Labor legislation for Brazilians
The Legal and Tax System
- Employee rights and remuneration
- Labor and social security charges
- Wages and benefits
- Termination of employment
- Labor-management relations
Employee rights and remuneration
Labor relations in Brazil are governed by the Consolidated Labor Laws and numerous complementary laws and regulations. The 1988 constitution contains several labor provisions. Among other things, it legalizes unions, collective bargaining, and the right to strike in both the public and private sectors. The constitution also sets overtime rates, provides for a monthly minimum wage, and regulates working hours. It lists a variety of labor entitlements, including maternity leave, vacation, worker's compensation, social services, medical assistance and unemployment benefits.
All workers must hold work and social security papers (Carteira de Trabalho e Previdenciária Social, or CTPS) in which the terms of their employment contracts must be recorded. Employers must maintain files containing detailed information about each employee and submit this information to the labor authorities annually in a specific electronic file (Annual Report of Social Information, or RAIS).
Labor and social security charges
Both employers and employees pay social security contributions. These contributions are used to fund gov-ernment pensions paid to retired citizens. Individuals who receive compensation from a Brazilian source are subject to the local social security tax, which is withheld by the employer or the source of income. Contribution rates range from 8 percent to 11 percent, depending on the amount of the compensation. There is a cap to the individual contribution, which represents 11 percent applied upon the maximum contribution income (R$5.189,82 per month) as of January 2016, thus resulting in a maximum R$570.88 of contribution for the employee.
The employer contribution usually ranges from 26.8 percent to 28.8 percent (20 percent are allocated to the National Social Security Institute, or INSS, and up to 8.8 percent to other social security taxes), depending on the type of activity, calculated on each employee's monthly salary. There is no cap to the employer's contribution.
Note that due to some incentives granted by the Brazilian government to boost the economy some temporary measures were introduced in order to replace the 20 percent employer social security contribution on payroll to a fixed percentage on gross income (excluding cancelled sales and unconditional discounts) for entities engaged in certain sectors of the economy.
Self-employed workers have the option of participating in the official social security program. If they are not enrolled and they use the social security services, they must contribute with 20 percent of the amount of the service rendered. Self-employed workers who are enrolled must pay, every month, 20 percent of their base income, even when not working, and their employers may choose to pay 20 percent of the base income or 20 percent of the amount of the service rendered. The amount of the base income depends on when the self-employed worker joined the social security system. In this case, also, the cap contribution also applies: R$570.88.
With few exceptions, all companies subject to the INSS tax also must contribute 0.2 percent of payroll to the National Institute of Agrarian Settlement and Reform. An additional 0.6 percent wage tax is levied to support the activities of the Small Business Administration.
Reduction of social security on payroll
Law 13,043/2014 made permanent the replacement of the 20% employer social security contribution on payroll with certain percentages on gross income, which was originally set to be valid until 31 December 2014. The percentages of 2% and 1% of gross income were effective as from 1 March 2015. Law 13,043/2014 expanded the scope of the reduction in rates, including as potential beneficiaries, taxpayers engaged in activities such as storage, training, hospitality, transportation, construction, infrastructure, etc, as well as companies that manufacture several products under specific IPI codes, such as food, commodities, cosmetics, personal hygiene, etc.
Law 13,202/2015 increased the percentages on gross income to 4.5% for most of taxpayers, 3% to call centers and 2% for railway, road and subway transportation companies. These new percentages are valid as from December 1, 2015.
Severance Indemnity Fund
Employers are required to make contributions to the Federal Severance Pay Fund (FGTS), in an amount corresponding to 8.0 percent of an employee's monthly compensation. Employees, under certain circumstances (namely, dismissal with no cause, retirement, severe diseases) may withdraw these contributions made by employer.
The companies' contributions are made as deposits in a restricted access bank account, in the name of each employee, and these accounts are managed by a Federal Government Institution (Caixa Econômica Federal). The deposits made yield annual interest of 3 percent plus inflation. If an employee is dismissed without cause, the employer must also pay to the employee an additional fine, equal to 40 percent of the deposits made in the employee's FGTS account during the time of his or her employment with the company.
The employee receives a statement from the Bank bimonthly, stating the amounts deposited by the employer as well as the corresponding financial restatements.
Wages and benefits
In Brazil wages are usually paid on a monthly basis and cannot be reduced. If an employer also grants some other payments on a regular basis, such as bonuses or overtime pay, those amounts are considered as part of the total base salary for purposes of the labor laws.
Monthly minimum wage is defined by federal law but it may be increased by the collective labor agreements and is annually adjusted. Nowadays, the legal minimum wage is equivalent to BRL 788.00 (as from 01 January 2015).
Wages are usually increased annually. The law does not provide for mandatory salary increases. Any adjustment must be the result of free negotiation between employees and employers. However, a common practice is to negotiate annual salary adjustments during collective bargaining. If the bargaining fails, they can refer the dispute to a labor court for arbitration.
The regular working week in Brazil has 44 hours over a six-day period (8 hours per day – 5 days, and 4 hours per day – 1 day). It represents a system of 220 working hours a month.
The hours that exceed the workday must be paid with a minimum additional of 50 percent (100 percent on Sundays or holidays). This rate can be increased under the collective labor agreements. The law prohibits shifts over 10 hours per day, so only 2 overtime hours are allowed for a regular working day.
Labor costs are high because of the mandatory charges and taxes attached to employment. Wages remain moderate, but they account for at most two-thirds of the total costs of hiring labor.
Annual negotiations normally set basic wage levels for industrial workers. Wages are typically adjusted annually rather than monthly or semiannually. States are free to raise the "minimum" beyond the federal level if they prove they have the budgetary resources to do so. Salary adjustments are determined through free negotiation between the parties. If the parties fail to reach an agreement, they can refer the dispute to a labor court for arbitration.
