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What employers need to know about Brazilian Payroll

Brazil is the ninth largest economy in the world, with growth expected across all industries and business sectors. As the country’s economy continues to surge, Brazil has emerged as a logical destination for organizations that want to leverage one of the largest domestic markets to expand their global presence.

In order to reap the most benefit from the unlimited growth potential the country offers, employers must first gain a solid understanding of Brazil’s laws regarding compensation as well as their responsibilities as an employer.

The rights and duties of both employers and employees are established by the Consolidation of Brazilian Labor Laws. Known simply as CLT, this legislation was designed to establish labor rights in the country and covers all aspects of employment and payroll. Although the labor laws are extensive, the following are some of the most important considerations for employers hiring employees in Brazil.

 

Employment relationships

Unlike most other countries, Brazil’s labor law doesn’t require a formal written employment agreement between the employer and the employee. Instead, oral employment agreements are fully valid and enforceable and subjected to the rules and regulations of the CLT. Despite the validity of oral employment agreements, such agreements should still be documented on the employee’s personal Labor Card, as well in the company’s records, to ensure they receive payment and contribute to social taxes and other withholdings.

Unions and Collective Bargaining

The presence of various unions and collective bargaining agreements in Brazil is another factor of which employers must be aware. Brazil’s Federal Constitution ensures freedom of association to trade unions, and such unions may also enter into collective bargaining agreements as a means of regulating specific labor relationships. Once these terms are signed by the representative unions, the employer must comply with its clauses, as they are enforceable by law.

 

Salary and remuneration

Under Brazilian law, any individual rendering any type of service is entitled to compensation, which must never be below the national minimum wages (937 Brazilian reals per month) or less than the lowest wage level established by the collective bargaining agreement for the specific industry or professional category. In addition to regular wages and salary, compensation can extend to other services provided, such as food, housing, clothing, or any other benefits the company may offer employees by express or tacit agreement.

Employee compensation can be paid on a monthly, bimonthly, weekly, or per-task basis, again depending on the individual agreement between employer and employee. Employees also have a right to receive a 13th month bonus each December, corresponding to the highest compensation paid to them during the year.

In addition, employers are required to pay a health hazard and risk premium for those employees involved in activities that are deemed by law to be hazardous. In these circumstances, the employer will pay the equivalent of 10, 20 or 40 percent of the minimum wage, depending on the degree of hazard. In the case of particularly dangerous work environments, such as those involving contact with explosives or flammable materials, the employer must pay an additional 30 percent of the employee’s salary to compensate for the risks involved.

Working Hours

For most employees, the maximum workday is eight hours and the maximum work week is 44 hours. Any work performed beyond these time limits is considered overtime, and up to two hours of overtime per day can be rendered upon written agreement between the employer or employee, or agreed upon through collective bargaining. The minimum compensation for overtime must be at least 50 percent higher than the employee’s normal hourly rate. In addition, night work – performed between 10:00 p.m. and 5:00 a.m. – must be compensated at least 20 percent more than the daily working rate, plus any over-time rate on top of it (if applicable). 

What’s more, Unions and Company contracts may also provide for advance payments within the Payroll period, and often do. In affect, this practice simulates shorter pay periods. Taxes and Employer contributions are only calculated and paid within the month-end Payroll (Folha Mensal) that will include the information of any advances paid intra-Pay Period. 

 

Unemployment Guarantee Fund (Locally known as FGTS)

Brazil’s Unemployment Guarantee Fund is a compulsory welfare mechanism devised as an alternative to the tenure system. Under this system, employers are required to deposit the equivalent of 8.5 percent of each employee’s monthly compensation in a blocked bank account in the name of the employee.

Should an employee be unfairly dismissed, they are entitled to withdraw from this fund, along with the interest, monetary correction and 40 percent on the total, as well as an addition 10 percent of their special contributions.

 

Social security

Brazil’s social security laws dictate that every employee must be covered by social security insurance. Employers, employees, and the government all make monthly contributions, and these payments entitle the employee to receive social security benefits for the various types of retirement pensions, such as disability, retirement, or length of service. Typically, the employee will contribute between eight and 11 per cent of their monthly salary, while the employer contributes 20 per cent. In addition, the employer is required to protect its employees by taking out work accident insurance from the Brazilian Social Security Institute.

With a unique set of rules and regulations, from oral work agreements and unemployment contributions to social security considerations, conducting payroll in Brazil can be challenging. Given these many nuances and complexities, the multinational organization expanding to the country can have a difficult time understanding how best to go about the process. Instead of trying to do it on their own, employers looking to hire employees in Brazil can benefit from working with a global payroll provider experienced with the intricacies of conducting payroll in the country. This way, they can spend less time getting bogged down in administrative tasks and focus their efforts on developing their business in this rapidly growing market.

