The Labour Compensation Fund (Fundo de Compensação do Trabalho – FCT) and the Labour Compensation Guarantee Fund (Fundo de Garantia de Compensação do Trabalho – FGCT) were introduced in Portugal in October 2013 as part of a broader reform of labour legislation.
These funds were created to strengthen employee protection following changes to employment law that reduced the statutory compensation payable in cases of dismissal or termination of employment contracts.
The FCT was established as a capitalization fund, financed through mandatory employer contributions, with the purpose of helping finance part of the compensation due to employees when their employment contracts ended.
The FGCT, on the other hand, acted as a guarantee mechanism, ensuring that employees would receive the compensation legally owed to them if their employer failed to make the required payment.
End of Mandatory Contributions
At the end of 2022, the Portuguese Government introduced significant changes to this system by abolishing the mandatory employer contributions to the Labour Compensation Fund (FCT).
This reform reduced the employment costs associated with hiring and maintaining employees.
At the same time, mandatory contributions to the Labour Compensation Guarantee Fund (FGCT) were also suspended, meaning employers are no longer required to make payments into either fund.
What Happens to Existing Balances?
Although mandatory contributions have ended, the amounts previously accumulated by companies in the FCT have not been lost.
Instead, the Government established that these existing balances may be used by employers for purposes that promote employee development and business competitiveness.
Permited uses include:
- Financing certified professional training and skills development programmes for employees;
- Supporting the financial independence of young employees, including assistance with housing-related expenses;
- Other purposes that may be established under future legislation aimed at promoting employment, workforce development, and business competitiveness.
Changes Introduced by the 2026 State Budget
The 2026 State Budget maintains the framework introduced in previous years regarding the Labour Compensation Funds.
Accordingly, employers remain exempt from making mandatory contributions to both the FCT and the FGCT.
As a result, businesses continue to benefit from lower employment-related costs while retaining the ability to use any existing balances held in the FCT to finance employee training, professional development initiatives, and other legally authorised purposes.
A Shift in the Purpose of the Funds
These legislative changes represent a significant shift from the original purpose of the Labour Compensation Funds.
Rather than accumulating new funds to help finance severance payments, the existing framework now focuses on investing in employee skills, professional development, and initiatives that enhance workforce competitiveness.
This approach reflects a broader public policy objective of promoting employment quality, improving workforce qualifications, and supporting long-term business growth.
Need Further Information?
If you have any questions about the Labour Compensation Funds or the changes introduced under the 2026 State Budget, speak to a Certified Accountant or employment law professional to understand how these rules may affect your business.