What Severance Pay Rules Must Employers Follow in Portugal?

Which Employees Qualify for Severance Pay?

• Employees on open-ended contracts dismissed for redundancy, job elimination, or collective dismissal generally qualify for statutory severance.
• Employees on fixed-term or uncertain-term contracts usually qualify when the contract expires and is not renewed for reasons attributable to the employer.
• Employees dismissed for unsuitability (inaptidão) not caused by misconduct may be entitled to compensation if legal criteria and procedures are met.
• Employees with at least six months of service typically benefit from stronger protection and clearer severance entitlements.
• Employees dismissed without just cause or with procedural defects can claim compensation in lieu of reinstatement, which functions similarly to severance.
• Senior managers may have enhanced or different severance rights if agreed in individual contracts or collective bargaining agreements.

What Are the Legal Timelines for Paying Severance?

In Portugal, severance is normally due at the effective date of termination, and you should aim to pay it on or before the employee’s last working day. In practice, many employers pay severance together with the final paycheck, including unused vacation and pro-rated holiday and Christmas allowances. For collective dismissals or redundancies, payment is tied to the termination dates approved in the legal procedure. Any delay can trigger default interest and disputes, so your company should document the calculation and payment date clearly. Where there is a dispute about the amount, it is safer to pay the undisputed portion on time and record your position in writing.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay severance correctly in Portugal, you risk both administrative fines and civil liability. Labour authorities can investigate following employee complaints, and courts can award compensation, interest, and sometimes reinstatement if the dismissal is found unlawful. Non-compliance can also damage your reputation with unions and regulators, making future restructurings more difficult.

• Labour inspectorate fines for serious or very serious administrative offences.
• Court-ordered payment of outstanding severance plus default interest.
• Potential reinstatement or higher compensation if the dismissal is ruled unlawful.
• Legal costs and attorney fees, along with management time spent on litigation.
• Reputational harm and increased scrutiny in future workforce changes.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (EOR) such as https://www.playroll.com/employer-of-record does not remove the need to follow Portuguese severance rules, but it can shift day-to-day compliance tasks. In an EOR model, the EOR is the legal employer in Portugal and is responsible for calculating and paying severance under the Labour Code. However, your company, as the client, typically bears the economic cost through your service fees and remains exposed if you instruct an unlawful or discriminatory termination. You should ensure your EOR contract clearly allocates who decides on dismissals, who funds severance, and how disputes with employees will be handled. A well-structured EOR relationship helps you respect local law while keeping predictable costs and timelines.

Be 100 Percent Compliant in Offering Severance with Playroll

Working with Playroll helps your company navigate Portugal’s complex severance rules without turning your HR team into local law experts. Our team tracks changes to the Portuguese Labour Code, collective agreements, and case law, then builds those requirements into clear workflows for terminations and contract endings. You get practical guidance on notice, documentation, and severance calculations before you take action, reducing the risk of costly surprises.

When you use Playroll’s Employer of Record solution, we act as the legal employer in Portugal and handle severance calculations, payslips, and statutory filings on your behalf. If you employ directly, we can still support you with compliant templates, market benchmarks, and coordination with local counsel where needed. In both cases, your managers stay focused on business decisions while we help you execute them in a way that is fair to employees and defensible with regulators.