This new paycheck model was created by the Business Roundtable Portugal (BRP) Association in 2024. The association’s secretary-general stated that the aim is for employees to have a clear understanding of their work’s value to the company and the deductions from their salary.
“We are not questioning the importance of contributing to Social Security and IRS, but it’s crucial to know how much we are contributing,” said Pedro Ginjeira do Nascimento.
This paycheck details not only the deductions due to the employee (IRS withholding and 11% Social Security deduction) but also the employer’s charge of 23.75% for the single social tax (TSU, which also funds Social Security).
In 2024, the paycheck was adopted by seven companies. Currently, 29 companies have implemented it, including Amorim, BA Glass, CTT, EDP, Fidelidade, Galp, MEO, BCP, Mota-Engil, Pestana, Salvador Caetano, Santander, Simoldes, Sovena, and Visabeira.
The association, which unites leaders of Portuguese companies, hopes to extend the reach of this paycheck to 226,000 more workers soon, as its software partner SAP has made it available to its over 120 client companies.
Using the example of the minimum wage, Ginjeira do Nascimento pointed out that while the value is generally considered low (currently at 870 euros), a company must pay a total of 1,076.63 euros monthly for a minimum wage worker due to the TSU, whereas the employee receives a net pay of 774.30 euros after Social Security deductions.
The Business Roundtable Portugal has criticized what it calls Portugal’s “fiscal stranglehold,” the combination of the TSU and income tax (IRS), arguing that it constitutes significant burdens for companies and workers and hinders the appreciation of labor.
Ginjeira do Nascimento noted that if a company raises a minimum wage employee’s salary (870 euros) by 150 euros, the company’s total cost is 186 euros, and the worker receives a net increase of 67 euros.
For a salary of 2,000 euros, a gross increase of 350 euros results in a total cost of 433 euros for the company, with the worker receiving a net increase of 191 euros.
“These data show that the effort to increase wages is absorbed by the tax burden, preventing real and significant impacts on employees’ disposable income,” according to BRP.
The BRP comprises 43 leaders from companies and business groups with combined revenues of 124 billion euros globally, 59 billion euros nationally, employing 424,000 people, of which 218,000 are in Portugal.
The single social tax (TSU) is a mandatory monthly contribution for workers and companies (currently, 23.75% for the employer and 11% for the worker) to fund the Social Security system, ensuring the payment of pensions and other social benefits.
The IRS (personal income tax) directly finances the State Budget, covering public expenditures such as education, health, and security, among others.
