Hiring and Employing Compliantly in Portugal: 4 Ways to Get Started

BRIDGE IN
6 min readJul 20, 2023

Portugal stands as an attractive hub for companies seeking top-notch talent. With its burgeoning tech scene, the nation boasts a pool of skilled professionals proficient in cutting-edge technologies and innovation.

Photo by Nick Page on Unsplash

After years of crisis in the early 2000s, the country’s resurgence in economic vitality is exemplified by its rise as a prominent European tech hub. In various towns and cities like Porto, Braga, and Lisbon, shared workspaces have become a focal point, attracting a diverse range of enterprises, from startups to renowned global giants like Ericsson, Nokia, Bosch, and IBM. Another signal of the country’s growing innovation mindset is the dynamic startup ecosystem: as of 2022, start-ups located in the Portuguese capital have skyrocketed in value, reaching an impressive €21 billion, marking a remarkable 26-fold increase since 2016. Intriguingly, Portugal has also outpaced Spain, Italy, and Greece combined in producing unicorns, further accentuating its burgeoning entrepreneurial ecosystem.

Notably, Portugal’s allure lies in its appeal as a new home for international workers, drawn to its welcoming culture, exquisite landscapes, and high quality of life: Portugal’s multicultural population creates a dynamic and inclusive work environment, fostering fresh perspectives and creativity. Embracing diversity, companies can tap into a global mindset that propels growth and fosters competitiveness. By hiring talent in Portugal, companies gain a strategic advantage, blending expertise with the richness of a multicultural community.

How to Set up Your Tech Hub in Portugal

When it comes to sourcing and hiring talent in Portugal, there are four main options to consider: hiring contractors, registering as a foreign employer, utilizing a local Employer of Record (EOR), or registering your own company in Portugal. Each approach has its own advantages and disadvantages, and it’s essential, for example, to understand the distinctions between contractors and employees to avoid potential legal issues related to employee misclassification.

HIRING CONTRACTORS IN PORTUGAL

One of the simplest and quickest ways to commence operations in Portugal is by hiring contractors. This option allows companies to engage individuals or companies on a project-by-project basis, without the need for establishing a legal entity in the country.

Pros of hiring contractors in Portugal

  • Flexibility: Hiring contractors offers flexibility in terms of project duration and scalability
  • Cost-effectiveness: Companies can avoid fixed employment costs, such as social security contributions and benefits.
  • Reduced administrative burden: Contractors are responsible for their own taxes and social security contributions.

Cons of hiring contractors in Portugal

  • Limited control: Contractors operate as independent entities, limiting the employer’s control over their work.
  • Regulatory considerations: Classifying workers as contractors requires adherence to specific legal requirements to avoid misclassification issues.
  • Intellectual property concerns: Intellectual property ownership should be addressed through explicit contractual agreements.
  • Inconsistent Availability: Contractors may not always be readily available or might have conflicting project commitments, which could impact project timelines.
  • Disconnection from Company Culture: Independent contractors may not fully integrate into the company culture, making it challenging to align with management styles and internal standards.
  • Complicated Management: Managing contractors may be more challenging, as employers have less control over their work processes, coordination with other teams, and project completion timelines.

SETTING UP AS A FOREIGN EMPLOYER IN PORTUGAL

Foreign companies can opt to establish themselves as employers in Portugal without incorporating a local entity. This option allows direct employment of local staff while complying with local labour laws.

Pros of Setting up as a Foreign Employer in Portugal

  • Direct employment: Companies can have full control over hiring and managing local employees.
  • Better employee engagement: Local employees may feel more connected to the organization if directly employed.
  • Potential cost savings: Compared to using third-party services, setting up as a foreign employer might be more cost-effective in the long run.

Cons of Setting up as a Foreign Employer in Portugal

  • Complex setup process: Establishing a foreign employer setup involves navigating legal and administrative procedures.
  • Compliance obligations: Companies must ensure compliance with Portuguese labour laws, tax regulations, and social security contributions.
  • Increased administrative responsibilities: Managing payroll, benefits, and taxes becomes the employer’s responsibility.
  • Permanente establishment: the presence of a permanent establishment in Portugal is subject to the employee’s activities, as determined by the government. This may lead to additional tax and legal responsibilities for the company.
  • Employee benefits: Certain benefits like private health insurance and meal allowances are highly esteemed by the local workforce. However, setting up a benefits plan for foreign employers can be challenging, hindering potential tax savings for the company.

EMPLOYING VIA A LOCAL EMPLOYER OF RECORD IN PORTUGAL

Companies can engage the services of a local Employer of Record (EOR) to handle their legal obligations as an employer in Portugal. An EOR acts as the local representative, assuming legal responsibility for employment-related matters.

Pros of Using an Employer of Record in Portugal

  • Simplified entry: Partnering with an EOR streamlines the process of hiring and complying with local regulations.
  • Risk mitigation: The EOR assumes legal liability and ensures compliance with employment laws, reducing the employer’s risk.
  • Time and cost savings: Engaging an EOR eliminates the need for establishing a legal entity and reduces administrative burdens.
  • Control over employment matters: While the EOR is the legal employer, you can keep control over HR policies and employee management.
  • Use an EOR as the first step to fully set up operation in Portugal: using an Employer of Record can open doors to further expand into the country when the time is right. You can start employing your workers with a local EOR and then insource the team when you are ready to create your own subsidiary or branch in Portugal.

Cons of Using an Employer of Record in Portugal

  • Higher costs: Engaging an EOR involves service fees, which may be higher than directly employing staff.
  • Potential communication gaps: Ensuring effective communication and alignment between the employer and the EOR is essential.

COMPANY FORMATION IN PORTUGAL: SET UP A BRANCH OR A SUBSIDIARY

For companies planning long-term operations, establishing a local entity in Portugal is a viable option. This involves incorporating a subsidiary or branch office, allowing full control over operations and employment.

Pros of establishing a company in Portugal

  • Maximum control: Companies have complete control over HR policies, employment contracts, and strategic decisions.
  • Local market integration: Setting up a local company demonstrates a commitment to the Portuguese market, fostering trust and credibility.
  • Access to benefits and incentives: Local companies can avail themselves of government incentives, grants, and tax benefits.
  • Cost-effectiveness in the long run: if you have a team of more than 6 people in Portugal, employing them directly under your local legal entity will save you money in the long run.

Cons of establishing a company in Portugal

  • Higher initial setup costs: Establishing a local company involves legal, administrative, and operational expenses.
  • Compliance responsibilities: Local companies must navigate complex legal and tax requirements, incurring ongoing compliance costs.
  • Longer setup process: Compared to other options, setting up a local company requires more time and effort.

The Best Option? BRIDGE IN, your Local Trusted Partner for a Hassle-free expansion into Portugal

When venturing into the Portuguese market, foreign companies have several options to consider for hiring employees. Each approach has its own set of advantages and challenges. The decision ultimately depends on the company’s goals, budget, and level of control desired. Whether through hiring contractors, setting up as a foreign employer, engaging an Employer of Record, or establishing a local company, careful evaluation of the pros and cons will enable foreign companies to make informed decisions and effectively expand their operations in Portugal.

Contact us for a full overview of each process and its advantages and pitfalls.

Originally published at https://www.bridgein.pt on July 20, 2023.

--

--

BRIDGE IN

BRIDGE IN helps companies set-up their tech hub and hire talent in Portugal. We are the OS for distributed teams.