Running Payroll in Portugal

Processing payroll in Portugal is relatively straightforward by European standards, but employers—especially those new to the market—must navigate a range of national labor laws, tax regulations, and social security obligations. Compliance hinges on staying up to date with ongoing legislative changes, which are often introduced through annual State Budgets and evolving employment policies.

In 2025, key areas of focus include adjustments to personal income tax brackets, minimum wage increases, and updates to reporting requirements through the Social Security and Tax Authority’s digital platforms. For foreign employers without a local legal entity, understanding registration procedures and mandatory contributions is essential to ensure legal and operational compliance.

Before employers can start processing payroll in Portugal, several legal and administrative steps must be completed. While it is not mandatory to establish a local legal entity, companies intending to employ workers in Portugal must register with the Portuguese Tax and Customs Authority (Autoridade Tributária e Aduaneira) to obtain a Tax Identification Number (NIF), and with the Social Security system (Segurança Social) to obtain a Social Security Identification Number (NISS).

Each employee must also be registered with both the tax and social security authorities. Registration with Social Security must be completed at least 24 hours before the employee’s official start date. This process is typically carried out online. In cases where an employee has never worked in Portugal and does not yet have a social security number, manual registration may be required.

Employers are additionally required to take out occupational accident insurance for all employees before their first working day. This insurance covers work-related accidents and occupational diseases. They must also register with the Work Compensation Fund (Fundo de Compensação do Trabalho), which provides financial support in cases of employment termination.

In 2025, Portugal continues to apply a progressive income tax system with nine tax brackets, introduced in previous years to provide more gradual taxation. While the structure remains unchanged, the income thresholds are adjusted annually for inflation.

Tax Considerations

Portugal operates a progressive income tax system with nine tax brackets applying to income earned through employment. As of 2025, the lowest rate is 13%, and the top rate remains at 48%. In addition, a solidarity surcharge of 2.5% applies to annual income exceeding €80,000, increasing to 5% for income above €250,000.

Taxable income includes the employee’s base salary as well as bonuses, allowances, benefits in kind, and other payments made by the employer. Certain employment-related expenses are deductible, and employees may also benefit from several tax credits, including those for dependent family members, education, health expenses, and general household deductions.

Under the Portuguese tax system, young taxpayers aged between 18 and 35 may qualify for partial income tax exemption under the IRS Jovem regime. The exemption applies for up to ten years, starting with a 100% exemption in the first year and gradually decreasing over the following years.

Portuguese residents are taxed on their worldwide income, whereas non-residents are only taxed on income earned from Portuguese sources. A flat tax rate of 25% applies to non-resident employment income. Tax residency is determined based on the 183-day rule or whether the individual maintains a habitual residence in Portugal.

Tax Withholding and Reporting

Employers are required to withhold personal income tax (IRS) from employee salaries on a monthly basis and remit the withheld amounts to the Portuguese Tax Authority (Autoridade Tributária e Aduaneira) by the 20th of the following month.

The withheld income tax must be reported monthly through the Declaração Mensal de Remunerações (DMR), which must be submitted electronically by the 10th of the month following the payment of salaries.

At the end of each year, employers are also obligated to prepare an annual tax declaration, known as Modelo 10, detailing the total amount of income tax withheld and paid during the previous year. This declaration must be submitted by 28 February of the following year.

The tax year in Portugal runs from 1 January to 31 December. Individuals are required to file their personal income tax returns between 1 April and 30 June of the year following the income year. Married couples have the option to file a joint tax return.

Social Security Contributions

Social security contributions are mandatory and must be made on a monthly basis. Employees contribute 11% of their gross monthly salary, while employers contribute 23.75% on behalf of each employee. These contributions cover various social security benefits, including pensions, unemployment, and family allowances.

Employers are responsible for withholding the employee's share of the contributions and remitting both their own and the employee's contributions to the Portuguese Social Security (Segurança Social) by the 20th of the month following the pay period.

Monthly remuneration details must be reported through the Declaração Mensal de Remunerações (DMR), which should be submitted electronically by the 10th of the following month. This declaration provides the Social Security authorities with information on employee earnings and corresponding contributions.

Additionally, employers are required to submit an annual social activity statistics report, the Relatório Único, typically by the end of March or early April. This comprehensive report includes information on employment conditions, employee training, workplace safety measures, and other relevant data.

Beyond standard social security contributions, employers must contribute 1% of the employee's monthly salary to the Work Compensation Fund (Fundo de Compensação do Trabalho), due by the 20th of the following month. Employers are also obligated to secure occupational accident insurance for their employees, with premium rates varying based on the company's industry and associated risk levels.

In total, employers typically contribute around 26% of an employee's salary when considering social security contributions and occupational accident insurance premiums.

Employees in Portugal are entitled to various benefits. These include:

• Annual leave and public holidays: 22 working days, plus 13 public holidays 

• Maternity leave/Initial parental leave: both parents together are entitled to up to 180 days of initial parental leave; for the mother leave can start up to 30 days before delivery; 6 weeks after giving birth are mandatory; if only the mother claims the leave, she can either take 120 days on full pay or 150 days paid at a rate of 80%

• Paternity leave: 28 days of paternity leave, including 7 mandatory days to be taken consecutively or non-consecutively within 30 days following the birth of the child plus 21 optional days, to be taken consecutively or non-consecutively within 6 weeks after the birth

• Extended parental leave: each parent is entitled to an additional 3 months of extended parental leave compensated at 25% of the reference remuneration

• Sick leave: up to 1,095 days paid by Social Security at rates ranging from 55% to 75%

For more information on employee benefits and other employment requirements in Portugal (including severance pay and termination procedures), check out our Global Hiring Guide.

​As of January 1, 2025, the national minimum wage in mainland Portugal is set at €870 per month. The government aims to continue raising the minimum wage, targeting €1,020 by 2028. Overtime work must be remunerated at higher rates: at least 125% of normal wages for the first hour worked overtime and 137.5% for subsequent hours. On rest days or public holidays, overtime pay is 150% of the normal hourly rate.

In addition to their regular salary, employees are entitled to an annual Christmas bonus which is paid in November and an annual holiday bonus which is typically paid in July. These bonuses effectively result in 14 salary payments per year.

Payroll in Portugal is processed on a monthly basis, with payments to employees typically made no later than the last day of each month. Employers are required to provide employees with a payslip at the end of each pay period. This payslip can be issued either in paper form or electronically and must detail the various components of the employee’s remuneration, including tax and social security deductions.

Regarding record-keeping, employers must retain payroll records for a minimum of five years. However, certain documents, such as tax-related records, may be required to be retained for up to ten years, depending on specific legal obligations.