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 Factors to Consider When Employing 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.
Severance / Redundancy 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.
Termination of Employment
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.
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)
- 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
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.
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.