As part of our continuing effort to help payroll professionals everywhere address the complexity of global payroll, we’ve asked our internal experts about the unique challenges and requirements of processing payroll in some key countries. For this spotlight, we turn our attention to Brazil, the dynamic South American nation known for its passionate culture, stunning biodiversity, and strong economy. Here, our local payroll expert offers seven insights for multinational employers looking to learn more about payroll processing in Brazil.
What do global organizations need to know before setting up their payroll in Brazil?
While Brazil is very welcoming of foreign investment and business, companies considering expanding into the country should know that Brazil is very complex, both in terms of legislation and bureaucracy. The nation is known for being particularly complicated for payroll, so it’s good for business leaders to have a plan in place for managing payroll requirements before setting up locally, whether that means partnering with a specialist provider or employing a dedicated local payroll expert. One of the biggest challenges for companies in Brazil is keeping up with regular changes to labor laws and how payslips are calculated and taxes are declared. Multinationals coming to Brazil will need to be prepared for that.
Can you describe a unique challenge or requirement for global payroll in Brazil?
In December 2014, Decree No. 8373 introduced the Digital Bookkeeping System for Tax, Social Security, Labor and Social Obligations. Commonly known as eSocial, this legislation widely came into effect in January 2018. Employers use this system to communicate a broad range of employee information to the government, such as bonds, social security contributions, payroll details, work accident communications, termination notices, tax accounting data, and information about the FGTS (the Brazilian unemployment benefit).
The important thing for foreign companies to realize about eSocial is that it effectively requires every change to payroll, however minor, to be reported in real time to the government. That has been a shift for employers within Brazil, and it’s very important that multinationals expanding into the country understand what’s required under the legislation.
How can global enterprises benefit from doing payroll in Brazil?
If your company employs people living and working in Brazil, you need to have a legal entity in the country in order to pay them. Due to the complexity of local payroll regulations and reporting requirements, it’s a good idea to partner with a provider with specialty knowledge of Brazilian payroll, who can make sure every aspect is managed properly. It’s also important to note that payments to employees and to local authorities must be made from an in-country bank account. Given the size of the country, both geographically and in terms of population, it can be beneficial to have a physical presence when doing business, to help understand and engage with the culture and communities.
Why is Brazil a good location for multinational organizations?
Brazil is the largest country and economy in South America, and benefits from growing interest and influence internationally. One of the world’s largest democracies, the country has a population of more than 200 million people and serves as a gateway to a market of more than 900 million consumers across Latin America. Although there may be lingering challenges, Brazil is a country that people want to do business with
The Brazilian government welcomes foreign investment that brings economic development and job opportunities. A well developed national infrastructure supports business around the country, and various financial incentives are available to companies both foreign and domestic, depending on their industry. Also, the Brazilian workforce is generally well educated and skilled, with government-subsidised schools and apprenticeships in place, and more than 16 million Brazilians hold a higher-education qualification in a STEM field.
How have the recent changes in compliance regulations affected payroll operations in Brazil?
Brazil is in the process of implementing its own far-reaching General Data Protection Law, which is planned to take effect in early 2020 and will add Brazil to the list of more than 120 countries considered to have adequate protections in place for the use of personal data. Similar to GDPR in Europe, the Lei Geral de Proteção de Dados (LGPD) will have extraterritorial application, meaning that companies outside of Brazil who collect, manage, or process the personal data of people living in the country will be subject to the law.
The full impact of the LGPD on payroll operations in Brazil will be better understood when the law takes effect, but payroll teams are beginning to prepare by assessing their current data management workflows and requirements. The introduction of eSocial had already prompted organizations to improve their data processing to facilitate more timely and thorough reporting, although LGPD will likely expand requirements.
What is the typical payroll window in Brazil, and what can organizations do to improve the efficiency of that cycle?
Almost all payrolls in Brazil are processed monthly, with an average calendar window of less than 2.2 days to complete processing from payroll lock to approval. However, the nature of payroll reporting and payment requirements in Brazil creates a high degree of supplemental runs. So although the payroll runs are completed relatively quickly, a majority of those payrolls will require a supplemental run before the process is fully complete. An important aspect for companies to focus on is data accuracy. While changes will always happen and are an accepted part of payroll in Brazil, the best way to minimize any negative impacts of those changes is to take steps to improve the quality of payroll data overall.
Brazil’s ambitious eSocial system for data management and record-keeping went into full effect just over a year ago. How has the change impacted payroll operations, what are the benefits for payroll teams, and what should employers know?
The biggest challenge of eSocial has been adapting to the new, nearly real-time reporting requirements around monthly salary, income tax, payroll tax, unemployment insurance, monthly contributions, and more. This affected payroll operations greatly, because it some respects, it amounts almost to double work — having to update information in your payroll system, then straightaway update it in the eSocial system. Overall, however, there are benefits. For example, because information is transmitted on a daily basis, statutory and annual declarations are no longer required at the end of each month and year. Also, the government regulation helps ensure that companies are fully up to date and compliant with the laws.