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Brazil – Employer of Record
AVASO provides Employer of Record services for customers that want to hire employees and run payroll without first establishing a branch office or subsidiary in Brazil. Your candidate is hired via AVASOs’ Brazil Professional Employer Organization (PEO) in accordance with local labor laws and can be onboarded in days instead of the months it typically takes. The individual is assigned to work on your team, working on your company’s behalf exactly as if he or she were your employee to fulfill your in-country requirements.
Table of Contents
- Hiring in Brazil
- Employment Contracts in Brazil
- Probation Period in Brazil
- Non-Compete Clauses in Brazil
- Working Hours in Brazil
- Holidays in Brazil
- Vacation Days in Brazil
- Brazil Sick Leave
- Maternity/Paternity Leave in Brazil
- Health Insurance Benefits in Brazil
- Brazil Supplementary Benefits
- Pension Plans in Brazil
- Termination/Severance in Brazil
Our solution enables customers to run payroll in Brazil while HR services, tax, and compliance management matters are lifted from their shoulders onto ours. As a Global PEO expert, we manage employment contract best practices, statutory and market norm benefits, and employee expenses, as well as severance and termination if required. We also keep you apprised of changes to local employment laws in Brazil.
Your new employee is productive sooner, has a better hiring experience and is 100% dedicated to your team. You’ll have peace of mind knowing you have a team of dedicated employment experts assisting with every hire. AVASO allows you to harness the talent of the brightest people in more than 187 countries around the world, quickly and painlessly.
Brazil is the largest country in South America, the 6th largest country in the world both by population and 5th largest by land area (occupying 47% of the continent), and it is the largest country of Portuguese speakers.
When negotiating terms of an employment contract and offer letter with an employee in Brazil, it may be useful to keep the following standard benefits in Brazil in mind:
Hiring in Brazil
The gross salary amount must be verbally agreed with the candidate and paid in the local currency. This is important to avoid question about personal income tax deduction down the line. Offer letters or similar documents should be provided to candidates when offering employment via a PEO or employment secondment company, as these are considered contractual documents in Brazil.
In the “position of trust,” the salary should be commensurate with the position and about 40% higher than the salaries of the employees who will report to such workers in these positions, and higher than employees in junior positions whose hours of work are controlled. A position of trust essentially pertains to employees who are exempt from overtime as they are empowered with managerial authority. Tactically, most employers discuss the total amount which is inclusive of position of trust compensation. Candidates for managerial positions are likely to understand that their position is exempt from control of hours (and overtime pay), but it’s important to note this at the outset so that you don’t have to go back to the negotiating table with your candidate, who might have thought he or she would be eligible for overtime. Employees’ salaries increase automatically each year in accordance with rates negotiated by unions, effective in August of every year as per the Union we are linked. The annual adjustment is based on the inflation rate for the past 12 months. For our Union, the annual increases are usually around 2.5% to 3.5%, which only applies to the monthly salary and not the annual bonus.
Note that the principle of comparable pay applies in Brazil, whereby employees performing the same job function should have the same job titles and equal pay. When negotiating terms of an employment contract and offer letter with an employee in Brazil, it may be useful to keep the following in mind:
Employment Contracts in Brazil
In Brazil, employment contracts can be oral or written, but it best practice to put a strong, written contract in place, in Portuguese, which spells out the terms of the employee’s compensation, benefits, and termination requirements. An offer letter and employment contract in Brazil should always state the salary and any compensation amounts in Brazilian Real rather than a foreign currency. The employment contract template is part of the service with AVASO; no need to draft a separate template if you use our employer of record and PEO service in Brazil.
Probation Period in Brazil
The maximum probationary period allowed in Brazil is 90 days ( or two terms of 45 days). If the initial trial period is 45 days, it may be renewed but only for an additional term of 45 days. A contract may be terminated at the end of the probation period with final pay including normal pay up to the date of termination as well as untaken vacation pay and prorated 13th salary.
Non-Compete Clauses in Brazil
Most of our customers request that we add non-compete clauses into the contract which we will do upon request to the maximum extent permitted by law.
Non-compete clauses are not recognized by the Brazilian Labor law, and not well seen by labor courts as a judge will view such a clause as hurting the employee’s basic right to work.
However, it is possible to insert a non-competitive clause in the labor contract, considering that:
- The clauses must be limited to a certain period of time (some of our judges understand that 2 years is the maximum period of time;
- The restriction must be strictly related to the activities performed by the Employee during the Employment Contract;
- The Employer must fix a certain geographic area (reasonable) for the applicability of the clause (State of Sao Paulo, for example)
- The Employee must be indemnified for the whole period she will be prohibited to be hired by other Employers (it is recommended that this indemnification is at least equivalent to her salary during the period of the Employment Contract). This amount will suffer the incurrence of the statutory costs and benefits as does the normal monthly salary.
It is possible to add a sentence in the contract stating that the non-competition clause may be applied or not at the end of the employment contract according to the employer’s discretionary need and convenience. The employer would be required to give written notice to the employee in case the clause is waived.
Working Hours in Brazil
The Brazil workweek is up to 44 hours, ideally eight hours per day (plus one hour for lunch) during the week and four hours on Saturday. Companies can choose to have longer workdays during the week and remain closed on Saturday. Hiring through AVASO, employees have standard 40 hour workweek.
The number of workweek hours is set by the government, and a major source of litigation in Brazil is overcompensation for overtime. Additionally, while you may have an agreed on a contract, the Brazilian courts tend to rule in a narrow fashion, usually on the side of the employee.
