Government Extends Simplified Lay-Off Scheme to June Following Agreement With Social Partners

Portugal's government has extended the simplified lay-off scheme until the end of June 2026, following an agreement reached with social partners on Saturday. The extension provides continued employment protection for workers in companies affected by the ongoing economic disruption from the Middle East conflict and lingering effects of Storm Kristin.

The simplified lay-off regime, first activated in February to help businesses weather the Storm Kristin crisis, allows companies to temporarily reduce working hours or suspend contracts while employees continue receiving their full salary. Under the scheme, workers receive 100 percent of their gross salary up to a maximum of €2,760 (three times the national minimum wage), with the Social Security system covering 80 percent of costs and employers paying the remaining 20 percent.

The decision to prolong the measure comes as Portugal faces mounting economic headwinds. The Bank of Portugal this week cut its 2026 growth forecast to 1.8 percent, down from an earlier projection of 2.3 percent, citing the combined impact of energy price volatility and storm-related infrastructure damage. Fuel costs have climbed sharply since U.S. strikes on Iranian oil facilities began in mid-March, creating additional pressure on businesses already operating on thin margins.

What the Extension Means for Expats and Foreign Workers

Foreign nationals working in Portugal are covered by the same employment protections as Portuguese citizens, which means the lay-off extension applies equally to expats holding valid work permits or residence visas that authorize employment. If your employer activates the simplified lay-off scheme, you will continue to receive your full salary (up to the €2,760 ceiling) without being required to work, or you may be asked to work reduced hours while still receiving full pay.

Critically, being placed on lay-off does not affect your residence status. Portuguese immigration law does not require continuous full-time employment to maintain a work-based residence permit, and the simplified lay-off is a legally recognized employment protection measure. However, if you hold a residence permit that was issued on the basis of self-employment or entrepreneurial activity, the lay-off scheme does not apply to you, as it is designed exclusively for employees under formal employment contracts.

The extension also means employers cannot terminate contracts of workers placed on simplified lay-off for the duration of the measure plus an additional 30 to 60 days after it ends, depending on how long the lay-off lasted. This protection against dismissal applies to all workers covered by Portuguese labor law, regardless of nationality.

Background: From Storm Response to Economic Shield

The simplified lay-off was introduced as an emergency measure following Storm Kristin, which struck Portugal in late January and early February, causing widespread flooding, power outages, and infrastructure damage. The storm particularly affected the industrial corridor between Leiria and Coimbra, where dozens of factories were forced to halt operations for weeks.

When the government approved the initial lay-off package in early February, it was framed as a temporary bridge to help businesses recover from physical damage. But the measure's scope has effectively expanded as new economic pressures have emerged. The spike in global oil prices triggered by the U.S.-Iran confrontation has driven Portuguese diesel and gasoline prices above €2 per liter, creating cascading cost increases across transportation, logistics, and manufacturing sectors.

Social partners—representing employers' associations and labor unions—had been negotiating the extension for several weeks. The agreement reached on Saturday maintains the same terms as the original scheme, including the 80-20 cost-sharing formula and the salary cap. The Ministry of Labor has not yet published detailed implementation guidance, but companies already enrolled in the February lay-off program are expected to transition seamlessly into the extended period.

How Lay-Off Differs From Unemployment Benefits

It is important to distinguish the simplified lay-off from unemployment benefits. Workers on lay-off remain employed and continue accruing seniority, vacation days, and other employment-related rights. Their contracts are not terminated; they are merely suspended or reduced temporarily. By contrast, unemployment benefits (subsídio de desemprego) are only available after a contract ends, and eligibility requires having made at least 360 days of Social Security contributions in the preceding 24 months.

For expats, this distinction matters significantly when it comes to residence permit renewals. AIMA (the immigration authority) considers workers on lay-off to still be employed, which can help satisfy the economic means requirements for residence permit extensions. Unemployment, on the other hand, may complicate renewals if you cannot demonstrate alternative financial resources.

Next Steps and Where to Find More Information

The Ministry of Labor is expected to publish a formal decree extending the simplified lay-off scheme in the coming days, which will appear in the Diário da República, Portugal's official gazette. Companies wishing to activate the lay-off for their employees must submit an application to Social Security, providing documentation that demonstrates the business is facing economic difficulty directly attributable to external shocks such as the storm or energy crisis.

For workers who believe they should be covered by lay-off but whose employer has not activated the scheme, you can contact the Authority for Working Conditions (ACT) to report potential labor law violations. ACT's helpline is available at 707 51 51 51, and the agency has offices in all major Portuguese cities.

The extension to June suggests the government is preparing for a prolonged period of economic uncertainty. Whether the measure will be extended further will likely depend on how energy markets evolve and whether a ceasefire in the Middle East materializes in the coming months.