Independent Contractors & Employment Guidelines in Portugal
Portugal has limitations on the use of self-employed workers to prevent companies from willingly misclassifying their employees. In 2013, the government introduced a judicial procedure allowing public prosecutors in labour courts to pursue lawsuits against employers without involving self-employed workers. Thus, employers can be prosecuted in Portugal even if the self-employed worker doesn't sue them.
Contractor length allowance
The maximum duration of four years.
Fixed-term contract limitation
The minimum duration of a fixed-term employment contract is six months, except in those cases specifically provided in the law. It is limited to two years and renewable up to three times, but the three renewals\' total duration cannot exceed the initial duration of the contract.
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What makes someone an employee
These essential elements are to be found in an employment contractual relationship:
- The activity is carried out in a place belonging to or determined by the beneficiary;
- The work equipment and instruments used belong to the employer;
- The employee observes a schedule;
- A certain amount is paid, at certain intervals, to the provider of the activity in return for the activity;
- The activity provider performs functions under the authority and instructions of the employer.
On the other hand, self-employed workers have the freedom to choose how, where and when to work, and their only commitment is to deliver results.
It should be pointed out that legal subordination is the decisive criterion for drawing the line between employment relationships and independent contracting. Therefore, subordination is determined by looking/analysing if the above-mentioned requirements regarding the employee/employer relationship are complied with or not.
Hence, in case of two or more factors listed above are met, there is a legal presumption that the contractual relationship should be qualified as employment. This means that, under a lawsuit, the burden of proof that the relationship is not employment falls upon the employer.
If a self-employed worker is dismissed and believes that the contractual relationship materially qualifies as an employment agreement, a lawsuit may be filed in the labour courts within the year immediately following termination to assess the nature of the former contractual relationship and assess, under such light, its termination by the company.
Employee vs contractor
Employees are entitled to a range of benefits not extended to self-employed workers, including strict health and safety provisions at work, paid annual leave of at least 22 working days, special allowances for vacation and Christmas, working time limitations, minimum rest period, marriage leave, paternity and maternity leaves and some authorized absences for family care. Collective bargaining agreements usually include other benefits such as meal and transport allowances, school allowances for employee children, seniority bonuses and in some cases, complementary pension plans or other social benefits.
On the other hand, self-employed workers are responsible for filing their own taxes, are generally subject to sales tax (VAT) on income above €10,000, are not entitled to any mandatory employment benefits and do not benefit from working time restrictions.
Employees and self-employed workers are taxed differently. In the case of employment relationships, the social security contribution rate is 34,75% (of the employee’s monthly gross salary). 23,75% is borne by the employer and 11% by the employee (being deducted by the employer from the employee’s monthly salary, upon payment). In the case of self-employed workers, social security contributions are due and fully borne by the self-employed worker and calculated at the rate of 21,4% of fees received, although there are some special regimes subject to different contribution rates.
Contracting entities are all legal and natural persons with business activity in the same calendar year, and benefit from at least 50% of the total value of self-employed workers.
Services rendered to companies in the same business grouping are considered to be rendered to the same contracting entity. Only the activity of self-employed workers who are required to pay contributions and whose annual income from the provision of services is equal to or greater than EUR 2,632.86 (6xIAS) is considered.
The contribution rate to be paid by the contracting entities corresponds to the following:
- 10% in situations where the economic dependence is higher than 80%
- 7% in all other situations
Additionally, the treatment of employees and self-employed workers vary greatly when it comes to protection from termination. Employees benefit from robust protections against contract termination considering that, as a rule, employees are not granted discretionary contract termination rights, including redundancy and severance pay. In contrast, self-employed workers do not benefit from specific legal protection against termination, and the parties are free to agree upon the termination conditions in the contract.
Penalties for Employee Misclassification in Portugal
If an employer pleads guilty for misclassifying an employee as a self-employed worker, they are liable for retroactive contributions for social security on behalf of the employer and the employee (it is up to the employer to try and claim it back from the employee). Additionally, the employer must adhere to the Wage Compensation Fund retroactively, contact a work accident insurance and comply, in general terms, with existing obligations in terms of health and safety at work.
The employee is entitled to all credits arising from a subordinated relationship, such as paid holidays, Christmas and holidays allowances, meal allowance (if this payment is outlined in an applicable collective bargaining agreement), and others that may be foreseen in an applicable collective bargaining agreement.
On top of that, fines are also applied to the employer for breaking the law. Misclassification is a serious misdemeanour, and fines go from €2,040 to €9,690. Company directors may be jointly liable for the payment of the fine. In case of recidivism, the company may be deprived of the right to receive benefits or allowances granted by public service or entities for a period of up to two years.
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