Contractors’ Questions: How to hire in Portugal, directly, without a recruitment agency?

Contractor’s Question: What would be the best way to contract a developer in Portugal without setting up a company in the country?  

I currently hire developers via an agency that is UK-based but with a subsidiary in Portugal. One developer has resigned so I want to look at my options to hire myself. I am based in London and know how to hire in Portugal but with the rest of my team in Lisbon, what are my options to hire someone there without going through the agency?

The developer would work from home, but post-pandemic we could look at offering them a co-working space. They could then work from there part or full-time.

I think there’s value in personnel for our UK tech start-up being near to us, but as this is the first hire of the technical team, I’m open-minded and looking at things with fresh eyes thanks to the covid lockdown giving us time to reflect. Any guidance appreciated. 

Expert’s Answer: You do not need to incorporate a business in Portugal to employ staff there. 

Three options, broadly

The first option for a non-resident company seeking to payroll its employees (local and foreign) in Portugal is to use an outsourced service to employ and payroll the staff -- on your behalf. There are companies that do this but they will charge a significant fee. 

A second option is to form a local entity or register a branch of your UK company in Portugal and have another company administer the payroll. No matter how you do this, your company or branch would be entirely responsible for compliance with employment, immigration, tax and payroll regulations. The payroll provider will free you from the payroll calculations, payments and filings, plus give HR advice, if you want it. 

Costs, fees and payment

In this set-up, staff are paid monthly with tax and social security deducted at source and paid to the local authorities. The total cost to you of employment will be the basic salary, employer's social charges, other statutory liabilities, necessary insurance as an employer and the provider's fee. That fee will be payable if you choose not to cover these areas yourself.

Another option is to engage with your contractor on a self-employed basis instead of taking them on yourself or employing them via a third party. You and they must agree to this, while accepting that although this route could likely be less demanding for you, it may not offer the developer the same security level or work-stability that employment does; that they want, or that an employee engagement model does. 

If you do go down the self-employed route, you will need to individually agree on terms with your contractor, but as the agreement will be a commercial contract and not an employment contract, you are both free to negotiate as you see fit.  Lastly, in terms of the financials for this B2B arrangement, you will pay the contractor gross, and he/she will be responsible for paying their tax and social charges themself, and you should stipulate this clearly in your agreement. Good luck!

The expert was Kevin Austin, managing director of Access Financial, a contracting overseas advisory.