Portuguese employment law is protective of workers and procedural to a degree that catches many foreign employers off guard. Hiring is straightforward; ending a contract is not. The Labour Code (Código do Trabalho) governs almost everything, and the state — through the labour authority ACT and the courts — enforces it. This 2026 guide walks through the practical side of building a workforce: the incentives available when you hire, what a contract must contain, your ongoing obligations, and the strict rules around dismissal. It is general guidance, not legal advice — take professional counsel before any contentious decision.
First, register as an employer
Before your first hire you must be registered with Segurança Social as an employer, and each new worker must be enrolled with social security before they start — typically declared in the days ahead of the start date, not after. The standard contribution split is broadly 23.75% paid by the employer and 11% withheld from the employee, on top of gross pay. You will also register the employee for IRS withholding through the Autoridade Tributária and take out mandatory workplace accident insurance. Getting this sequence right is part of sound company setup.
Incentives for hiring
Portugal actively encourages employers to create stable jobs, particularly for younger workers and the long-term unemployed. Under social security legislation and IEFP-administered schemes, hiring certain groups on permanent contracts can reduce or waive the employer’s social security contribution for a defined period. Historically this has included:
- A partial reduction in the employer’s contribution when recruiting young people entering the labour market or those returning after long unemployment.
- A full exemption for a limited period when hiring someone who has been unemployed for a very long time, or from other targeted groups.
The exact percentages, qualifying categories and durations are revised regularly through the annual budget and IEFP programmes, so treat any figure you read as indicative and confirm the current terms before you rely on them. Because payroll and social security interact with your wider tax position, coordinate this with your tax and NIF setup.
Getting the contract right
Portuguese law recognises several contract types — permanent, fixed-term (certain and uncertain), part-time, temporary agency and remote work — each with its own rules. Our companion guide, employment contracts in Portugal explained, covers them in full.
A permanent contract need not be in writing to be valid, but many contract types (fixed-term, part-time, teleworking, temporary) must be written to be lawful. Where you use a fixed-term contract, the document must be complete and should include at least:
- The identification, signatures and addresses of both parties
- The employee’s role, category and remuneration
- Working hours and the place of work
- A clear statement of the term and its objective legal grounds
- The end date (for a fixed, certain term)
The legal-grounds point is the one employers most often get wrong. A fixed-term contract is only valid where a genuine, temporary reason exists — a defined project, a seasonal peak, covering an absent employee. Use one to fill what is really a permanent role and you risk it being reclassified as permanent, with all the protections that brings. Document the justification carefully.
Working time, pay and leave
Some fundamentals apply across the board. The standard working week is up to 40 hours (eight per day). Employees are entitled to a minimum of 22 working days of paid annual leave, plus holiday and Christmas bonus payments (the “13th and 14th months”). The national minimum wage is €920/month in 2026. Overtime, night work and public holidays carry premiums. Build these into your cost planning from the outset — the headline salary is only part of the total.
How employment relationships end
The Labour Code sets out a defined, closed list of ways an individual contract can end:
- Expiry of the agreed term
- The impossibility of achieving the purpose the contract was created for
- Retirement or disability
- Mutual agreement (revogação) between both parties
- Dismissal by the employer
- Termination initiated by the employee (resignation)
- Termination during the trial (probation) period
Each route has its own procedure, notice and, where relevant, compensation. Employee protections are substantial, and the burden generally falls on the employer to show the process was followed. Get it wrong and a dismissal can be ruled unlawful, with reinstatement or compensation ordered.
Just cause dismissal
A dismissal for just cause (justa causa) arises from serious misconduct that makes continuing the relationship impossible. The bar is high, and — critically — an employer cannot simply act on it. Portuguese law requires a formal disciplinary procedure: a written statement of the alleged facts (nota de culpa), a genuine opportunity for the employee to respond, and a reasoned decision. Skipping or rushing these steps is one of the most common ways employers lose at tribunal. There is no concept of at-will termination.
Collective dismissal
Collective dismissal applies when a company terminates several contracts at once for business reasons rather than individual conduct. It is defined by scale and timing: the simultaneous termination, within a three-month window, of at least two employees in companies with 2 to 50 staff, or at least five employees in companies with more than 50.
To be lawful it must rest on a recognised ground, such as:
- Definitive closure of the company, or insolvency
- Closure of one or more departments
- A reduction in staff for structural, technological or market reasons
These processes carry specific consultation, notification (including to worker representatives and the ACT) and compensation obligations, and are among the most heavily regulated areas of Portuguese labour law.
Common mistakes to avoid
- Treating a probation dismissal as risk-free once the trial period has passed — it has not; the ordinary rules apply.
- Rolling over fixed-term contracts past the legal renewal limits, triggering automatic conversion to permanent.
- Agreeing a “mutual termination” verbally — revogação must be in writing.
- Under-budgeting for the 13th and 14th month payments and holiday accrual.
Short FAQ
Is there a standard notice period? It depends on the contract type and length of service, and differs for employer and employee. Check the applicable rule for each situation.
Can I dismiss someone for poor performance? Only through defined procedures (disciplinary or, in narrow cases, unsuitability), never informally. Document everything and take advice.
Do I owe severance? In many termination scenarios, yes — statutory compensation is calculated by reference to length of service. The formula changes over time, so verify the current basis.
Because thresholds, incentive terms and procedures change, always verify the current position and take advice before a contentious dismissal. For the official rules, consult Segurança Social on contributions and ePortugal for employer procedures. Handled well, Portugal’s framework supports a fair, stable relationship that benefits both sides — and complements the wider experience of living in Portugal.
Need help hiring compliantly or managing a termination in Portugal? Our legal and HR advisors can guide you through it. See our services or contact us.