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.

What this guide does not cover

To be an honest estimate, some situations are out of scope:

• Fixed-term contracts (certain or uncertain term), whose compensation on expiry has its own rates.
• Termination with cause by the worker, whose indemnity is 15 to 45 days a year and is set by the court.
• Dismissal for cause attributable to the worker, which gives no compensation.
• Termination by mutual agreement, where the amount is negotiated between the parties.

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.