What global businesses need to know about payroll in Brazil

Thinking of expanding your organization into Latin America? Then Brazil is probably pretty high on your target list of countries to explore, even if it’s best known for its passion for samba and soccer!

Brazil is the biggest country in the region by population (around 217 million), and by GDP it’s the 11th-biggest economy in the world. Much of that is driven by heavy industry and raw materials, including iron, steel, cement, chemicals, and automobiles. After a huge economic boom in the early years of this century, Brazil’s economy has stagnated somewhat, but with relatively low costs and a well-educated workforce, it’s still a major opportunity for international enterprises.

There are, however, a number of reasons that a Brazilian expansion can be tricky. Admin processes can be complicated and time-consuming, there are several unique characteristics to its payroll procedures, and there are some restrictions on certain types of foreign investment. Read this guide to explore the key facts of doing business in Brazil, and find out what you need to do to start on the front foot.

Getting Started

Firstly, foreigners are restricted from operating in certain jobs and industries in Brazil, including journalism and broadcasting, mining, road haulage, and some healthcare services. This is by no means an exhaustive list, so make sure you check your organization’s eligibility before starting any business set-up activities.

A central tenet of doing business in Brazil is the eSocial system. It was implemented in 2018 to streamline and standardize how employment data is submitted to government bodies, so that Brazilian labor laws can be better enforced. All companies in Brazil are now required

to use eSocial, submitting data across employment status, tax, social security, payroll, working hours, health and safety, and much more. The penalties for not collecting and retaining comprehensive records on the business and its workforce can be severe.

Key steps on the set-up journey include drafting a Power of Attorney agreement with your chosen lawyers; getting documents notarized; obtaining a CNPJ tax number (essential for using eSocial); registering with the Central Bank; submitting documents of incorporation to the State Trade Board; and opening a Brazilian bank account. You may also be required to apply for business licenses, depending on your industry. Be warned: Brazilian processes and admin can be slow (although they are gradually improving), so it may take you several months to complete everything.

Employment Considerations

It’s vital to note that trade unions are a major part of the Brazilian business landscape, and collective bargaining agreements are commonplace. Terms signed by employers under these agreements are enforceable by law.

The maximum working week in Brazil is 44 hours, with no more than eight hours in any one working day, theoretically meaning 5.5 days of work each week. A maximum of two hours of overtime can be worked per day (Brazilian law prohibits more than ten hours of work per day in total) and is paid at 150% the rate of normal salary, or 200% on Sundays or public holidays. Additional rates may be applied for those working late at night. Further overtime rates, and variations to working hours and days, can be agreed on an individual company basis through collective bargaining.

Statutory notice periods are 30 days for employees with one year of service, increasing by three days each year, up to a maximum of 60 days for employees with at least 11 years of service. Notice periods can be halved if the end of the employment is by mutual consent. Again, these arrangements can be increased through collective bargaining. Probation periods can be between 45 and 90 days.

Compensation, Bonuses and Severance

Brazil’s national minimum wage level is regularly adjusted, and on January 1 2024, it was increased for the third time in the space of just over a year, to 1379 reais per month (approximately £225, $285, €260). However, payment can include the monetary value, in Brazilian currency, of such things as food, housing, clothing, phone contracts, gym memberships, or any other benefits the company provides habitually to employees by express or tacit agreement. 

Further rate increases are highly likely in the months and years ahead, and won’t necessarily take place at the start of the calendar year, so keep a close eye on Brazil’s political scene for further developments. 

Compensation must be paid monthly, by the fifth working day of the following month. Paydays may be earlier, as set by union agreements or by the company’s contract with its employees. All employees in Brazil are also entitled to a ‘bonus’ 13th-month payment, equal to one month’s salary and paid out in two installments in November and December; tax and social security contributions should be withheld from the second payment.

Terminations are paid no later than ten days from termination (or within two days for employees that are still in a trial period). Employees are entitled to 40% of the money that has been paid into their unemployment guarantee fund. There may also be a requirement to make further payments of a month’s salary plus unused holiday pay if defined by collective bargaining.

Tax and Withholding Considerations

Like many major economies, income tax rates in Brazil are progressive, with higher earnings subjected to higher rates of tax. The first 1903.98 reais (approx. £310, $395, €360) made each month are exempt from tax, after which the first bracket of 7.5% kicks in. The highest rate of 27.5% is applied to monthly earnings above 4664.68 reais (approx. £760, $965, €875). All earnings made in Brazil by non-residents are taxed at a flat rate of 25%.

Employees in Brazil are paid monthly, although union and company contracts may also provide for advance payments within the payroll period. Taxes and employer contributions are calculated and paid within the month-end payroll (Folha Mensal).

Employers are required to make five different kinds of social security contributions. These are:

• Main social security: between 20% and 26.8%
• Work accident insurance: 2%
• Employment insurance fund: 8%
• Third-party payment: 5.8%
• Vacation bonus money: 2.78%

On top of these, any employers subject to collective bargaining agreements (which in Brazil, is most of them) have to provide additional benefits to employees. These typically include vouchers for meals and for transport to and from work, and in some cases grocery vouchers for employees on lower incomes.

Employee social security contributions are progressive according to income across four bands, ranging between 7.5% and 14%. There is a maximum contribution cap of 828.38 reais a month (approx. £135, $170, €155).

Corporate tax is currently levied at 15%, although there is a 10% surcharge on all annual profits in excess of 240,000 reais (approx. £39,000, $50,000, €45,000).

Leave Considerations

There are eight main days of public holidays each year, which Brazilian employees are entitled to take off, plus another four or five ‘optional’ holidays for times like the Carnival. On top of this, employees are entitled to at least 30 days of paid holiday, which is normally taken in one or two large blocks. During their time off, employees should be paid at 133.33% of their normal rate, and receive all their holiday pay before the start of their period of absence.

Maternity leave entitlement is four months, although this can be extended by a further 60 days with the agreement of the employer. Maternity pay is claimed by the employer from the social security authorities, who then remit the money to the employee. Paternity leave is five days, which can be extended to 20 with employers’ agreement, and paternity pay works in the same way. 

Other types of leave include family bereavement (five days, paid), providing essential care for a child under 12 (30 days, paid), caring for an elderly relative (15 days, paid), and when getting married (three days, paid).

In Summary

Brazil is a great country to do business in, but at a practical level, it can be easier said than done. The combination of admin red tape, the influence of collective bargaining, and the complexity of the eSocial system can be a lot to get to grips with. So if you want to focus your attention on driving market share in Latin America’s biggest economy, you may find it helpful to hand some or all of the payroll necessities over to an expert payroll partner.

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.