As South America’s biggest country, and the ninth-largest economy in the world, Brazil has increased in its appeal to foreign investors looking to establish their own businesses or hire remote workers. If you’re an employer who is considering hiring remote workers who live in Brazil, opening a business there, or moving to Brazil, then you’re probably wondering about the country's employment and tax laws. You should understand that Brazil’s employment and tax laws are complicated due to their complex payroll compliance.
Learning about the employment, tax laws, and payroll in Brazil can seem daunting, especially considering that Brazil has over 60 forms of tax. For foreign companies that are looking to obey tax laws in Brazil, you’ll want to consider the following: social security costs, individual income tax for employees, sales tax, payroll tax, business tax, withholding tax, and permanent establishment concerns.
How Does Brazil Payroll Processing Work?
Payroll processing is typically driven by local labor laws, specific rules, and various layers of legislation. Of course, this can make it quite difficult for international companies to expand to foreign countries.
Since Brazil’s laws are constantly changing, companies who establish a presence in Brazil are often met with a complex payroll system. Their payroll laws also become more complicated when labor unions come into play. Other impacts on the payroll compliance system include reaching agreements with various labor unions and adhering to new programs aimed at modernization.
There are many allowances and social benefits available to employees, thanks to federal labor laws and agreements that are usually negotiated with unions. In addition to these benefits, companies must also take into account withholding social contributions as well as income taxes from their employee's salaries.
Brazilian Payroll Key Takeaways
Salary
Salaries are tallied and distributed monthly. On the 15th and 20th of every month, advances are typically paid. The 13th month of salary is allowed for employees and is paid in two installments.
The minimum wage is set by federal law. Depending upon the state in which the employee works and the profession, the salary may be higher than the set minimum wage.
Companies may also include profit sharing in the payment package. The terms of profit sharing are usually decided with labor unions in mind.
Time
Work hours are limited to 44 hours per week in Brazil. A normal shift cannot go beyond eight hours. In addition, two hours of overtime is allowed per day.
At a minimum, overtime is paid at 150% of the regular rate. However, if the overtime is worked at night, then the rate is 20% higher than its daytime counterpart. In addition, depending on the joint negotiating arrangements conveyed with labor unions, the rates may be even higher.
It is up to the employer to keep track of the working hours of their employees. They must record start and finish times, meal breaks, and rest breaks of each workday.
Employees are granted 30 consecutive days of paid vacation with one-third supplemental salary. Employees who do not wish to take 30 days of paid vacation are allowed to forgo 10 of the 30 days and receive a cash payment instead.
Allowances
Employees are not just entitled to cash. While cash must consist of up to 30% of the whole remuneration package, employees can also be rewarded for other expenses. This can include housing and vacation and/or travel costs. These rewards are regarded as salary for tax purposes.
In addition, employees who use public transportation to commute are also granted transportation vouchers. However, the employee reserves the right to subtract up to 6% of the salary for this expense.
Taxes
Federal income tax is calculated and withdrawn from the salary of employees monthly by their employers. The federal income tax, or IR, is based upon how many dependents the employee has. This rule is countrywide.
Annually, companies are to submit information about the income and benefits that their employees receive. This information is sent to both the employee and the tax authority.
Social contributions
Employees who are insured are granted coverage for public healthcare, accident assistance, maternity leave, family allowance, retirement, and a family monthly pension in the event of the employee’s death. This coverage is referred to as the Brazilian contribution-based social security system, or INSS, and both employers and employees are responsible for contributing to it.
Employers must also contribute funds toward coverage for work-related accidents. In addition, they must contribute funds for employees who are working in hazardous conditions and may want to retire early as a result.
Lastly, employers must also contribute to FGTS, an unemployment insurance fund that is mandatory.
Additional benefits
On a company basis, employers may choose to provide their employees with additional benefits that are not related to the components of their salary. This includes private health insurance plans, life insurance plans, pension plans, educational services for employees and their children, cultural bonuses, food stipends, medical assistance, and more.
For larger corporations, these additional benefits are commonplace, usually offered by companies as a way to remain attractive to their current and future employees.
In short…
- One federal labor law
- Several labor union agreements
- Frequent annual changes in regards to the law and statutory values
- Support of a legal advisor may be required to interpret legislation
- Many allowances and benefits in addition to a monthly salary
- Income tax withheld at the source
- Mandated employee and employer social security contributions
- Funds available for unemployment and accidents
Brazil’s Payroll Options: Local Employment and Tax Regulations
In Brazil, there are a few important payroll options that companies should be aware of.
Local payroll administration
Local payroll administration happens when a company registers its business under one of the available forms but decides to get assistance from a different company to administer its payroll. Typically, a business will bring on a payroll provider to administer its payroll.
However, while the payroll calculations, payments, and filings can all be outsourced to the payroll provider, the company itself is still the Employer of Record and will be responsible for compliance regarding employment, immigration, tax, and payroll regulations.
