How to run payroll in Portugal

Payroll in Portugal runs on a monthly cycle. Payment is usually due by the last working day of each month.

Portuguese law requires monthly salary payments, though you can pay more frequently if you prefer. Most companies stick to monthly payments on either the 25th or the final working day of the month.

You'll also need to handle Portugal's mandatory 13th and 14th month payments - these aren't optional bonuses but legal requirements that significantly impact your payroll calendar.

13th and 14th month payments

Portugal mandates two extra salary payments each year - the Christmas bonus (13th month) and holiday bonus (14th month). Both equal one month's regular salary.

The Christmas bonus must be paid by December 15th. The holiday bonus is typically paid before employees take their summer vacation, usually in June or July.

These payments are subject to the same tax and social security contributions as regular salary. Budget for 16.67% additional annual salary costs just for these mandatory bonuses.

Bonus Type	Payment Deadline	Amount	Tax Treatment
Holiday bonus (14th month)	Before summer vacation	1 month's salary	Fully taxable
Christmas bonus (13th month)	December 15th	1 month's salary	Fully taxable

Holiday pay calculation

Employees earn 22 working days of vacation annually, plus an additional vacation allowance equal to their vacation pay. This means when an employee takes vacation, you pay double - their regular salary continues, plus you pay an extra vacation allowance.

The vacation allowance equals the employee's daily salary multiplied by vacation days taken. If someone earning €2,000 monthly takes 10 vacation days, you'll pay their regular €2,000 salary plus approximately €909 vacation allowance (€2,000 ÷ 22 working days × 10 days).

Payment methods

Bank transfers are the standard payment method in Portugal. Cash payments are heavily restricted and generally prohibited for employment relationships.

You must pay in euros, even if you're an international company. Employees need Portuguese or EU bank accounts to receive salary payments efficiently.

Payslip requirements

Portuguese payslips must include detailed breakdowns of gross salary, all deductions, net pay, and year-to-date totals. You must provide payslips in Portuguese, regardless of your company's primary language.

Electronic payslips are acceptable if employees can access and print them easily. Include these mandatory elements:

• Employee identification and tax number
• Employer details and social security number
• Gross salary breakdown by component
• Tax and social security deductions
• Net salary amount
• Year-to-date totals for all categories

Tax withholding reports in Portugal are due by the 20th of each month. Late filing means penalties starting at €250, plus 2% monthly interest on any unpaid amounts.

Portugal uses a progressive income tax system with rates from 14.5% to 48%. Your employees also pay an additional solidarity surcharge of 2.5% on income above €80,640, or 5% above €250,000.

Income tax brackets

Portugal's 2026 income tax rates apply to annual earnings, with monthly withholding calculated proportionally:

Annual Income (€)	Tax Rate
€0 - €7,703	14.5%
€7,704 - €11,623	21%
€11,624 - €16,472	26.5%
€16,473 - €21,321	28.5%
€21,322 - €27,146	35%
€27,147 - €39,791	37%
€39,792 - €51,997	43.5%
€51,998 - €81,199	45%
€81,200+	48%

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Monthly withholding uses these brackets divided by 12, but you'll also withhold for the holiday allowance (13th month) and Christmas allowance (14th month) throughout the year.

Withholding requirements

You must register as an employer with the Tax Authority (Autoridade Tributária) before your first payroll. This takes 5-10 business days and requires your company's tax number and employment contracts.

Submit monthly withholding returns (Modelo 10) by the 20th of the following month. You'll report total wages, taxes withheld, and social security contributions for all employees.

Pay withheld taxes by the same deadline. Late payments incur 4% annual interest plus penalties starting at 10% of the unpaid amount.

Annual reconciliation happens through employee tax returns, filed between February and June. Employees may receive refunds or owe additional tax based on their total annual income.

Special tax considerations

Non-resident employees pay the same progressive rates, but can't claim certain deductions available to Portuguese residents. They must file annual tax returns if they earn more than €600 in Portugal.

Portugal's Non-Habitual Resident (NHR) program offers a 20% flat tax rate for qualifying foreign professionals in specific sectors. This applies for 10 years and requires advance approval.

