All the workers in your company are anxiously awaiting the arrival of the holidays and Christmas, two periods in which their wages are supplemented by their holiday and Christmas bonuses.
What is the Holiday and Christmas Allowance?
Despite being created in 1936 by the International Labour Organisation (ILO), it wasn't until April 25 that Portuguese legislation enshrined the right to paid holidays in law.
According to Article 264(2) of the Labour Code, the holiday allowance is a payment made by the employer for the period of holiday taken by the worker and includes
"basic pay and other remuneration in return for the specific way in which the work is carried out, corresponding to the minimum length of holiday"
This allowance must be paid before the start of holiday and proportionally in the case of interpolated holiday (Article 264(3) of the CT).
Two years before the 25th of April brought us freedom and democracy, the Christmas bonus appeared for the first time, something that became immortalised as the 13th month.
In practice, the Christmas allowance corresponds to the amount paid by the employer to its employee in the amount of one month's pay (this must include basic pay and seniority), and must be paid by 15 December of each calendar year (article 263, no. 1 of the Labour Code) or, in the case of the civil service, during the month of November.
The value of the Christmas allowance may be proportional in the following situations set out in Article 263(2) of the Labour Code:
- The year in which the worker joins the company;
- In the year in which the employee terminates their employment contract;
- If the employment contract is suspended.
Who is entitled to holiday and Christmas bonuses?
Entitlement to holiday pay
All workers with an open-ended or fixed-term employment contract, as well as pensioners, are entitled to holiday pay.
Self-employed workers are not entitled to this allowance.
Christmas Allowance entitlement
Only public and private sector employees are entitled to the Christmas bonus.
Self-employed workers, beneficiaries of voluntary social insurance and recipients of occupational sickness benefit are not entitled to receive the Christmas bonus.
Calculation of holiday and Christmas bonuses
Calculation of holiday pay
In their year of employment, employees are entitled to two working days' holiday for each month of the contract, up to a maximum of 20 days. However, they will only be entitled to take these days after 6 months of work, although they are entitled to an allowance proportional to the months worked.
In all other years, the paid holiday day amounts to 22.
To calculate the amount of holiday pay your employee is entitled to, follow this formula:
Holiday Allowance = No. of days to which the employee is entitled/22 x Employee's Gross Income
Calculation of Christmas allowance
According to Article 263 of the Labour Code, each worker is entitled to a Christmas allowance equal to one month's salary or the amount proportional to the length of service provided in the year of admission, termination or suspension of contract.
To calculate this allowance, follow this formula:
Christmas Allowance = No. of days between admission and end of calendar year/365 x Gross Income
Note: if, due to illness or subsidised parenthood for a period of 30 days or more, your employee has not received part or all of their holiday and Christmas allowance, they are due the so-called compensatory allowance which, in this case, will be as follows:
- 60% of the total holiday and Christmas bonuses if your company has not paid them and the employee is receiving sick pay;
- 80% of the total holiday and Christmas allowance if your company has not paid them while the employee is on parental leave and receiving the respective parental allowance.
Deadlines for payment of holiday and Christmas bonuses
Payment Deadline Holiday Allowance
As Article 264 of the Labour Code states, "unless otherwise agreed, the holiday allowance must be paid before the start of the holiday period", at which point it is paid in full, and "proportionally in the case of interpolated use", i.e. the amount of the allowance will be paid as the worker takes their holiday.
As for the civil service, this allowance is paid in June, while pensioners receive it in July.
Payment Deadline Christmas allowance
This allowance must be paid by 15 December, as Article 263(1) of the Labour Code reminds us, or, in the case of the civil service, in November of each year (Article 151 of the LGTFP - General Law on Public Employment).
Permitted forms of subsidy payment
Payment Methods Holiday Allowance
Holiday pay is usually paid in one lump sum with your salary.
In addition to this, there is also the possibility of paying the allowance in twelfths, but be aware that for this to be possible you will have to reach an agreement with your worker.
Note that in the case of payment in twelfths, only half the total amount of the allowance can be paid.
The remaining half must be paid within the time limit laid down in the Labour Code.
Payment Methods Christmas allowance
As we mentioned earlier, Christmas bonuses must be paid to workers by 15 December, although civil servants can receive them in November or in twelfths.
If payment is made in twelfths, the final instalment must be paid by 15 December.
Legal Obligations in the Event of Contract Termination
In the event of termination of contract with just cause, dismissal or termination of contract by mutual agreement, your company's employees are entitled to receive their accrued and untaken holiday and the respective proportional share of holiday time worked and allowances.
Tax implications of holiday and Christmas bonuses
Fees Holiday Allowance
Holiday pay is subject to IRS withholding and Social Security deductions.
It should be noted that, in the case of IRS withholding, this allowance is subject to autonomous withholding, which means that it cannot be added to the remuneration for the month in which it is paid to the worker.
Fees Christmas allowance
Like holiday pay, this allowance is not only subject to IRS withholding tax and Social Security deductions in accordance with the tables in force, but is also taxed independently of normal wages, thus avoiding a potential increase in the IRS bracket.
Fines and Penalties for Non-Compliance
Holiday Allowance
According to Article 264(4) of the Labour Code, failure to comply with the legislation in force will result in your company incurring a very serious labour administrative offence.
Christmas allowance
Failure to pay Christmas bonuses to your workers is a very serious offence and will require you to pay a fine of up to 61,000 euros.
Holiday and Christmas Allowance - Useful information for your business
| Holiday Allowance | Christmas allowance | |
|---|---|---|
| Who is entitled? | Workers with open-ended or fixed-term contracts and pensioners. | Public and private sector employees. |
| Allowance calculation | (No. of days to which the worker is entitled/22) x Gross Income | (No. of days between admission and end of year/365) x Gross Income |
| Payment deadlines | It must be paid before the start of the holiday, unless otherwise agreed. In the case of interpolated leave, it is paid in proportion to the amount of leave taken. | It must be paid by 15 December (private sector) or in November (civil service). |
| Permitted Payment Methods | One-off payment or in twelfths, by agreement with the worker. | Single payment by 15 December or in twelfths. |
| - Twelfths | In the twelfths modality, half is paid monthly and the remainder within the timeframe defined by law. | The last instalment of the twelfths must be paid by 15 December. |
| Tax implications | Subject to IRS withholding and Social Security deductions. Taxed autonomously to avoid an impact on the IRS bracket. | Subject to IRS withholding and Social Security deductions. Taxed autonomously to avoid an impact on the IRS bracket. |
| Fines and penalties | Failure to pay constitutes a very serious labour offence. | Failure to pay constitutes a very serious labour offence with fines of up to €61,000. |
Good practices to ensure Legal Compliance
You already know that REDUNIQ helps your company optimise the management of your customers' transactions through innovative payment solutions and aligned with the needs of your business.
But how can you ensure that you fulfil your legal obligations without difficulties or delays?
The answer lies firstly in equipping your company with an efficient legal and accounting department.
In addition, it is important to automating processes that minimise errors and reduce the time spent analysing each worker's individual file.
In this respect, we recommend that you use management software financial systems that allow integration between the various departments of the company, thus ensuring that all the information relevant to the processing of salaries and allowances is done efficiently and in real time.
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