Vacation allowance: Everything you need to know
6 de August, 2024
By now, many Portuguese are already enjoying their long-awaited summer vacations. And in order for these vacations to be enjoyed more peacefully and without compromising the family’s monthly budget, the vacation allowance plays an important role.
Find out with us the answer to some common questions about vacation pay in Portugal.
What is vacation allowance?
Vacation allowance is compensation given by companies to their employees so that they have more time off when they take their vacations.
It is often called the 13th month because it functions as an additional salary paid to the worker.
They are entitled to vacation allowance:
- Employees with fixed-term or permanent contracts;
- Public sector workers;
- Pensioners.
How is vacation allowance calculated?
According to Article 264 of Código do Trabalho, the vacation allowance comprises “the basic salary and other remunerative benefits that are a consideration for the specific way in which the work is carried out”. In other words, in practice, the value of the vacation allowance corresponds to the worker’s basic monthly salary.
This amount includes the basic salary and other items such as time off or shift work, for example.
On the other hand, it does not include any per diems, allowances, meal allowances or transport allowances, for example.
How much vacation allowance do you get in your first year with the company?
In the year of joining a company, the employee is entitled to two days’ leave for each month of the contract, up to a maximum of 20 working days. These vacation days can only be taken six months after the start of the contract. However, many companies end up allowing employees to take leave earlier if they want to.
The calculation of the vacation allowance takes into account the employee’s basic salary and the time worked. In practice, the amount of allowance to be paid is proportional to the time worked so far.
Until when should vacation allowance be paid?
The vacation allowance must be paid “before the start of the vacation period and proportionally in the event of interpolated vacation” (Article 264 of CT). This means that if workers have more than one vacation period during the year, the allowance must be distributed and paid before each of these periods.
However, most companies in Portugal choose to pay this in full only once a year. This usually happens in one of the summer months, when most people go on vacation.
How is vacation allowance paid?
First of all, it’s important to note that in the month in which the worker receives their vacation allowance, they must also receive their monthly salary.
What some employers choose to do is not pay the meal allowance in the month in which they pay the vacation allowance (in other words, they divide the annual amount of the meal allowance by 11 months). Find out if this is the case in your company, so as to avoid any surprises when you go on vacation.
As for the vacation allowance itself, it must be paid together with basic pay, except in situations where another form of payment is defined: for example, through collective bargaining agreements or in twelfths.
In the case of twelfths, the company can pay in this way, but only if the employee does not expressly wish not to receive the allowance every month.
Is vacation allowance subject to tax?
Yes, vacation pay is subject to IRS withholding tax and social security contributions.
As far as the IRS is concerned, the amount received as vacation pay is subject to autonomous withholding. This means that, when calculating the tax to be withheld, the amount of the allowance is not added to the monthly salary (if this were the case, the withholding tax could be higher).
Read also: What kind of taxes are levied in Portugal?