Understanding Payroll in Brazil - Ensuring Successful Global Payroll Operations
Brazil is the biggest country in South America and so represents the nerve centre for many multinational countries expanding into or operating in the region. The world’s sixth-biggest country by population and the ninth-biggest economy, Brazil and its approximately 210 million people have developed major manufacturing and raw materials industries, especially in iron, steel, cement, chemicals and automobiles.
Brazil enjoyed an economic boom in the early years of the 21st century as one of the BRICS group of emerging economies: its total GDP quintupled between 2002 and 2011. That growth was dented significantly by a recession in 2015, and Brazil has experienced a slow recovery since then. Its GDP was just over $1.84 trillion as of 2019, although as one of the countries most deeply affected by the COVID-19 pandemic, the future direction of the Brazilian economy will take some time to emerge.
With a large and well-educated workforce, companies establishing operations in Brazil can achieve successful business growth. But its unique cultural nuances mean that establishing a physical base in Brazil, and fully engaging with the local population, is absolutely essential. On top of that, Brazil’s rules and regulations can be complex, so a strong commitment to understanding Brazil and its demands and requirements are critical to establishing successful payroll operations there. This guide covers the key points.
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.
When introduced, companies found they were having to fill in up to 45 different forms in order to maintain eSocial compliance. To try and cut down on this level of bureaucracy, the Brazilian government is now putting measures in place to simplify the system. Nonetheless, eSocial puts a responsibility on all companies operating in Brazil to collect and retain comprehensive records about their business and workforce, with heavy fines levied for transgressors.
All employees in Brazil are afforded the right to the minimum wage (see below), a non-decreasing salary, maternity and paternity leave, overtime compensation, accident insurance, family and educational allowances, and the right to strike.
Brazil is also a country where trade unions are active. All employees are free to associate with trade unions under Brazil’s federal constitution, and these unions may enter into collective bargaining agreements with businesses. 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 can be agreed on an individual company basis through collective bargaining.
Compensation, Bonuses and Severance
Brazil’s national minimum wage level is regularly adjusted and in January 2020 passed 1000 reals per month for the first time. The minimum wage for 2020 is 1039 reals (approximately £155, $195, €170). However, payment 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. All employees in Brazil are also entitled to a ‘bonus’ 13th-month payment, equal to one month’s salary and paid out in two instalments in November and December.
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. Vacations are paid separately from the monthly payroll, two business days before vacations start, but may still be recorded/reported in monthly payroll with a deduction for the payment already made.
Terminations are paid no later than ten days from termination (or within two days or employees that are still in a trial period).
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 reals (approx. £285, $355, €315) made each month are exempt from tax, while the highest rate of 27.5% is applied to monthly earnings above 4664.68 reals (approx. £700, $870, €775). 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 and employees, as well as the government, all make monthly social security contributions to the Brazilian Social Security Institute, entitling employees to receive the appropriate benefits for retirement, disability and length of service pensions. Employees contribute between 8 and 11 percent of their monthly salary depending on earnings, 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. The employer must pay an additional monthly allowance for working in hazardous conditions, variable depending on the degree of hazard.
Employers in Brazil should also be familiar with the country’s Unemployment Guarantee Fund (FGTS), 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, or needs to pay off a mortgage, health bills or student loans, he or she is able to withdraw from this fund.
In addition to the ten national holidays, employees in Brazil are entitled to 30 calendar days of vacation each year, normally taken in one or two large blocks. They are also entitled to one-third of a month’s salary as a holiday bonus.
Maternity leave entitlement is four months, although this can be extended by a further 60 days with the agreement of the employer, who can claim back the employee’s salary as an income tax deduction. Women cannot be dismissed from their jobs during pregnancy or in the first year following the birth. Paternity leave entitlement is a maximum of five paid days.
Termination notice periods start at 30 days but extend by three days per year of service up to a maximum of 90. Terminated employees are entitled to receive their normal pay up to the termination date, as well as pro-rated pay for unused paid leave, 13th-month bonus and all other bonuses or overtime.
The unique nature of some of Brazil’s employment legislation, combined with the complexity of its eSocial system, can make a move into Latin America’s biggest economy daunting. But this shouldn’t put you off. Deploying a global payroll solution can equip you with the tools and expertise to navigate issues before they can cause any problems, and help you exploit all the exciting opportunities Brazil offers.
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.