Remote payroll
Remote payroll is as the name implies: a foreign company, or a non-resident company, remotely payrolls a resident employee in Brazil. In this case, an outsourced service is used to employ and payroll the staff on the company’s behalf.
Internal payroll
For internal payroll, it is necessary to complete incorporation, register the business, and hire the necessary staff. This is typically done by larger companies that are committed to Brazil and wish to have local payroll for both foreign and local employees.
In addition, the company will need to employ human resources personnel. These workers must have a background in managing Brazilian payroll and are required to fulfill all tax, withholding, and payroll requirements.
Internal payroll is typically specific to companies that can afford to pay the significant cost associated with it. It is also required that the company possess knowledge of local employment and payroll requirements. A local accounting firm and legal counsel are recommended to guarantee compliance with Brazilian employment laws.
Outsourced payroll
Finally, companies can outsource their employment and payroll of their staff in Brazil to a GEO. This payroll is possible for all employees, including both foreign employees and Brazilian nationals. This payroll type is known to be the fastest, safest, and easiest way to payroll employees in Brazil.
How Do Brazil Payroll Laws and Taxes Work?
When it comes to adhering to the Brazilian payroll laws, there are four primary types of contract:
Indefinite-term employment contract
This is the most common contract type used in Brazil. An indefinite-term employment contract is a contract set between the employer and employee in which no set period of work is established.
If the employer decides to terminate the contract, the employee is then entitled to indemnification payment, which is equal to a month’s worth of salary.
Definite-term employment contract
A definite-term contract, unlike its indefinite-term counterpart, is a contract that can last for two years. Under this contract, the following conditions must be applicable:
- Probation agreements
- Temporary or transitory nature in regard to the business activity
- The period of employment is justified by the nature of the service
It is important to note that when this type of contract comes to an end, the employer is not required to pay for an indemnified notice.
Temporary employment contract
This type of contract is used only when needed for a particular type of work such as seasonal work, coverage of maternity leave, or coverage of other types of extended leave.
Intermittent employment contract
The intermittent employment contract is given to employees whose work involves an irregular work schedule, such as for employees who are paid hourly and to the needs of the employer.
As such, intermittent employment contracts are not bound by fixed salaries.
Absences under Brazilian law
When an employee has worked 12 months under the same company, they become entitled to 30 days of leave during the following year. This absence allowance may be divided into three different vacation periods, though the employer must voice their agreement.
The Brazilian employment law also states that one vacation period must be at least 14 consecutive calendar days long and that the others must be at least five calendar days.
Sick leave
Up to 14 days of sick leave are required to be paid by the employer. However, the employee must have approval from a registered doctor. Should all 14 days be used up, approved sick leaves will be paid for by the National Institute for Social Security, or NISS, for at least two years.
Maternity and paternity leave
Brazil allows a total of four months, or 120 days, for maternity leave, though it can be extended from 140 days to 180 days. Maternity leave is paid for by the INSS.
Paternity leave, on the other hand, has an allowance of five days, which can be extended up to 20 days.
Bereavement
In the event of the death of a loved one, primarily a parent, sibling, spouse, or child, employment law states that Brazil allows for a total of two days of paid bereavement leave.
Marriage leave
Employees are allowed three days of paid marriage leave under the Brazilian employment law.
Blood donation
Brazilian law states that employees are allowed one day of paid leave annually to donate blood. However, evidence is required of the donation.
Other considerations
Working hours. Brazilian employment law states that a standard working day must consist of eight hours with a total of 44 hours for a working week and 220 hours monthly.
Overtime hours must not exceed two hours per day. In addition, Brazil has 12 national holidays occurring during the calendar year. In addition to these holidays, many of the country’s 26 states have their own holidays, too.
Employee deductions. Depending upon salary, income tax deductions range from 0% to 27.5%. The highest deduction occurs with salaries that are above $885 per month. Similarly, social security deductions also range from 7.5% to 14%.
Employer contributions. Brazilian employment law states that employers are to contribute to the INSS. Their contribution must equal at least 26.8% of the employee’s salary. In addition, the employer must contribute an additional 8% to the government's indemnity fund.
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Payroll Outsourcing Brazil: How To Choose the Best Payroll Outsourcing Company
The Brazil payroll service needs an approach that's customized to the requirements of your business. Errors in your payroll system can be bothersome, so it’s important to make sure that your payroll is done right the first time.
Since payroll laws and regulations can be complicated, especially in Brazil where the laws are continuously changing, you may want to find a good outsourcing company to handle your payroll and tax requirements.
Having a company dedicated to your payroll system and one that is familiar with payroll taxes in Brazil can help avoid costly mistakes. To choose the best outsourced payroll company for your business, consider the following factors:
- Payroll experience specific to Brazil
- Knowledge of payroll and tax laws, both countrywide and state-specific
- Ability to prepare monthly payrolls for all employees
With those considerations in mind, you should have no trouble finding the best payroll company for your needs.
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