Holidays in Brazil
As of 2016, there are 13 federal holidays in Brazil.
- New Year’s Day
- Carnival (Feb. 15-16)
- Ash Wednesday (Half Day, Feb 17th)
- Good Friday
- Easter Sunday
- Tiradentes’ Day
- Labor Day
- Corpus Christi
- Independence Day
- Our Lady Aparecida
- All Souls Day
- Republic Proclamation Day
- Christmas Day
Public holidays may be legislated at the federal, statewide and municipal levels. Most holidays are observed nationwide, but each state and city may have its own holidays as well. Election days are also considered to be national holidays, and Brazil celebrates religious and ethnic holidays.
Vacation Days in Brazil
Professionals in Brazil are entitled to 30 calendar days of vacation per year after each 12 months of service. The vacation period is typically divided into two periods of 20 and 10 days, divided into three periods of 14, 5, and 5 days, or taken in one block. In addition, the employee must be paid 1/3rd of a month’s salary as holiday bonus. Holiday pay and holiday bonus payments are due pro-rated upon termination in Brazil.
Brazil Sick Leave
If an employee is sick and provides a medical note, the first 15 days of absence must be paid. Any further days off are paid through the National Institute of Social Security (INSS), at fixed rates. Thereafter, benefits must continue to be paid until work is resumed or employment is ended.
Maternity/Paternity Leave in Brazil
- Women are entitled to 120 days of maternity leave and may not be dismissed during pregnancy.
- Salary and benefits must be paid throughout the employment protection period.
- Men are entitled to 5 days of paid paternity leave, which they must request in advance.
Health Insurance in Brazil
Health insurance is provided by the Brazilian government, although private health insurance is an increasingly common employee benefit.
Most benefits in Brazil are prescribed by law and there are very few negotiating points on benefits with the candidate. In addition to benefits described in other sections, there are heavy levies for various social charges that cover medial and other social welfare programs.
Brazil Supplementary Benefits
Local employees’ basic monthly benefits are mandatory and include a meal voucher, transportation voucher, life insurance.
Pension Plans in Brazil
Employers are required to contribute to a seniority payment/retirement savings fund known as Fundo de Garantia por Tempo de Serviço (FGTS). This is 8% of the remuneration paid in a special account (fund), which will be released to the employee if terminated without cause.
In addition to the monthly contribution, in case of termination without cause, the company must pay a fine of 40% of all the amounts deposited during the length of the contract existing in the employee’s FGTS account on the termination date.
A 13th-month salary is required in Brazil and is an amount equal to one month’s salary which is paid out to employees in two parts in November and December. The pro-rated 13th-month salary is also due upon termination. The 13th-month payment is a legally mandated benefit and not part of the base salary. During negotiations with candidates, it is important clearly state what salary is being offered and whether it is inclusive or exclusive of the 13th-month payment.
Termination/Severance in Brazil
Either party may terminate the employment contract by giving written notice known as aviso prévio of 30 days or payment in lieu of working the notice period. After one year of service, the employee is entitled to 3 additional days’ notice per completed year of service until 60 days are adding making the total possible prior notice period equivalent to 90 days. The final payment to the employee must include all of the following:
- normal pay up to the date of termination
- prorateduntaken vacation pay
- prorated 13th salary
- prorated for all bonuses, overtime or benefits calculated up to the date of termination
Union negotiation take place around May/June of every year. Mandatory salary increases and benefits are negotiated during the Union negotiations and are due to all employees. After negotiations have ended, a collective bargaining is released with updates for the year, and the salary increase in backdated to Aug. 1. When employers who have terminated and employee between Aug. 1 and the release of the CBA, a pro-rated salary increase should be paid to the employee. Also, if an employee is termed in the month before the data base for salary increase (in our case every August), the employee will receive an extra salary on termination.
The variance includes the difference in the salaries as well as the difference between all employers’ costs which we accrued and paid considering the previous salary and from what is due considering the salary increase (13th salary, vacation, vacation bonus, FGTS, etc.).
Termination by the employer triggers the payment of a penalty premium to the employee´s individual account in the Unemployment Compensation Fund (FGTS) equivalent to 40% of the total of deposits made by the employer to the employee´s individual account. This penalty premium does not apply if termination is for good cause.
Transfers of employment are only legal as a result of a joint venture or acquisition in Brazil.
In Brazil, it is possible to terminate an employee for just cause or without just cause.
- The law outlines 12 reasons to terminate with cause.
- Companies try to avoid termination with cause as this can lead to lawsuits.
- Employees who were fired with cause often have a difficult time finding a new job.
Termination without cause generally requires a minimum of 30 days notice or one month’s salary. The employee is also entitled to an additional three days of salary for every year worked.
Companies must pay the equivalent of 8% of the employee’s monthly salary into a holding account every month. Upon termination, the employee receives the balance of the account. If the termination was without cause, the company has to pay an additional 40% of the value of the account to the employee.
Paying Taxes in Brazil
Employer’s portion of social security or statutory benefits cost on top of salary in Brazil can be estimated as roughly 80% on top of the total salary costs for the average employee. To provide an example, a company hiring an employee at the USD equivalent of $100,000 per year will end up paying at least $180,000 when required employer taxes are added on top of the payroll.
FGTS accrual is payable at the end of the period of employment unless a worker resigns. FGTS is a Severance Indemnity Fund for employees. It was created in 1967 by the Federal Government to protect the worker fired without just cause with the objective of forming a capital resource to help financially an employee after termination.