From Cost Advantage to Compliance Challenge? Rethinking Portugal in Your Location Strategy | Blog

Portugal has long stood out as a talent -rich and cost-effective destination for Global Business Services (GBS), Information Technology (IT), Business Process Outsourcing (BPO), and Customer Experience (CX) delivery. 

However, the country’s evolving labor landscape, shaped by the “Decent Work Agenda” and regulatory changes, has since introduced new compliance dynamics that global organizations must now factor into their location strategies. 

With Law 13/2023 fully in effect since May 2023, employers must now view Portugal not only as an attractive delivery market, but also as a highly regulated labor environment with stricter employment expectations.  

So, what’s changed, and what remains enduringly attractive about Portugal? Our analysts explain below. 

Reach out to discuss this topic in depth.  

Beyond the headlines – What’s actually changed in Portugal’s labor framework?  

Portugal’s reforms are rooted in the European Union’s (EU’s) broader “decent work” policy trend, but the local application goes further than many peer markets.  

Here are the most consequential changes for new entrants:  

• Stricter rules on contract types: Fixed-term and temporary contracts now face hard limits on duration, renewal, and consecutive use. Employers can’t cycle workers through short-term roles indefinitely  

• Presumption of employment for gig/platform workers: Employers leveraging freelance or gig-based models may face reclassification risks – especially when using digital supervision or app-based workflows  

• Increased costs of termination: Collective or individual dismissal compensation has risen to 14-24 days per year of service. Reducing headcount or restructuring roles is now more expensive and legally complex  

• Mandatory reimbursement for remote work: Remote work, now a formal employee right under certain conditions, requires employer-funded cost coverage – turning flexibility into a fixed cost obligation  

• Reporting and documentation deadlines: Employers must notify Social Security 15 days in advance of any new hire and deliver written contract terms within 7 days, a sharp shift from the earlier 60-day timeline  

Key impact zones for global employers  

These reforms significantly shape how organizations must plan and manage operations in Portugal, particularly across four dimensions   

1. Reduced workforce flexibility: New restrictions limit the use of fixed-term contracts, gig work – making it relatively harder to scale operations quickly or run lean staffing models  

2. Increased employment costs: Compensation for termination has risen sharply, remote work now requires employer-funded reimbursements, and overtime rates have increased, tightening labor budgets  

3. Heightened compliance requirements: Tighter deadlines for Social Security registration and contract disclosures, plus expanded reporting to regulators, demand stronger administrative controls and legal vigilance  

4. Constraints on restructuring: Limitations on backfilling, third-party hiring, and temporary replacements challenge traditional project-based or rotational staffing models  

These aren’t just operational hurdles – they require strategic recalibration of how Portugal fits within a global delivery footprint.  

Why Portugal still appeals – The talent and business advantage  

Despite the regulatory tightening, Portugal remains one of Western Europe’s most promising delivery markets, underpinned by:  

• Multilingual and digitally skilled workforce: Major cities such as Lisbon, Porto, and Braga offer talent fluent in English, Spanish, French, and German – skilled in CXM, IT delivery, BPO services, and digital services  

• Emerging tech and engineering talent: Strong Science, Technology, Engineering and Mathematics (STEM) education, tech-centric policy support, and EU funding have built a pipeline of digital talent and innovation capability  

• Global service hub potential: With a favorable time-zone for both European and American operations, Portugal has grown as a nearshore destination to support an array of IT Business Process (BP) services  

• Cost competitiveness: Portugal offers a comparable cost of operations to locations such as Poland, particularly in CXM, IT, and BPO segments – making it a viable alternative for organizations seeking affordable, skilled labor in Western Europe  

• Superior business environment and risk profile: Compared to several Eastern European counterparts, Portugal provides a more stable, secure, and predictable business environment – with lower geopolitical volatility, robust legal protections, well-established physical infrastructure, and stronger alignment with broader EU governance norms  

For organizations building long-term strategic functions (such as Research & Development (R&D) centers, artificial intelligence (AI) / Machine Learning (ML) engineering teams, or multilingual CXM hubs), Portugal remains a highly competitive and appealing choice.  

Strategic questions to ask before expanding  

If you are weighing up a move into Portugal, start with the following three questions:  

1. Can your employment model flex to meet Portugal’s stricter rules on contracts, outsourcing , and platform work?  

Decision considerations: If your operating model can succeed with more permanent roles and reduced reliance on temporary, outsourced, or gig work, Portugal’s labor environment may be a fit. If labor flexibility is critical to your model, Portugal’s regulations may pose some challenges. 

2. Are you operationally equipped to manage local compliance needs for leave, remote work, and termination?  

Decision considerations: If your Human Resources (HR) and legal teams (or local partners) can navigate evolving rules and reporting obligations, you are well-positioned. Otherwise, plan for additional compliance investment. 

3. Does the talent and stability of Portugal justify the total employment cost – beyond wages?  

Decision considerations: When you factor in remote work reimbursements, termination liabilities, and administrative burdens, Portugal’s value must be judged holistically. For many, the quality of talent and business resilience outweigh these incremental costs.  

Final take: Portugal is still open, but on new terms  

Portugal remains an appealing gateway to Western Europe and a growing innovation hub. But operating in the location today means playing with a stricter rulebook – one designed to reduce precarious work and elevate labor standards.  

Organizations must be prepared to invest in compliance, localize policies, and view employment as a strategic, relationship-driven function.  

For organizations seeking short-term labor arbitrage or highly flexible workforce models, alternative EU locations may now provide smoother options. But for those prioritizing talent depth, digital skills, and operational stability, Portugal remains a standout in Western Europe  
  

How Everest Group can help  

At Everest Group, we support global organizations in navigating complex decisions about location strategy, talent access, and cost optimization.  

Whether you are assessing Portugal for IT, CX, BPO, or GBS operations – or reevaluating your delivery footprint amid regulatory shifts – we bring data-backed insights and strategic advisory that spans over 50 location specific parameters across global locations. 

Ready to explore whether Portugal fits your delivery model? Reach out to Ishaan Gambhir ([email protected]) or Sumit Kumar ([email protected]) to explore how Everest Group can help optimize your global operations with clarity and confidence.