Regional taxes don't exist, but municipal surcharges (derrama) can add up to 1.5% on income above €21,321 in some areas.

Common tax mistakes

Incorrect holiday pay withholding trips up many employers. You must withhold tax on the 13th and 14th month payments, even when paid in installments throughout the year.

Missing solidarity surcharge calculations on high earners results in underpayment penalties. The surcharge applies to gross annual income, not just the portion above the threshold.

Late monthly filings carry automatic penalties even for small amounts. Set up calendar reminders for the 20th of each month - Portuguese tax authorities don't offer grace periods.

Think your home country has high employer taxes? Portugal's contributions total 23.75% on top of base salary.

For every €60,000 you pay an employee, you'll actually spend €74,250. That's €14,250 in mandatory employer contributions – and it's just the beginning of your Portugal payroll costs.

Contribution breakdown

Portugal's social security system covers most employer obligations. You'll pay into a single system that handles pensions, healthcare, unemployment, and workplace accidents.

Contribution Type	Employer Rate	Employee Rate	Monthly Cap
Social Security	23.75%	11%	€3,331.20
Work Accident Insurance	0.5-5%*	0%	No cap
Professional Training	0.25%	0%	No cap

*Work accident insurance rates vary by industry risk level. Office work typically pays 0.5%, while construction can reach 5%.

Total employer cost calculation

Here's what a €60,000 annual salary actually costs you:

• Base salary: €60,000
• Social security: €14,250 (23.75%)
• Work accident insurance: €300 (0.5% for office work)
• Professional training: €150 (0.25%)
• Total employer cost: €74,700
• Cost multiplier: 1.25 (you pay 25% more than base salary)

The monthly social security cap is €3,331.20 (2026 rate). For high earners above this threshold, your contribution rate effectively decreases.

High earner contribution caps

Portugal caps social security contributions at €3,331.20 monthly (€39,974.40 annually). This creates significant savings for high-salary employees.

For a €100,000 salary:

• Uncapped cost would be: €23,750
• Actual capped cost: €9,494
• Annual savings: €14,256

Registration requirements

You must register with Social Security (Segurança Social) before hiring your first employee. The process takes 5-10 business days.

Register online through the Segurança Social Direct portal or visit a local office. You'll receive a company social security number required for all future filings.

Payment deadlines and penalties

Social security contributions are due by the 20th of the following month. For December 2026 payroll, contributions are due January 20, 2027.

Late payment penalties are severe:

• 0-30 days late: 2% penalty
• 31-60 days late: 4% penalty
• Over 60 days late: 6% penalty plus daily interest

Pay through the Segurança Social portal, bank transfer, or direct debit. Most employers use direct debit to ensure on-time payment and avoid the 6% penalty trap.

Sick leave in Portugal is paid at 100% for the first 3 days by the employer. After that, Social Security takes over at 55% for days 4-30, then 75% from day 31 onwards.

This split payment system means you'll handle the initial days on your payroll, then employees transition to social insurance benefits. It's a manageable approach that limits your direct costs while ensuring employees stay covered.

Annual leave

Portugal requires 22 working days of annual leave, plus you'll need to factor in the holiday allowance payment. This allowance equals one month's salary and gets paid before the summer vacation period.

Employees earn leave proportionally during their first year. Someone starting in July earns 11 days for that year. Unused leave can carry over to March 31st of the following year, but you must pay out any remaining days if employment ends.

The calculation is straightforward: daily rate × leave days taken. For the holiday allowance, pay the employee's regular monthly salary as a lump sum, typically in June or July.

Vacation pay calculation

Use the employee's average daily wage over the 12 months before taking leave. Include regular salary, overtime, and recurring bonuses. Exclude one-time payments like performance bonuses or expense reimbursements.

Sick leave

Employees get 30 days of sick leave per calendar year. You pay 100% of salary for the first 3 days, then Social Security covers the remaining days at reduced rates.

Medical certification is required from day 4 onwards. For days 1-3 under your coverage, employees can self-certify. This keeps the administrative burden light while ensuring proper documentation for longer absences.

