Whether you are the Director of a multi-million organisation, setting up a new company inPortugal , or have a business venture in Portugal, knowing where your money goes and how much you spend on employment resources is essential. Staff costs in Portugal are one of the biggest expenditures for a company, but it isn't just wages that cost the business money, there are additional expenditures, known more commonly as 'on-costs' or 'onboarding-costs'.
The True Cost of an Employee in Portugal in 2023 Calculator is designed to provide insight into the full costing model for employing a new employee in Portugal and, together with iCalculators Portugal Payroll calculator for 2023, provide the gross employment costs of your current staff in Portugal, help you budget employment costs in Portugal for your financial year, anticipate staff costs for future expansions in Portugal and review past costs in order to gauge future employment costs in Portugal.
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Calculating the true cost of an employee in Portugal can seem very complex but, as with most financial calculations with multiple elements, they can each be placed into simple cost buckets which allow us to provide a simple working formula:
Each of these costs includes a number of sub elements which are defined within the calculator where you can enter specific amounts or a percentage rate for benchmarking expenditure.
The True Cost of an Employee in Portugal Calculator is similar to the Cost Per Hire Calculator with the addition of live income tax and salary deductions for an employee working in Portugal.
The 'True Cost of an Employee in Portugal' calculator is designed to encompass all possible financial cost factors that are generated when hiring a new member of staff in Portugal. The calculator is geared towards senior staff and allows for the hire and set up of the staff member in a new office in Portugal with no existing resource. Whilst not essential for static companies in Portugal, this enables more flexible companies to cost for the set up and establishment of new offices in new locations with in Portugal or for the setup of a new company branch in in Portugal etc.
In order to simplify first time use, the calculator has been pre-populated with sample percentage rates and or sample costing fees. These figures provide an initial benchmark for your costing analysis and can be edited as required. We welcome your feedback and suggestions to help further improve the 'True Cost of an Employee in Portugal' calculator.
The Annual Basic Salary in Portugal is the amount you pay your member of staff each year before any benefits or benefits in kind are included. i.e. Without any deductions for tax, social security, pension schemes etc. and any bonuses, dividends, shares, etc have not been added. It should not be confused with 'gross pay', which would include all money earned in Portugal for the year.
Annual Bonuses in Portugal are a great incentive to keep staff on board and encourage loyalty, greater output and commitment. Many companies in Portugal give an annual monetary bonus, but any form of payment is considered a bonus or 'benefit'. When a gift is given instead of a financial award, it is deemed a 'benefit in kind' and a monetary value must be awarded to the item, to enable the relevent income tax in Portugal to be paid on the gift.
Not all of the money a person earns in Portugal is taxable. Personal allowances, tax credits and tax relief schemes can factor the way taxable income is determined in in Portugal, we factor each of the relevent elements into this calculation and provide a breakdown of how we calculated the salary with a supporting salary example for Portugal.
The true salary cost in Portugal is the total amount of the basic pay, bonuses and employer payroll costs that the company pays out each year for wages in Portugal.
Company pension schemes in Portugal are becoming more and more popular. Company pension schemes vary in in Portugal but we include this as a factor as you may operate a standard company pension scheme which you wish to extend to your new employee in Portugal in addition to any private pensions they may have in Portugal or state pensions in Portugal.
Private medical insurance is popular is the US and is becoming increasingly popular in Portugal. It is one of the 'benefits in kind' an employer can offer. A benefit in kind is an award given by the employer that is not financial, though usually will have some monetary value. Private Medical Treatment in Portugal is complicated in terms of taxation in Portugal, Private (Company) Medical plans can include dental care, ocular needs (eye tests, contact lenses, spectacles, etc) and general health cover ( in Portugal and when travelling outside Portugal). For simplification, we treat medical costs in Portugal as a flat employee cost for the directional calculation within this tool, this is something that you would have to discusses with your payroll service provider in Portugal.
An employer can elect to give employees in Portugal shares and some benefits may be realised by the employee, such as tax relief. The company will bear the cost of providing the shares to the employee, but may be eligible for tax relief in Portugal in some circumstances.
