Severance pay in Portugal: how it is calculated in 2026

What severance pay is

When the employer ends an open-ended contract for reasons that are not the worker's fault, a collective dismissal, the abolition of the post or a dismissal for unsuitability, the law requires compensation to be paid¹. This is what is commonly called severance pay (indemnização por despedimento).

The amount depends on two things: your pay and your seniority (how long you have worked at the company). The part that makes the sum confusing is that the number of days per year has changed several times over the years, so each period of your career counts at the rate that was in force then.

The current rule: 14 days a year

Since 1 May 2023, with the Agenda do Trabalho Digno (Lei n.º 13/2023²), the compensation is 14 days of base pay plus seniority allowances for each complete year of seniority. The fraction of a year is worked out proportionally.

The value of one day of pay is:

Day value = (monthly base salary + seniority allowances) ÷ 30

For a contract that started after May 2023, this is the only rate that applies: just multiply the day value by 14 and by the years of seniority.

The transitional regime: each period at its rate

For older contracts, the sum adds up the service in each period at the rate then in force:

The severance pay calculator splits your seniority across these periods automatically, from the contract start and end dates, and applies the right rate to each one.

Worked example

Take an open-ended contract that started in January 2015 and ended, through abolition of the post, in May 2023, with a base salary of €3,000:

• Day value: €3,000 ÷ 30 = €100.
• Oct 2013 – Apr 2023 (100 months, at 12 days/year): 100 ÷ 12 × 12 = 100 days → €10,000.
• May 2023 (1 month, now at 14 days/year): 1 ÷ 12 × 14 = 1.17 days → €117.
• Total compensation: 101.17 days × €100 = €10,117.

As the salary and seniority are well below the ceilings, no cap applies. Work it out with your own figures in the calculator.

The legal caps

Article 366.º sets two ceilings¹:

• The base pay + allowances used in the calculation cannot exceed 20 times the minimum wage , 20 × €920 = €18,400 in 2026³.
• The total cannot exceed 12 times the monthly pay or, where the first ceiling applies, 240 times the minimum wage.

In practice only very high salaries or very long tenures (more than about 25 to 30 years) reach these limits.

Is severance pay taxed?

• Social Security: severance pay is not subject to Social Security.
• IRS: it is exempt up to a limit, the average pay of the last 12 months multiplied by the years of seniority. Only the part above that limit is taxed. There are also specific rules, for example, for people who return to work for the same employer in the following years. The calculator shows the gross amount; the IRS on the taxable part is not computed here.

Each form of termination pays something different

The article 366 formula the calculator applies covers dismissals through no fault of the worker on an open-ended contract. Other ways of ending a contract pay a different amount:

• A fixed-term contract reaching its end: 24 days of base pay and seniority allowances for each complete year of service, worked out under article 366 (article 344(2) for a certain term, article 345(4) for an uncertain term). That is more days per year than the 14 of an open-ended contract. No compensation is due if it is the worker who declares they do not want the renewal.
• Unlawful dismissal: the worker is entitled to reinstatement or, if they prefer, to compensation instead, which the court sets at between 15 and 45 days for each complete year or fraction, never below three months of pay (article 391). The pay falling due between the dismissal and the final judgment is added on top.
• Termination with just cause by the worker (for example, unpaid wages): the same 15 to 45 day range per year, with the same three-month floor (article 396).
• Dismissal for cause attributable to the worker: no compensation.
• Termination by mutual agreement: the amount is negotiated between the parties, with no statutory formula.

What else you receive when the contract ends

The compensation is not everything the employer owes in the final settlement, and this is where people most often underestimate what they are due:

• Holiday accrued but not taken: the holiday pay and the holiday bonus (article 245(1)(a)).
• Proportional amounts for the year the contract ends: holiday pay and holiday bonus in proportion to the time worked that year (article 245(1)(b)).
• Christmas bonus in proportion to the time worked in that calendar year (article 263(2)(b)).
• Salary for the days worked in the final month.
• Missing notice period: if the employer does not honour it, they pay for the missing days.

These items are not part of the severance calculator, and added together they are usually worth more than people expect: every vested holiday day left untaken pays twice, once as holiday pay and once as the holiday allowance. The end-of-contract pay calculator works out the whole final settlement, and the article on end-of-contract pay explains the article 245(3) cap that cuts holiday in the first two calendar years of a contract. For the individual parts, use the holiday and Christmas bonus calculator and the notice period calculator.

What this guide does not cover

To be an honest estimate, the calculation works monthly, does not compute the IRS on the taxable part, and does not fix the exact amount of the indemnities that depend on a court ruling (15 to 45 days) or on what is negotiated in a termination by mutual agreement.

To understand what you take home from your salary, see the net salary calculator and how net salary is calculated. For specific cases, always confirm with the ACT (the labour authority) or a lawyer.