Guide to hiring employees in Brazil

Payroll and taxes in Brazil

Brazil is known for having a lot of different taxes and employment laws. In order to stay compliant, companies must make several contributions based on the employees’’ total remuneration, number of contractors, full-time employees and more.

Employer contributions in Brazil

Social Insurance (INSS)

Instituto Nacional do Seguro Social (INSS) is the Brazilian Social Security System. Employers must withhold a part of the workers salary and also make a contribution themselves based on the employees total compensation each month (this includes other benefits such as 13th salary, vacation leaves and other bonuses). The rate is either 20% of INSS, 3,30% for SEBRAE, SESC, SENAC & INCRA, 2,5% for Education Salary, depending on the industry. This tax is paid to fund employee’s pension, compensation, disability retirement, sick pay, unemployment insurance, maternity pay and other allowances.

Pension (FGTS)

Another mandatory contribution is the Fundo de Garantia do Tempo de Serviço (FGTS). The rate is 8% of the employee’s total monthly salary (bonuses, overtime, 13th salary, vacation pay included) each month. FGTS is a fund to cover the severance indemnity that an employee is entitled to after termination without cause. After the end of contract, the contribution ceases and the amounts are retained with the government, until the person is able to withdraw the money due to specific situations such as retirement, sickness or using the money through the state bank to purchase real estate.

Work Accident Insurance (RAT)

RAT is the Risco Ambiental do Trabalho, that corresponds to a tax that varies from 1% to 3% of the total amount received by the employee each month according to the risk taken by workers at their jobs. Most tech companies have a fixed rate of 2% on this tax.

Employee contributions

The workforce is also subject to taxes in Brazil. These rates are collected at the time of payment and go straight to the government.

Personal income tax

The first thing about personal income tax in Brazil depends on whether the employees is a resident or non-resident. The main difference for both categories is that residents/brazilian employees are taxed on their worldwide income while non-residents are only required to pay taxes on income earned within Brazil.

In order to be considered a resident taxpayer, a person has to fit in one of these categories:

• The Individual resides in the country permanently
• The individual is a Foreigner that is naturalised
• The expat employee has a temporary or permanent visa with a local contract
• The expat employee has a temporary visa but no local contract for a 183 days (consecutives or not) in the country within a 12-month period

Other than paying taxes, Brazilian taxpayers have a lot of requirements to fulfil such as submitting tax returns, advanced income tax payments, and more.

Taxable income

Wages, salaries, bonuses, commissions, and dividends are all classified as taxable income in Brazil. Allowances that are connected with employment such as housing and education also fall in the same category.

Income tax withholding

Resident taxpayers are subject to withholding tax for all remuneration earned or paid from local sources (legal entities). This is called Imposto de Renda Retido na Fonte (IRRF). Companies are responsible for the withholding of a percentage of the income of each employee, according to the rate defined previously by Brazilian Law.

Taxes withheld are treated as an in-advance payment and credited against a taxpayer´s final annual tax liability. Sometimes workers are entitled to a tax return after the final income calculations.

See below for the progressive rates along with the deductible portion according to each monthly tax basis.

In addition to the above deductible portion, for each legal dependent the employee has, the amount of BRL 189.59 is deducted from Income Tax calculation base.

Another tax withheld is for INSS. The Social Security System demands a payment according to monthly pay, the higher the salary, the greater the contribution up to 14%.. See the rates below:

Minimum wage in Brazil

Minimum wage in Brazil is currently R$1,212 monthly, approximately U$D228,30 or U$D2,693 in annual average salary . The amount is revised every year. In 2021, the rate went up by 10.18% which has been the average in the last few years. For 2023, the Trading Economics projection evaluates that this rate will continue in the same range, and the minimum wage will fall between R$1,300 and R$1,400.

Labour laws and employee rights in Brazil

Labor laws in any country, including Brazil, can be intricate and nuanced. Global companies planning to expand to Brazil face the additional challenge of navigating differences in labour laws between countries. Staying compliant with Brazilian labour and employment laws is a complex task.

