In this article, We will break down the costs associated with a salary. How much does an employee cost your company on an annual basis?
Cost of Hiring Employees in Portugal
When it comes to calculating the total cost of hiring employees for your company, the base salary is just the starting point. There are several additional costs that businesses must account for, ranging from social security contributions to insurance and allowances. In this article, we'll walk you through the various components that contribute to the total cost of an employee, using a €1,000 base salary as an example.
By the end of this guide, you’ll have a clear understanding of how to calculate the true cost of an employee for your business in Portugal.
1. Base Salary
What is Base Salary?
Base salary, also known as gross salary, is the amount an employee earns before any deductions are made (such as IRS, social security, etc.). In Portugal, employees are entitled to holiday and Christmas pay, which means they effectively receive 14 months’ worth of salary, not just 12.
How to Calculate the Annual Base Salary
To calculate the annual cost of an employee based on their base salary, you multiply their monthly salary by 14 months, then divide by 12 months to get the adjusted monthly figure.
Example:
€1,000 x 14 = €14,000 (annual salary)
€14,000 ÷ 12 = €1,166.67 (monthly cost)
2. Social Security Contribution (TSU)
In Portugal, employers must contribute to the Single Social Tax (TSU), which includes both employee and employer contributions. The total TSU is 34.75%, broken down as follows:
11.00% for the employee
23.75% for the employer
To calculate the monthly employer contribution:
€1,166.67 (adjusted monthly salary) x 23.75% = €277.08
Thus, the total monthly cost of the employee, including the TSU, is:
€1,166.67 + €277.08 = €1,443.75
The total annual cost for the employer, including the TSU, is:
€14,000 (base salary) + €3,325 (TSU) = €17,325
3. Work Accident Insurance
In Portugal, work accident insurance is mandatory for all employees. The premium varies based on factors such as the company’s turnover, the employee’s age, and the type of work. For simplicity, we’ll use a standard premium rate of 1%.
Example Calculation:
€1,000 (base salary) x 1% = €10 per month
€10 x 14 months = €140 annually
€140 ÷ 12 = €11.66 per month
Now, adding the insurance cost to the total monthly cost:
€1,166.67 (base salary) + €277.08 (TSU) + €11.66 (work accident insurance) = €1,455.41
The total annual cost of work accident insurance is:
€14,000 (base salary) + €3,325 (TSU) + €140 (insurance) = €17,465
4. Food Allowance
The food allowance is a benefit paid to employees to help cover the cost of meals during working days. It is not mandatory but must be paid equally to all employees if offered. The allowance can be paid in cash or through a meal card. For this example, we’ll calculate the food allowance using a meal card with a maximum value of €7.63 per working day.
Example Calculation:
€7.63 x 22 working days = €167.86 per month
€167.86 x 11 months (excluding the vacation month) = €1,846.46 annually
€1,846.46 ÷ 12 = €153.87 per month
Now, adding the food allowance to the employee’s monthly cost:
€1,166.67 (base salary) + €277.08 (TSU) + €11.66 (work accident insurance) + €153.87 (food allowance) = €1,609.29
The total annual cost with the food allowance is:
€14,000 (base salary) + €3,325 (TSU) + €140 (insurance) + €1,846.46 (food allowance) = €19,311.46
5. Compensation Funds (FCT/FCGT)
The Employment Compensation Fund (FCT) and the Workers’ Compensation Guarantee Fund (FGCT) are contributions that companies must make to ensure employees are paid compensation if their contract is terminated.
The FCT contribution is 0.925% of the base salary, and the FGCT contribution is 0.075% of the base salary, totaling 1%.
Example Calculation:
€1,000 (base salary) x 12 months x 1% = €120 annually
Adding the compensation funds to the employee’s monthly cost:
€1,166.67 (base salary) + €277.08 (TSU) + €11.66 (work accident insurance) + €153.87 (food allowance) + €10 (FCT/FCGT) = €1,619.29
The total annual cost with compensation funds is:
€14,000 (base salary) + €3,325 (TSU) + €140 (insurance) + €1,846.46 (food allowance) + €120 (FCT/FCGT) = €19,431.46
Summary: Total Annual Employee Cost
For an employee with a €1,000 base salary, the total cost to the company, factoring in all the mandatory contributions and allowances, is:
€19,431.46
This breakdown includes:
Base salary: €14,000
TSU (23.75%): €3,325
Work accident insurance: €140
Food allowance: €1,846.46
Compensation funds (FCT/FCGT): €120
Need Help with Your Business?
Calculating the true cost of an employee is crucial for budgeting and financial planning in any business. If you need help with your company’s financial management or have questions about employee costs, don’t hesitate to contact us today!
Our team of experts at INLIS Consulting is here to guide you through every step of the process.
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