How to Convert Contractors to Employees in Portugal

Portugal draws a clear line between employment and self-employment in its labor laws. You must balance these strict rules with business needs when converting Portuguese contractors to employees.

The main challenge is that contractor relationships are rarely static. As someone becomes more involved in your day-to-day operations, the relationship changes, and the risk of misclassification grows.

Global teams may not always see when the tipping point comes or understand what the next move should be, especially if they lack local expertise.

Our guide breaks down Portugal’s worker classification and the process of converting Portuguese contractors into employees. We draw on our expertise in helping companies to hire compliantly abroad to identify all the potential pitfalls and show you how to overcome them.

Step 1. Understand worker classification in Portugal

Businesses must be able to show that a Portuguese contractor is genuinely independent. Classification depends on how they carry out work in practice, not the job title or the wording used in your agreement.

Understanding the classification criteria is essential before making any hiring decisions. Here’s a simple comparison to help you understand where your current working relationship sits:

Authorities look at the Portuguese Labor Code, Civil Code, and Social Security Code when classifying a worker. If they find a contractor is operating as an employee, they may reclassify the relationship and require retroactive wages, benefits, and social security contributions — often with interest — alongside administrative penalties.

Penalties for labor law violations in Portugal vary according to the size of the business and the severity of the offence.

Step 2. Evaluate the need to convert contractors to employees

Check whether any of your contractor relationships in Portugal are beginning to resemble long-term, structured work. This helps you notice when expectations or responsibilities are beginning to align more closely with employment, ensuring you act before a potential compliance issue occurs.

In these checks, look for patterns that suggest that contractors are taking on a more employee-like role:

• Consistent, ongoing work in core business functions
• Integration into internal teams
• Growing reliance on your systems
• Use of employer-provided equipment
• Schedules or workflows strongly influenced by your processes
• A near-exclusive working relationship

Aside from compliance, performing these checks helps you spot contractors who would make a great permanent addition to your team.

Concerned about overlooking a crucial detail? Use a solution like Deel Contractor to classify workers and check you’re compliant with Portuguese labor laws. Our platform just needs a few details about your working arrangement, and it can return a verdict within minutes.

Step 3. Consider using an Employer of Record (EOR)

Confirm whether you have the right infrastructure to hire workers directly in Portugal. If you don’t have a legal entity in the country, you may find it more cost-effective to employ workers through an Employer of Record (EOR) service.

An EOR is a third-party organization that becomes the legal employer for your Portuguese employees on paper. While they handle all the HR, payroll, and compliance, your company retains control over the day-to-day operations. This gives you a straightforward way to proceed with converting Portuguese contractors to employees, even if you’re not equipped to hire directly.

You might consider using an EOR service like Deel if:

• You need to onboard quickly without waiting for entity setup
• You have limited internal HR or legal capacity for Portuguese compliance
• You want to reduce administrative overhead for a small number of employees
• You only intend to hire one or two workers
• You’re hiring Portuguese employees on a fixed-term basis

As the legal employer, the EOR absorbs all the compliance risk. The provider is responsible for staying up to date with Portuguese labor laws and applying them to your internal HR and payroll processes. Should a compliance issue ever arise, they must also handle any subsequent penalties and legal action.

Step 4. Negotiate employment terms and conditions

Once you’ve decided to move forward, draft an offer that meets Portuguese legal standards. The law requires you to meet the minimum wage threshold and pay annual leave, pension contributions, and two additional salaries in the summer and at year-end.

Conduct local salary benchmarking to ensure your offer is competitive within the Portuguese market. Deel happens to have a free Salary Insights tool you can use to get a reasonable estimate for different roles and experience levels.

When negotiating with the worker, address:

• Base salary and any performance-based bonuses
• Working location (office, remote, or hybrid)
• Standard working hours and flexibility arrangements
• Social security enrollment and health coverage
• Probation period (typically up to 90 days for most roles)
• Annual leave entitlement beyond the statutory minimum

Communicate the differences between the current arrangement and the salaried role carefully. The contractor will transition from self-employment to employee status, which affects their tax obligations, income structure, and day-to-day work arrangements. They must understand what they’re agreeing to for a satisfactory start to the new job.