Health Hazard Allowance and Risk Premium

Employers are expected to protect their employees involved in activities considered by law to be hazardous. In these instances, the employer must pay an additional monthly allowance for working in hazardous conditions. These payments can be 10, 20 or 40 percent of the minimum wage, depending on the degree of hazard. In case of particularly dangerous activities, like those involving explosives or flammable materials, the employer must pay additional compensation equal to 30 percent of the employee’s salary.

Taxes

Employer

28.80% - Social Security
8.50% - Severance Fund
4.95% - Pension Fund

Employee

 

7.65% - 11% - 28.80%
1.66% - Employment Insurance
4.95% - Pension Fund
0.00% - Up to 1,903.98
7.50% - 1,903.98 - 2,826.65
15.00% - 2,826.65 - 3,751.05
22.50% - 3,751.06 - 4,664.68
27.50% - Over 4,664.68

Mandatory Benefits

Pension Fund

 

Also refered to as FGTS (Fund of Guarantee For The Time in Service). Employers contribute between 26.8% - 28.8% of workers salary. Employees contribute 8% of their wages up to BRL1,659.38. Employees contribute 9% for wages between BRL1,659.39 to BRL2,765.67; and 11% for BRL2,765.68 to BRL5,531.21. Contribution ceiling is at BRL5,531.31.

Social Security

 

Employers contribution is 28.8%, and Employee contribution is 11% with cap of BRL608.44. Funds are towards health insurance, group life insurance, accident insurance and unemployment insurance.

Vacation Bonus

 

Mandatory cash bonus equal to one-third of employee's monthly salary. Employees have the right to convert one third (approximately 33%) of their paid vacation (normally up to 10 days) to pay in lieu of vacation. Any unpaid vacation days do not roll over, and employers must pay it out at the end of the calendar year at double time rates.

Severance Pay

 

Employees are entitled severance payment which includes the balance of their wages, any holiday entitlement they didn’t use, 13th month salary and access to the funds from the Brazilian Government Severance Indemnity Fund Law. The employer contributes 8% of the employee's wages to this account. If the termination is with a cause, the employees do not have an access to the severance account.

Minimum Wage

General

 

Minimum wage is R$954 ($288.40) monthly.

Non Mandatory

 

Retirement

 

Typically, employees can contribute from 4% to 5% and companies match 100% of employee contributions up to 5%.

Life And AD&D

 

Typically includes death of any cause, accidental death, & total disability of 24X the insured's monthly base salary. The minimum number of employees eligible for this kind of group insurance is 5.

Disability

 

Employees should provide the following benefit calculated based on the monthly base salary (MBS): * Death: 24X MBS * Accidential Death: 48X MBS * Total or partial Illness Disability: up to 24X MBS.

Payroll

General

 

Salaries are paid on monthly basis on the last day of the month. Every year by 20th of December, employee is entitled to receive 13th salary payment, that could be considered as a Christmas Bonus. However, it is not paid as bonus, it’s paid as an additional payroll (13th), with its own taxes to be applied, withheld and paid, separated from regular payroll.

Paid Time Off

Vacation days

 

Employees are entitled to 30 days of vacation after 12 months of employment. Law demands that payment for vacation must be at least one third higher than regular salary (adding 33,33% to the regular salary). Also, employees may offer the company to work for 10 days receiving all the rights above and an additional of 10 days of salary.

Sick days

 

Employees are entitled to a sick leave with appropriate documentations from a doctor. The first 15 days of leave are reimbursed by the employer, afterwards the social security takes over the payments for up to two years during which period the employees are on unpaid leave.

 

Maternity Leave

 

Female employees are entitled to 120 days (around 17 weeks) of paid maternity leave and extension by a maximum of 4 weeks on medical grounds (two weeks prior and two weeks after birth).

Paternity Leave

 

5 days off after childbirth.

Parental Leave

 

No specific laws.

VAT

General

 

17% standard rate.

eSocial - Implications for Global Businesses

No conversation about Brazilian payroll can be complete without addressing eSocial. The Brazilian government’s ambitious record-keeping transformation project, known as eSocial was meant to streamline the transmission of employment-related data to various federal government institutions. It is a part of a broad digital initiative seeking to improve the enforcement of Brazilian labor laws by creating a government-built digital reporting platform. The program will fundamentally change communications between employers (particularly HR and Payroll departments) and the government.

However, this groundbreaking initiative for unified electronic reporting has faced some delays over the course of the last few years and left some global companies wondering what to do next. Failure to comply with eSocial’s implementation deadlines can result in the swift imposition of fines and penalties — potentially by all five government ministries.

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