Hiring Employees in Portugal: Why Employment Contracts Must Be Done Right from the Start
Margarida Tempera | Lawyer
Hiring employees in Portugal requires far more than agreeing on a monthly salary or defining day-to-day responsibilities, as Portuguese labour law is comprehensive, employee-centred, and under constant development.
It imposes numerous obligations on employers, many of which are not always intuitive to those unfamiliar with the national legal framework.
For companies operating in Portugal, whether newly established or already in expansion, correctly structuring the employment relationship from the very beginning is not simply recommended; it is imperative to avoid legal exposure and reputational damage. At the heart of this structure lies the employment contract, a binding legal instrument that defines and governs the relationship between employer and employee, and which must comply strictly with the provisions of the Portuguese Labour Code.
In Portuguese law, an employment relationship is characterised by the existence of subordination, meaning that if a person performs work under the authority, direction, and supervision of another, in exchange for remuneration, then an employment relationship may legally exist, regardless of the name or structure the parties intended to give it. This principle has significant consequences and means that if a company engages someone as an independent contractor or service provider, but the nature of the relationship reveals the typical traits of subordination, labour authorities or the courts may requalify the relationship as an employment contract, with retroactive effect.
The consequences of such reclassification may include mandatory payment of outstanding salaries, holiday and Christmas bonuses, compensation for unlawful dismissal, retroactive social security contributions, interest, and administrative penalties. Therefore, the stakes of misclassification are extremely high.
Portuguese law provides for several types of employment contracts, each designed for different circumstances.
Open-ended or permanent contracts are the general rule and should be used whenever the employment is expected to be continuous. These contracts offer greater job stability to employees, but also make termination more procedurally complex and subject to stricter conditions.
Fixed-term contracts, on the other hand, are only allowed in specific situations, such as to replace a temporarily absent employee, to address a short-term increase in activity, or to perform a task with a foreseeable end. The law requires that the reason justifying the fixed term be clearly stated in the written contract, and if this justification is missing or insufficient, or if the maximum legal duration is exceeded, the contract will automatically be converted into an open-ended one.
The same logic applies to contracts of uncertain duration, which may only be used in cases where the employer knows the employment will be temporary but cannot determine its exact length in advance.
Other contractual modalities, such as part-time employment, telework, and very short-term contracts, also exist and may be useful depending on the business model. Each of these categories has its legal limitations and requirements and should never be implemented without first assessing their compliance with the law and their suitability for the employer’s operational needs.
A valid employment contract in Portugal must contain essential elements including the identification of the parties, the start date, the job title and description, the place of work, the normal working hours, the base remuneration and, when applicable, the term and justification for temporary contracts, as omitting these elements may lead to administrative fines, legal uncertainty, or disputes down the line.
The Labour Code also imposes certain obligations on the employer from the very first day of employment. Before the employee starts work, the employer must register them with the Portuguese Social Security system. Failing to register employees or to make accurate and timely payments exposes companies to fines, interest, and the possibility of inspections by the competent authorities.
Equally important is the obligation to obtain mandatory work accident insurance from a certified insurance provider. This insurance must cover all occupational accidents and work-related illnesses and must be in place from the first day of work. Employers who fail to provide this coverage assume the entire risk and cost of any accidents or occupational claims, with potential civil and even criminal consequences.
Although not always legally mandatory, the meal allowance or “subsídio de refeição” is widely regarded as a standard benefit in Portugal and is frequently included in collective bargaining agreements or internal policies. It may be paid in cash or meal vouchers and enjoys partial tax exemption up to legally defined thresholds. Employers who do not offer this benefit may find it harder to attract and retain qualified candidates, particularly in competitive sectors.
In addition, employers must comply with mandatory holiday and bonus entitlements. All employees are entitled to 22 business days of paid holiday each year, along with a holiday bonus and a Christmas bonus, each equivalent to one month’s base salary. These benefits are non-negotiable and must be granted in full, irrespective of any agreement to the contrary.
Failure to comply with any of the above obligations can expose the company to significant risks. For instance, using fixed-term contracts without justification, or misclassifying workers as contractors, may result in litigation, compensation, requalification of the contractual relationship, and substantial liabilities.
In this context, having specialised legal advice is not a luxury but a necessity. Employment contracts must be carefully designed to reflect the operational needs of the business while fully respecting the applicable legal framework.
A qualified lawyer can ensure that the right contractual model is selected, that the proper justification is included, and that all formalities are fulfilled. Legal advice is also critical for drafting enforceable clauses on confidentiality, intellectual property, probation periods, and non-compete obligations.
For foreign investors or businesses entering the Portuguese market, these rules may appear dense and difficult to navigate. However, with the right legal support, companies can ensure their employment practices are compliant, efficient, and tailored to the realities of the Portuguese legal system. Preventing legal problems at the hiring stage is always more effective than resolving disputes later. An employment contract is not merely a formality, it is the foundation of a legal relationship that, when well structured, promotes stability, predictability, and legal security for both parties.