Step 5. Draft a compliant employment contract

Create an employment contract reflecting all the terms and conditions of the new agreement. While verbal agreements are technically valid, written contracts offer far greater clarity and help both sides avoid misunderstandings.

Every contract must specify whether the role is indefinite or fixed-term. Indefinite contracts are the standard and offer the strongest protections, whereas fixed-term contracts are only allowed in specific circumstances and come with strict limits on how and when they can be renewed.

To meet requirements in the Portuguese Labor Code, your contract should include:

• The full legal names of the employer and employee
• A clear job title and description of duties
• Gross monthly salary, payment frequency, and method
• Standard working hours and any flexibility arrangements
• Benefits, leave entitlements, and health coverage
• The probation period and its conditions (90 days for most roles)
• Notice periods for termination
• The grounds and procedures for ending employment

Avoid hybrid agreements that try to blend contractor-style freedom with employee obligations, as these can create misclassification risk and draw regulatory scrutiny.

For added certainty, refer to experts in Portuguese labor laws when drafting the contract. Deel can generate the entire document based on details about the role that includes all the correct legal terms, benefits, and protections.

Step 6. Onboard new employees and meet legal requirements

Once you’ve welcomed a worker to your team, onboarding becomes a critical compliance step. Portugal requires employers to complete several registrations before the employee officially starts their new role.

Here’s what the onboarding process could look like:

1. Collect identification documents: Gather the employee’s national ID or passport, NIF (tax number), and NISS (social security number). Keep these documents to hand for all future registrations

2. Register with Segurança Social: Employers must notify Portugal’s social security authority no later than 24 hours before the employee begins work

3. Set up payroll and tax withholding with Autoridade Tributária: Configure the correct tax codes, social security categories, and payment details to guarantee accurate withholding from the employee’s first payslip

4. Enroll the employee in statutory benefits: Set them up for mandatory social security coverage, pension contributions, and paid leave entitlements

5. Provide IT equipment and system access: Issue any required devices, software permissions, and security credentials so the employee can start working without delay

6. Deliver training and orientation: Walk them through internal workflows, team processes, and any compliance topics relevant to their role. This supports a smooth transition into your organization’s structure

Consider using an EOR like Deel to manage the full onboarding process if you lack local expertise. Our team can manage everything from document checks and right-to-work verification to payroll setup on your behalf.

Step 7. Manage payroll, taxes, and mandatory contributions

Converting a contractor to an employee shifts all the tax responsibilities to your company. You must add the employee to payroll, with income and social security contributions withheld at the source.

Here’s how the core requirements break down in Portugal:

Costs and administrative responsibilities increase when you hire someone as an employee, and any errors in setup can lead to penalties. If authorities uncover prior misclassification, they may require retroactive social security contributions, wage adjustments, and interest.

Accurate payroll setup from day one is essential to avoid these risks. Consider using an EOR with global payroll capabilities like Deel to configure payroll for Portuguese workers and ensure they’re in your system correctly. Although we handle all the payments, taxes, and mandatory contributions, payroll teams still have full visibility via our centralized dashboard.

Simplify hiring Portuguese workers with Deel

Hiring Portuguese workers becomes far more manageable when you understand the rules and know the right steps to take. With a clear process in place, you can transition confidently and reduce the risk of misclassification.

Deel EOR gives you the in-country support to make that transition smoother. Our team handles the HR, payroll, and compliance, so you can focus on the person instead of the paperwork.

With Deel EOR, you get:

• An owned entity in Portugal for fully compliant employment
• Localized, legally vetted employment contracts
• Automated payroll with tax and contribution withholding
• Social security and tax authority registration handled for you
• Statutory benefits and leave management
• Ongoing compliance monitoring and in-country expertise
• A streamlined contractor-to-employee conversion workflow

Thinking about making the switch? Connect with the Deel team to see how our EOR can support your Portugal hiring plans and take the complexity out of international workforce management.