Understanding Payroll in Brazil - Ensuring Successful Global Payroll Operations
Aug 30, 2016
All eyes seem to be on Brazil lately. Not only because it just played host to the Summer Olympics, but also because its growing economy continues to be an inviting business climate for multinationals looking to meet their business objectives through international expansion. Those companies that establish operations in this rapidly emerging market can leverage a large and highly educated workforce that can help them achieve business growth. However, to gain the most benefit from expanding to the country, it is crucial that companies understand their role and responsibilities as employers, particularly concerning payroll.
While it’s true that Brazil offers a great growth opportunity to multinationals, to do business in the country, you need to be there. For a nation as big (both by size and population) and diverse as Brazil, simply trying to operate from another location, or worse, coming in and acquiring an existing company, will do little to engage the local customers and make a significant impact. Instead, taking the time to understand the nuances of the country, from a cultural, legal and economic standpoint, will better prepare the company for success in the Brazilian market and help them achieve the international growth they seek.
To ensure successful payroll operations and to meet full compliance with Brazil’s complex rules and regulations, employers must understand the Consolidation of Brazilian Labor Laws, known simply as CLT. The requirements of this legislation outline the labor rights in the country, covering all aspects of employment and payroll. Some of the most crucial aspects of these laws include:
Basic Rights of Employees
There are certain rights and privileges given to all employees in Brazil, regardless of industry or their positions. These include the minimum wage (currently set at 937 Brazilian reals per month) and the right to non-decreasing salary. In addition, the country’s laws grant all employees the right to maternity and paternity leave and license, the right to strike, overtime compensation, accident insurance and family and educational allowance.
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
Brazilian law requires that any individual providing any type of service be entitled to compensation, which must never fall below the national minimum wages or lower than the lowest wage level established in the collective bargaining agreement for each professional category. Minimum wage is adjusted often and inflation rates tend to be high.
Moreover, compensation can include the monetary value, in Brazilian currency, of such things as food, housing, clothing or any other benefits the company provides habitually to employees by express or tacit agreement. Compensation must be paid monthly, by the 5th working day of the following month. Payday may be earlier, as set by union agreements, or even earlier as set by the company's contract with its employees. Vacations are paid separately from the Monthly Payroll - 2 business days before vacations start, but may still be recorded/reported in the Monthly Payroll with a deduction for the payment already made.
Terminations are Paid Separately, no later than 10 days from termination (2nd day after for employees that are still in a trial period).
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.
Under Brazil’s social security laws, every employee must be covered by the necessary social security insurance. Employers and employees, as well as the government, all make monthly contributions to the Brazilian Social Security Institute, and these payments entitle employees to receive the appropriate benefits for the various types of pensions: retirement, disability and length of service. Typically, the employee is expected to contribute between 8 and 11 percent of their monthly salary to social security, while the employer contributes 20 percent. In addition, the employer is also required to provide work accident insurance for all employees, with the costs fixed by the Ministry of Labor and the Social Security Institute.
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.
Unemployment Guarantee Fund (Locally known as FGTS)
Employers in Brazil should also be familiar with the country’s Unemployment Guarantee Fund, which is a compulsory welfare mechanism that serves as an alternative to the tenure system that had previously been in effect. Under this system, employers must deposit the equivalent of 8 percent of each employee’s monthly compensation in a blocked bank account in the name of the employee. If an employee is found to be dismissed unfairly, he or she is able to withdraw from this fund, including the interest, monetary correction and another 40 percent on top of the total.
Other exceptions also allow the employees to gain access to the FGTS. This could include paying off a mortgage on a primary residency, or paying off health bills and/or student loans and tuition currently due.
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.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.