The Brazilian Labour Law, also known as the Consolidation of Labour Laws (CLT), outlines most of the rules employers must follow. However, some regulations are mandated by Brazil's constitution, while others are covered by collective bargaining agreements with trade unions. Violating labour laws and regulations can lead to fines, penalties, or costly legal consequences.

Here are some factors related to labour law that you need to be aware of:

At-will employment

At-will employment allows employers to terminate employees at any time, with or without cause. However, employees are still entitled to notice periods, severance pay, accrued benefits, and other entitlements. It's important to note that various types of employees and reasons for termination can have different rules and regulations. (We'll cover termination of employment later on in the guide). 

Labour claims

Employment-related disputes are common in Brazil and are typically brought before labor courts. Some of the most common types of disputes heard in labor courts include:

• Worker misclassification claims
• Defamation
• Breaks and overtime
• Invasion of privacy 
• Wrongful termination (with cause)
• Harassment
• Hostile work environment
• Fringe benefits
• Moral damages and intentional infliction of moral distress
• Severance payments

Misclassification 

Brazil distinguishes between employees, who work under the direction and supervision of an employer in exchange for remuneration, and independent contractors, who are self-employed individuals providing services to one or more clients without an employment relationship or subordination.

Misclassifying workers in Brazil may lead to fines, back wages and benefits, back taxes, legal and administrative costs, and other penalties.

Personal data protection

Brazil has recently implemented the LGPD (General Data Protection Law or Law nº 13.709/2018). This data privacy law regulates the usage of personal data by companies, including employment background checks.

Employers are now required to conduct a Legitimate Interest Assessment (LIA) to ensure that background checks are necessary and that they only collect essential employee data. Consequently, this restricts employers from accessing employees' social media profiles, among other things.

Anti-discrimination protection

Anti-discrimination laws in Brazil prohibit employers from discriminating based on certain characteristics, including gender, race, place of origin, marital status, age, family status, certain medical conditions like pregnancy, or criminal history.

In many countries, a background check on a potential new hire's criminal history is standard practice, but in Brazil, this is considered discriminatory unless it's for specific roles such as domestic employees, caregivers of minors, the elderly, or the disabled, road transport drivers, agricultural sector workers handling sharp tools, bankers, employees working with toxic substances, narcotic substances, or weapons, and employees with access to confidential information.

Collective bargaining agreements

In Brazil, trade unions represent various industries and engage in negotiations with employers every two years on behalf of employees. Collective bargaining agreements (CBAs) commonly encompass aspects like annual salary increments, additional benefits beyond legal requirements, and working conditions, including allowed working hours and days.

Union involvement 

Employees' rights to associate with a union are protected by the Federal Constitution in Brazil. Previously, union membership was mandatory for all employees, but now it is optional. However, unions still play a significant role in Brazil's employment landscape.

This has a few important implications. For example, employers cannot refuse, impose, or discriminate based on an employee's union membership status.

Unions engage in collective bargaining agreements with employers every two years. These agreements may include mandatory benefits and work standards that go beyond what is stipulated in employment agreements and Brazil's labour laws.

Workplace health and safety

The Federal Constitution, Brazilian labor legislation, and CBAs establish minimum working conditions in Brazil. Most employees have an 8-hour work day limit and are eligible for overtime if they work over 44 hours per week. Full-time employees must have mandatory rest and meal breaks and are entitled to a weekly rest period, typically on Sundays.

Employers are responsible for ensuring a safe and healthy workplace, which includes establishing and maintaining an internal Commission for Accident Prevention (CIPA). However, there are exceptions for remote work and other off-site work situations.

Non-disclosure agreements (NDAs)

NDAs are enforceable in Brazil when certain requirements are met:

1. Compliance with Brazilian contract law is crucial. This entails ensuring specificity in the NDA terms, including consequences for breaching the agreement such as arbitration and indemnification.

2. In the event of NDA violation, the aggrieved party must provide evidence of damages.

Statutory benefits

Employees in Brazil have significant statutory benefits that must be provided (the complete list can be found further down in the guide). Non-compliance with these mandatory minimum benefits may result in government fines.

Additionally, if a collective bargaining agreement negotiated by employees' unions stipulates benefits beyond the statutory requirements, it is crucial to provide them to all covered employees. Failure to do so may result in legal action taken by the union.

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