Total Employee Benefits is the total amount of any provision an employer gives to an employee in Portugal, as a benefit, that is not part of a salary agreement or bonus. This is what the company pays out each year for pensions, medical insurance, company car, shares/equity, etc.
This is one of the unknown/unpredicted costs that a company in Portugal can face if not planning an recruitment advertising campaign in Portugal appropriately. Anything that costs money when advertising for staff in Portugal should be included in this budget, this includes all media methods (hoardings, T.V., radio, telephone, internet, mobile, presentations, etc). You could also add hospitality and meeting costs in Portugal, for planning the advertising campaign, otherwise place them in the management administration costs. There is a danger that these costs can escalate if not tracked effectively, so it is wise to have a budget cap for advertising and decide exactly what it will cover.
Agency fees in Portugal are what the company pays to another business to manage a particular aspect of work, in this instance, it refers to the recruitment of staff in Portugal and forms part of the 'onboarding' costs.
Recruiters costs are what the business pays for individuals to manage the hiring of staff in Portugal. It can include wage/fee for recruiters in Portugal, location costs for interviews, stationery, administration, interview time, travel to or within Portugal and subsistence, etc.
Employee referral costs are the costs associated with providing a finder's fee or recognition reward when an employer recommends a friend etc. who subsequently is hired by the company in Portugal.
It is important to anticipate and understand what travel costs have been incurred or are likely to be incurred in the future. It can be difficult though. Decide who is eligible to be reimbursed, what rate will be paid and whether there is a cap on the total amount paid. Some travel costs in Portugal can be subject to tax relief.
Relocation costs are what a business pays to an individual who is required to move home permanently to a new location in Portugal, in order to accommodate work needs. When considering relocation costs in Portugal, remember to include the actual physical cost of the move, plus any paid leave and additional benefits, such as contributing to furnishing the new home, storage of furniture, etc.
Management administration costs can include meetings, hospitality, staff to carry out checks, arrange timetable, stationery, etc
Payroll costs in Portugal are the expenditure a company bears for preparing and distributing pay to staff. It includes net pay and the materials used to calculate that pay, as well as labour costs to complete the payroll work and legislative costs associated with Portugal payroll management .
Legal costs in Portugal can include insurances, assurances and legislative requirement costs. When recruiting internationally it is important that you have any contracts checked by a specialist international employment lawyer and is familiar with employment law in Portugal.
'Onboarding costs' are the total amount of the one off costs associated with hiring a new staff member in Portugal. On-boarding costs are limited to the hiring process only, they are not ongoing financial commitments like salary or office space costs etc.
Office and business space costs in Portugal can vary substantially dependent on the desired office location.
Communications setup costs include Internet, mobile telephone, FAX and fixed landline telephone costs.
The Line Manager Resource costs in Portugal are those associated with managing the individual in a traditional hierarchical model. This include HR (Human Resource), Health and Safety, Finance and pastoral care. As a baseline cost, a figure of 10% is recommended.
Total Facilities and other costs are the sum of the office set-up in Portugal, communications systems and line management. Office set-up is simply the initial member of staff in and initial organisation. Communications systems include telephone, mobiles, faxes, internet, etc.
In order to have an effective workforce, it is essential to have 'knowledgeable in their field' members of staff and therefore wise to have an appropriate training programme in Portugal. Some training is required by Law, such as Health and Safety (H&S) awareness. Training also includes orientation/induction periods, shadowing, in-house skills updates and external courses, as well as professional qualifications.
The true cost of an employee in Portugal is the overall amalgamation of all the costs listed above. It is quite staggering when you take into consideration how much a member of staff in Portugal can cost during the first year of employment. It is essential to maintain a happy workforce to keep stability as this avoids churn and in turn, drive down recruitment costs in Portugal. After the initial year, staff costs should come down, onboarding costs in Portugal are experienced in the first year of employment only.
We also provide Cost of Employment and Payroll Calculators for Portugal for the following Tax Years