The Social Security rates are 55% of reference salary for days 4-30, then 75% from day 31. You don't process these payments, but you'll need to coordinate with Social Security and track the employee's return date.

Parental leave

Maternity leave

Maternity leave is 120 days at 100% pay, funded entirely by Social Security. You don't pay the employee during this period, but you'll coordinate the transition and maintain employment records.

The leave typically starts 6 weeks before the due date, though employees can choose different arrangements. Social Security pays the benefit directly, using 80% of the employee's average earnings from the 6 months before leave starts.

Paternity leave

Fathers get 25 working days of paternity leave. The first 5 days are mandatory and paid at 100%. The remaining 20 days are optional and paid at 80% by Social Security.

You'll handle payroll for the mandatory 5 days, then Social Security takes over for any additional leave taken. Most fathers take at least some of the optional days, so plan for potential extended absences.

Public holidays 2026

Portugal has 13 public holidays in 2026. Work performed on these days requires double pay, so factor this into scheduling and payroll calculations.

Date	Holiday	Notes
January 1	New Year's Day	National
February 17	Carnival Tuesday	National
April 17	Good Friday	National
April 19	Easter Sunday	National
April 25	Freedom Day	National
May 1	Labour Day	National
June 18	Corpus Christi	National
June 10	Portugal Day	National
August 15	Assumption of Mary	National
October 5	Republic Day	National
November 1	All Saints' Day	National
December 1	Independence Day	National
December 8	Immaculate Conception	National
December 25	Christmas Day	National

Municipal holidays

Each municipality gets one additional local holiday. Check with local authorities for the specific date in your employee's location. These carry the same double-pay requirements as national holidays.

Mandatory benefits affecting payroll

Meal allowance

While not legally required, meal allowances are nearly universal and affect payroll calculations. The tax-exempt limit is €6.00 per working day in 2026.

You can provide meal vouchers, canteen facilities, or cash payments. Amounts up to the limit don't count as taxable income, making this a tax-efficient benefit for both parties.

Christmas bonus (13th month)

The Christmas bonus equals one month's salary and must be paid by December 15th. Calculate it using the employee's November salary as the base, including any regular allowances or commissions.

This isn't optional - it's a legal requirement that affects your December payroll significantly. Budget accordingly and ensure you have sufficient cash flow for this substantial monthly expense.

Miss the 20th monthly filing deadline in Portugal and penalties start at €150 per day. Portugal's Autoridade Tributária e Aduaneira (AT) takes payroll compliance seriously, with automated systems that flag late submissions within hours.

What monthly reports do you need to file?

Social security declarations

You'll submit Declaração Mensal de Remunerações (DMR) through the Segurança Social Direta portal by the 10th of each month. This covers all employee social security contributions from the previous month.

The system needs individual employee data including gross salary, contribution bases, and any variable payments. Missing or incorrect data triggers a validation error that blocks submission.

Tax withholding reports

Monthly Modelo 30 declarations go to AT by the 20th of each month. You'll report income tax withheld from all employees, including salary, bonuses, and benefits.

File through the Portal das Finanças using your company's tax number. The system cross-references your submissions with employee tax records, so accuracy is essential.

What are the annual reporting requirements?

Employee tax certificates

Issue Declaração de Rendimentos to all employees by January 31, 2026. These certificates detail annual income, tax withheld, and benefits provided during 2025.

Employees need these for their personal tax returns. Missing or late certificates can delay their filings and create complaints to AT.

Annual reconciliation

Submit your Informação Empresarial Simplificada (IES) by July 15, 2026. This detailed report reconciles all payroll taxes, social security contributions, and employee benefits for the tax year.

The IES includes specific breakdowns of salary costs, mandatory contributions, and any corrections from monthly filings. AT uses this data for audit selection and compliance verification.

Payroll audit requirements

AT audits approximately 15% of employers annually, focusing on companies with payroll discrepancies or late filings. They'll request three years of payroll records, employment contracts, and time tracking data.

Keep digital copies of all submissions and payment confirmations. AT's audit teams can access your filing history but expect you to provide supporting documentation.

