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Employment in Brazil

Brazilian employment law appears complex and confusing when looking from outside view although in some ways there are many similarities to other countries.   For example, tax rates and withholding for employees may vary widely, and there is no centralized administration of state and federal taxation.  For these and many other reasons the following are only guidelines in the broadest sense, and professional legal services are recommended when employing in Brazil.

Key points on employment in Brazil

There are several key areas to be aware of within Brazil’s employment regulatory framework, especially for companies that plan to initiate a full local office and human resources department.  These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the local laws and rules for both local employees as well as foreign nationals.

  1. Contracts:

    In Brazil employers and employees often do not use specific employment contracts but rely on the terms of the law, collective agreements and the employer’s internal policies. Written employment contracts are more common for employees who have positions of “trust” such as leadership or senior management positions.

  2. Probation Periods:

    Probationary periods may be stipulated as a term in an open-ended employment contract, or take the form of a specific fixed-term contract for this purpose.

    The probation period must not exceed 90 days in total and the limitation of work contracts is only acceptable up to a period of two years. Even then the work agreement has to contain a clause which states why the limitation is necessary (in principle, Brazilian law dictates that work contracts should be unlimited). If a limited agreement is extended more than once it has to be transformed to an unlimited contract.

  3. Termination Procedures:

    A.  Notice Period

    The legal notice period is a minimum of 30 days, or longer if the agreement states this specifically, up to a maximum of 90 days. Alternatively, the employer can provide payment in lieu of notice.  However, if the dismissal is due to an “important reason” notice is not necessary.

    B.  Procedure

    Brazil mostly follows the ‘employment-at-will’ model, meaning any party may terminate the employment agreement without cause upon providing sufficient notice and severance payment. However, Brazil law does prohibit discrimination, so In addition, employees may be protected.

    It is not necessary to mention any reason for termination, except if it is termination for cause. Termination for cause is for cases such as gross misconduct, and will affect whether the employee will be entitled to the normal notice period and severance entitlements.

    The following is listed as misconduct:

    • Improbity (e.g. fraud)
    • Impropriety
    • Business dealings by the employee for his/her own or someone else’s benefit without permission of the employer
    • Competition with the employer
    • Criminal conviction (final decision)
    • Negligence in the performance of his/her functions
    • Drunkenness, either habitual or at work
    • Breach of confidentiality by the employee
    • Act of disobedience or insubordination by the employee
    • Abandonment of employment by the employee
    • Libel, slander and any other defamation acts exercised at worksite by the employee, against any person, or physical acts of offence under the same conditions, except in the case of self defense or defense of third parties
    • Libel, slander, any other defamation acts or physical acts of offence exercised by the employee against the employer and hierarchical superiors, except in the case of self defense or defense third parties
    • Gambling or similar conduct by the employee

    C.  Severance Pay

    In termination without cause for an indefinite term employment agreement, severance pay entitlements include:

    • Payment for vacations not yet taken,
    • Amount of the Christmas bonus proportional to number of months worked during the calendar year,
    • A penalty of 50% of the balance of the employee’s Time of Service Guaranteed Fund (FGTS)

    The employee will also be entitled to withdraw the balance of the FGTS account.

    For fixed-term agreements being terminated without cause, the terminating party must pay damages in the amount of 50% of the compensation established for the remaining term of the agreement.

  4. Statutory Leave:

    A.  Annual Leave

    Employees are entitled to thirty days paid vacation per 12 months of work.

    During the vacation, the employee is entitled to their regular remuneration plus an additional 1/3 ‘vacation bonus’.

    B.  Maternity Leave

    All female employees are eligible for maternity benefits, including when adopting a child, for a period of 120 days.

    An employer may allow an additional 60 days of paid maternity leave and recover that payment through federal tax benefits.

    C.  Paternity Leave

    Fathers are entitled to up to five days’ paid parental leave, including when adopting a child.

    D.  Sick Leave

    Employees have the right to take paid time off for illness or injury at their usual salary, if they present a doctor’s certificate stating the number of days that they must be absent from work.

    As of March 2015, the first 30 days of time off must be paid by the employer, and any further days off are paid through the National Institute of Social Security (INSS) system.

  5. Pensions and Benefits:

    Social Security

    Both employers and employees must make contributions to fund the General Social Security Regime (Regime Geral de Previdência Social), which is managed by the Brazilian Social Security Institute (Instituto Nacional do Seguro Social) (INSS). These contributions are paid monthly and tax rates may vary substantially. Employers and workers must make compulsory contributions to the Brazilian Social Security Agency. The authority provides the insurances for workers for death, accident, disease allowance and imprisonment allowances.

    For pensions, each month employers must contribute the at least 8% of an employee’s total salary for FGTS purposes. Such a contribution is not deducted from the employee’s salary, as it is an obligation on the employer.

    For 2015, employees must pay the following monthly contributions:

    • Up to BRL1,399.12 at a rate of 8%.
    • From BRL1,399.13 to BRL2,331.88 at a rate of 9%.
    • From BRL2,331.89 to BRL4,663.75 at a rate of 11%.

    If employees earn above the cap the 11% rate is calculated only on the fixed amount of BRL4,663.75, regardless of the actual salary. Therefore, the current cap of social security contributions is BRL513.00 (11% of BRL4,663.75).

    For other social security, such as injury compensation funds, Employers’ contribution is about 20% of gross salaries though may be more depending on the circumstances. For example, if the employees are subject to health hazardous working conditions, a further 1%-2% social security contribution is required. In total extra charges may raise the total rate to approximately 29%.

    All contributions must be paid to the appropriate government agencies during the following month.

Outsourcing Employment Through a GEO Employer of Record Service

Compliance with local employment requirements is just one of the issues foreign companies face when employing staff in Brazil. For companies which intend to employ their staff directly through their incorporated Brazilian entity, professional legal advice is recommended. Shield GEO provides an alternative path for companies to outsource the employment of their staff in Brazil.

As a Global Employer Organization (GEO), Shield GEO acts as the Employer of Record and ensures the employment is compliant with host country regulations regarding employment. In addition Shield GEO will handle payroll processing, tax and immigration. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Brazil.

The Shield GEO solution is an attractive alternative where:

– the company is looking to employ staff quickly

– the company doesn’t have an appropriately incorporated entity in Brazil

– the company wants to work within a defined budget

– the company wants to limit its initial commitment in Brazil

– the company needs help with tax, employment, immigration and payroll compliance in Brazil

Shield GEO can contract directly with the company to employ and payroll their staff in Brazil. Shield GEO supplies local employment contracts for the staff which ensure that local statutory requirements are met covering issues such as termination, probation periods, leave entitlements and statutory benefits.  Shield GEO is able to advise companies how to cover local employment regulations whilst still providing consistent global employment policies. Understand more about outsourced employment through Shield GEO.

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