and social security contributions, the line between contractor and employee status is tightly regulated. If the relationship between your company and the worker looks more like traditional employment (for instance, if the worker relies solely on your business for income or works under your direct supervision), the Portuguese authorities may reclassify that individual as an employee. This can lead to fines, retroactive contributions, and legal disputes.

Risks and challenges of hiring without a local presence

Employing workers in Portugal without establishing a formal legal presence comes with several risks:

• Compliance and tax issues: Employers must withhold income taxes, contribute to social security, and follow local labor laws. Without a local entity, meeting these requirements is difficult.
• Social security and employment law obligations: Employers in Portugal are responsible for ensuring that workers are covered under the national social security system and are entitled to statutory benefits, including paid leave, sick leave, and unemployment insurance.
• Inability to offer legal employment contracts or benefits: A lack of local registration prevents companies from providing official employment contracts, which are crucial for compliance and employee security.
• Risk of non-compliance fines and labor law violations: Failing to meet Portuguese employment standards can lead to fines, legal penalties, and reputational damage, making it imperative to find a compliant hiring solution.

What is an Employer of Record?

An Employer of Record is a third-party organisation that acts as the legal employer of your workers in Portugal, allowing your company to hire employees without needing to establish a local entity. Essentially, the EOR is responsible for all employment administration and compliance tasks while you maintain operational control of the employee’s work.

An EOR ensures that employment contracts are fully compliant with Portuguese labor laws, manages payroll and tax filings, handles social security contributions, and oversees employee benefits such as health insurance, pensions, and leave entitlements. By separating employment administration from the day-to-day management of your team, an EOR allows you to focus on growing your business without worrying about compliance challenges.

How an EOR helps businesses hire in Portugal

An EOR can manage a range of employment-related tasks on your behalf, including:

• Drafting compliant employment contracts: The EOR ensures all contracts meet Portuguese legal standards and include required clauses, such as notice periods, probationary terms, and paid leave entitlements.
• Payroll, taxes, and social contributions: The EOR handles all payroll processing, including income tax withholdings and social security payments, ensuring compliance with local laws and timely submissions to Portuguese authorities.
• Employee benefits administration: The EOR provides employees with the statutory benefits they are entitled to, including health insurance, pensions, and paid leave, ensuring your company meets its obligations as an employer.
• Onboarding and offboarding: The EOR manages the legal and administrative aspects of bringing new employees on board and terminating employment when necessary, reducing your administrative burden.

For instance, when a US-based tech company hired several remote developers in Portugal, their EOR ensured all contracts met local labour laws, managed accurate tax withholdings, and provided health insurance and pension coverage, enabling the company to stay compliant and focus on its core operations.

Benefits of using an EOR instead of setting up a subsidiary

Partnering with an EOR offers several key advantages over establishing a local legal entity:

• Faster market entry: With no need to learn the lengthy and complex company registration process, your business can hire employees in Portugal and begin operations much more quickly.
• Reduced cost and complexity: Setting up a subsidiary or branch involves significant upfront costs, administrative hurdles, and ongoing compliance obligations. An EOR eliminates these challenges, providing a simplified, cost-effective solution.
• Legal compliance and reduced liability: By relying on an EOR’s expertise in Portuguese labor law, you minimise the risk of non-compliance, fines, and legal disputes.
• Flexibility to scale or test the market: An EOR allows you to hire employees on a trial basis, test the local market, and adapt your strategy without committing to a long-term investment in a legal entity.

Step-by-step: How to hire through an EOR in Portugal

If you’re considering hiring employees in Portugal through an EOR, here’s how the process typically works:

1. Identify the talent you want to hire: Once you’ve found the right candidate, you’ll need a legal employment structure in place.

2. Select a reputable EOR provider: Choose an experienced EOR partner with a proven track record in Portugal to ensure compliance and reliable service.

3. Sign a service agreement with the EOR: This contract outlines the scope of the EOR’s responsibilities, including payroll management, tax filings, and benefits administration.

4. EOR drafts a compliant employment contract: The EOR prepares an employment agreement that meets all Portuguese legal requirements.

5. Onboarding the employee: The EOR handles all legal and administrative onboarding steps, ensuring a smooth transition for the new hire.

6. Ongoing payroll, tax filings, and benefits management: The EOR continuously manages payroll, withholds taxes, pays social contributions, and administers benefits on your behalf.

Hiring through an Employer of Record in Portugal streamlines the entire process, allowing you to focus on growing your business. By handling contracts, payroll, compliance, and employee benefits, an EOR saves you time, reduces administrative headaches, and helps you avoid costly mistakes, making it a smart, efficient solution for building your team in Portugal.

When should your business consider an EOR in Portugal?

An EOR may be the ideal solution for your business if you’re:

• Hiring a single employee or a small team before setting up a local office.
• Seeking to avoid administrative and compliance burdens while focusing on core business operations.
• Testing the Portuguese market to evaluate its potential before making a larger investment.
• Employing remote workers in Portugal without risking worker misclassification.

Hire in Portugal with ease

Hiring employees in Portugal without a local entity doesn’t have to be complicated. While direct hiring can present legal and compliance challenges, an Employer of Record provides businesses with a streamlined, compliant solution. By managing employment contracts, payroll, taxes, and benefits under Portuguese labor laws, an EOR allows your company to expand quickly and confidently into the Portuguese market.

Contact us today to discover how an EOR can simplify hiring in Portugal and help you build your team seamlessly.