What employee documentation must you maintain?

Employment contracts

Written contracts are mandatory for all employees, including part-time and temporary workers. Contracts must specify salary, working hours, job duties, and termination conditions in Portuguese.

Update contracts within 30 days of any salary or role changes. Verbal agreements aren't legally recognized and can void employment protections.

Payslip requirements

Monthly payslips must include 14 mandatory elements: gross salary, tax withholdings, social security contributions, net pay, employer contributions, overtime rates, holiday pay accrual, meal allowances, transportation benefits, health insurance premiums, year-to-date totals, pay period dates, employee tax number, and company registration details.

Record retention

Maintain all payroll records for five years after the employment relationship ends. This includes contracts, payslips, time records, tax filings, and correspondence with government agencies.

Store records in Portuguese or provide certified translations during audits. Digital storage is acceptable if you can produce printed copies within 48 hours of an audit request.

What are the penalties for non-compliance?

Violation	Penalty	Additional consequences
Late monthly tax filing	€150-€1,875 per day	Interest charges of 4% annually
Missing payslip elements	€510-€2,550 per employee	Employee complaint rights activated
Incorrect tax withholding	20% of underpayment	Personal liability for company officers
Late social security filing	€250-€3,740 per month	Contribution calculation penalties
Missing employment contracts	€420-€4,200 per employee	Loss of employment law protections
Inadequate record keeping	€1,020-€25,500 per audit	Extended audit periods and scrutiny

Which agencies oversee payroll compliance?

Autoridade Tributária e Aduaneira (AT)

AT handles all income tax matters, including monthly withholdings and annual reconciliations. Their automated systems monitor filing patterns and flag irregularities for investigation.

Portal das Finanças: https://www.portaldasfinancas.gov.pt
Taxpayer support: 217 206 707
Business hours: Monday-Friday 9:00-19:00

Instituto da Segurança Social (ISS)

ISS manages social security contributions and employee benefits. They coordinate with AT on payroll audits and maintain the Segurança Social Direta filing portal.

Segurança Social Direta: https://www.seg-social.pt
Employer helpline: 300 502 502
Service centers: Available in all major cities

Autoridade para as Condições do Trabalho (ACT)

ACT enforces employment law compliance, including contract requirements and working time regulations. They conduct workplace inspections and investigate employee complaints.

Online portal: https://www.act.gov.pt
Inspection requests: 300 069 300
Complaint system: Available 24/7 online

Effective January 1, 2026, all employers in Portugal must implement the new digital payroll reporting system through the Social Security portal. This replaces the previous monthly paper submissions and requires real-time salary data transmission.

National minimum wage increase - Effective January 1, 2026 Portugal's minimum wage rose to €760 monthly (up from €750 in 2025). This affects approximately 800,000 workers and increases the hourly rate to €3.52 for standard 40-hour weeks.

Your payroll systems need immediate updates to reflect the new base salary calculations, especially for part-time workers where hourly rates apply directly.

Social security contribution rates adjusted - Effective January 1, 2026 Employee social security contributions increased from 11% to 11.2%, while employer rates remain at 23.75%. The change applies to all salary payments from January 2026 onward.

Update your payroll calculations immediately. The 0.2% increase means an employee earning €1,000 monthly now contributes €112 instead of €110.

New parental leave compensation - Effective March 1, 2026 Parental leave payments increased to 83% of average salary (up from 80%) for the initial 120 days. Extended leave periods maintain the previous 65% rate.

This affects your leave accrual calculations and requires coordination with Social Security for benefit payments. Employees on leave starting March 1st or later receive the higher compensation rate.

Digital tax certificate requirements - Effective July 1, 2026 All employers must issue digital tax certificates through the AT (tax authority) portal. Paper certificates will no longer be accepted for employee tax filings.

You'll need to register for portal access and train your team on the new submission process before the July deadline.

Upcoming changes for late 2026 The government announced plans to introduce mandatory profit-sharing requirements for companies with over 50 employees, expected to take effect in November 2026. Draft legislation suggests 2% of annual profits must be distributed as employee bonuses.