Hiring someone in Portugal means taking on a set of employer obligations that go beyond paying a salary. You’ll need to register with the social security system, calculate and remit monthly contributions, withhold income tax on each paycheck, and carry mandatory accident insurance. For foreign companies without a local entity, those requirements can feel opaque at first. This guide breaks them down clearly so you know exactly what you’re paying and why.
Social security contributions
Social Security (Segurança Social) is the largest employer cost in Portugal. It funds pensions, unemployment benefits, parental leave, and sickness benefits for your employees.
Employer contribution rate
The standard employer Social Security contribution rate is 23.75% of gross salary. This rate hasn’t changed for 2026 and applies to most private-sector employment contracts.
Your employee also contributes 11% of gross salary, which you withhold from their pay and remit on their behalf. The combined contribution rate is therefore 34.75%, though only 23.75% comes out of your budget directly.
Registration and payment deadlines
You must register with Segurança Social before your employee starts work. Registration can be done through the Segurança Social Direta online portal. Contributions are calculated monthly on the full gross salary and must be remitted by the 20th of the month following the month of payment.
There’s no cap on the earnings base for Social Security contributions in Portugal, so contributions apply to the full gross salary regardless of how high it goes.
The labour compensation fund (fct/fgct)
Until recently, employers in Portugal were also required to make monthly contributions to the Labour Compensation Fund (FCT) and the Working Compensation Guarantee Fund (FGCT), which exist to fund employee termination compensation.
Those monthly contributions are suspended from January 1, 2024 through December 31, 2026, following Decree-Law 115/2023. You don’t make new FCT or FGCT payments during this period.
A few things to know about existing fund balances:
- Balances already accumulated in your employees’ FCT accounts remain active.
- You can use those balances for employee training, housing support, or to cover up to 50% of termination compensation when an employment contract ends.
- After December 31, 2026, any unused FCT balances transfer automatically to the FGCT.
When the suspension period ends, employers will need to monitor whether contributions resume or whether new rules apply.
Labour accident insurance
Employers in Portugal are required to carry labour accident insurance (seguro de acidentes de trabalho) for every employee. This is a private insurance policy, not a state contribution, and you purchase it directly from an insurer.
The rate is approximately 1.75% of gross salary, though the exact premium depends on the risk classification of your industry. Higher-risk sectors pay more; lower-risk office work typically sits at or below the 1.75% benchmark.
This insurance is mandatory from day one. Operating without it exposes you to significant legal liability.
Total employer on-cost
Adding up the confirmed employer costs for 2026:
| Cost | Rate |
|---|---|
| Social Security contribution | 23.75% |
| Labour accident insurance (approx.) | ~1.75% |
| FCT/FGCT contributions | Suspended through Dec 31, 2026 |
| Total (approx.) | ~25.5% |
For budgeting purposes, plan for roughly 25.5% on top of gross salary when calculating the total cost of an employee in Portugal this year.
Minimum wage
Portugal’s national minimum wage for mainland Portugal is €920 per month as of January 1, 2026. This applies to full-time employees on standard 40-hour contracts. All employer tax calculations use actual gross salary, so the minimum wage sets the floor for contribution calculations.
Income tax withholding (irs)
Portugal’s personal income tax is called IRS (Imposto sobre o Rendimento das Pessoas Singulares). As the employer, you don’t pay IRS yourself, but you’re required to withhold the correct amount from each salary payment and remit it to the tax authority (AT) on the employee’s behalf.
2026 Irs brackets for employment income
The 2026 thresholds reflect a 3.51% upward adjustment applied across all brackets:
| Annual taxable income | Marginal rate |
|---|---|
| Up to €8,342 | 12.5% |
| €8,342 to €12,587 | 15.7% |
| €12,587 to €17,838 | 21.2% |
| €17,838 to €23,089 | 24.4% |
| €23,089 to €29,397 | 31.1% |
| €29,397 to €43,090 | 34.9% |
| €43,090 to €46,566 | 43.1% |
| €46,566 to €86,634 | 44.6% |
| Above €86,634 | 48.0% |
In practice, employers don’t apply these brackets directly. The AT publishes withholding tables each year that map gross monthly salary, marital status, and number of dependants to a withholding percentage. You apply that percentage to the employee’s gross pay each month.
Irs jovem: the youth income tax exemption
Portugal’s IRS Jovem regime offers a significant tax break for younger workers, and it affects your payroll withholding obligations.
Employees aged 18 to 35 who have completed a recognised study cycle qualify for a partial exemption on their employment income (Category A income). The exemption applies as follows:
- Year 1 of employment: 100% exempt
- Years 2 to 4: 75% exempt
- Years 5 to 7: 50% exempt
- Years 8 to 10: 25% exempt
The exemption is capped at 55 times the IAS (Indexante dos Apoios Sociais), which works out to approximately €29,542.15 for 2026. Income above that cap is taxed at the normal IRS rates.
IRS Jovem can’t be combined with the Non-Habitual Resident (NHR) regime or other special tax arrangements.
Your obligation as employer: when an eligible employee provides you with proof of their IRS Jovem status, you must apply the reduced withholding rate that reflects the exemption. You don’t grant the exemption yourself; the employee requests it and provides documentation, and you adjust your withholding accordingly.
Hiring in portugal without a local entity
If your company doesn’t have a registered entity in Portugal, you can’t legally hire employees there directly. You’d need either to establish a Portuguese subsidiary, which takes time and ongoing administrative overhead, or to work through an Employer of Record (EOR).
An EOR is a local legal entity that employs workers on your behalf. The EOR handles registration with Segurança Social, monthly contribution remittances, IRS withholding, accident insurance, and compliance with Portuguese labour law. You manage the employee’s day-to-day work; the EOR takes care of the employer obligations.
For companies hiring one or a handful of people in Portugal, EOR services are usually far more cost-effective than setting up and maintaining a local entity.
FAQ
Do employer Social Security contributions apply to bonuses and other variable pay?
Yes. Social Security contributions apply to total gross remuneration, including bonuses, commissions, and holiday pay supplements. There’s no earnings cap, so contributions are calculated on the full amount regardless of size.
What happens if I don’t register with Segurança Social before my employee starts?
Late registration and late contribution payments attract penalties and interest. Portuguese labour authorities can also conduct inspections, and operating without proper registration creates liability for back contributions plus fines. Register before the employee’s first day of work.
Is the FCT suspension automatic, or do I need to apply for it?
The suspension is automatic and applies to all covered employers by law under Decree-Law 115/2023. You don’t need to file any application or notify any authority. Simply don’t make FCT/FGCT monthly payments during the suspension period. Existing fund balances remain accessible.
Can a foreign company pay employees in Portugal in a foreign currency?
Employment contracts in Portugal can reference salary in euros or foreign currency, but payroll must generally be settled in euros. IRS withholding and Social Security contributions are calculated on the euro equivalent of gross pay. Most payroll providers and EOR platforms handle FX conversion as part of their service.