Labor relations are governed by the Federal Constitution, the CLT (Consolidated Labor Laws or Brazilian Labor Code) and numerous complementary laws and regulations. The Constitution guarantees the employees a large number of labor rights and benefits, which may increase a company's payroll by 70 percent to 80 percent on average, among others:
Approximately 30 days of paid vacation after one full year of employment. Employees are also granted a vacation bonus equivalent to 1/3 of the monthly salary;
A mandatory "Christmas Bonus" (also known in Brazil as the Thirteenth Salary), calculated as the salary earned by the employee in December;
The employer is also required to deposit 8.0 percent of the paid salary to the Indemnity Fund (mentioned in the previous paragraph);
Prior Notice Pay
Employers must pay one salary are severance pay for the notice period, when dismissing employees without cause and without a prior notice. This prior notice has a minimum time of thirty days, up to ninety days according to the time of hiring. (30 days plus 3 days for year of hiring, limited to 90 days.)
Female employees receive mandatory maternity leave of four months paid by the Social Security Agency. Employers have the option to offer an additional maternity leave of two months, and deduct the amount paid for this period from its corporate income tax:
- Overtime considers, at least, an additional 50 percent upon the normal hourly salary;
- Work on weekends (Sundays, basically) must be paid in double;
- Working on hazardous conditions (electricity or with fuels / flammable/ explosive materials) grants employer with an additional of 30 percent calculated upon the base salary, being also reflected on all other labor rights – Vacation, 13th Salary, etc;
- Working on insalubrious conditions or unhealthy conditions, such as noisy environment, x-ray or other radiation, diving, mining, etc grants the employee an additional calculated at 10 percent, 20 percent or 40 percent rate applied upon the minimum wage (the percentages reflect the minimal, medium or maximum exposure to the unhealthy condition);
- Employees that remain on "Duty Call" (carrying pagers or mobile phones) must receive an additional 20 percent upon all hour comprised in this period;
Overtime hours are remunerated with 50 percent-80 percent increase to base wages of full-time employees on permanent contracts. Paid vacations of 30 calendar days are granted after a full year of service with no more than six absences. Employees have the right to work one-third of the vacation period, at double pay. A bonus of one-third of one month's base pay is due at the time vacation is taken. Other paid absences include national, state and local holidays, which can be changed during the course of the year and a few days for the death of a relative or for marriage.
Employees are granted full sick pay for the first 15 days of a documented illness. Female employees receive mandatory maternity leave of four months and male employees receive paternity leave of five days (both paid by Social Security). Employers have the option to offer an additional maternity leave of two months, and deduct the amount paid for this period from its corporate income tax. A mandatory bonus of one month's pay (called the 13th salary) must be 50 percent paid by November of each year. The remaining balance is traditionally paid at yearend.
A transport subsidy for workers is mandatory for all employers. Companies must provide their employees with transport to and from work or subsidize their public transport expenses by paying all such costs exceeding 6 percent of an employee's gross salary. Although the system varies per location, industrial firms normally deduct 6 percent from payroll and use the funds to purchase transport vouchers accepted by public transport companies. Expenditure incurred by employers is deductible for income tax purposes.
Companies must pay into a national subsidized savings program for workers (PIS), administered by the national savings bank system. Payments include monthly deposits in an amount equal to 1.65 percent of total revenue (except for financial income) for companies under the noncumulative tax system or 0.65 percent of total revenue (including finance income) for companies under the cumulative tax system. Such payments are deductible for purposes of corporate income tax and the social contribution on net profit.
A company may set up a voluntary profit-sharing scheme for its employees called the Workers' Individual Retirement Plan (PAIT) as a type of unemployment/retirement fund. All PAIT contributions made by firms are fully tax deductible. Employee contributions are also deductible up to 12 percent of gross income. A company must enroll at least 50 percent of its employees to start a PAIT fund.
Other voluntary benefits vary widely, but both locally- and foreign-owned firms generally provide medical services and in-plant dining rooms. Some larger firms offer childcare services, gym facilities, and fuel and food vouchers.
Termination of employment
A worker contracted for a specific assignment or for a fixed period (maximum of two years) may be dismissed at the expiration of the contract without further employer liability. If a contract is terminated without just cause, the employer must pay 50 percent of the balance of the remuneration due over the remainder of the contract. Otherwise, the employer must give eight days' notice (or equivalent compensation) if the employee is paid weekly or 30 days if the employee is paid at longer intervals or has been employed for more than one year. An employee who resigns must give the same notice. Accumulated vacation time must be paid when an employee leaves a company.
The severance pay system requires employers to contribute 8 percent of payroll into blocked accounts—the FGTS—for all employees. The accumulated balance is transferable when the employee changes jobs voluntarily and is payable in cash on retirement or unjustified dismissal. Employees may draw on FGTS accounts at other times for certain purposes, such as health emergencies or for a down payment on a house.
Unjustified dismissals also entitle employees to a bonus payment of 40 percent of their FGTS accounts, which constitutes a penalty borne by employers. An additional 10 percent (total of 50 percent) must be paid by employers in such cases.
If any of these rights or benefits is not observed, employees may claim them in court up to two years after termination of their employment contracts.
Labor claims may be filed for the five-year period preceding the exercise of these rights. An employee is not permitted to waive rights or benefits stated in a law or in an employment contract. A change in the legal structure or ownership of an employer does not affect the rights acquired by employees under the labor laws.
A single union represents all Brazilian workers of an industrial sector in a given geographical area. The central body collects mandatory dues paid by all workers. The constitution grants ample freedom to strike, which is limited only by a law mandating warning periods, protection of essential services (such as utilities and public transport) and minimum quorums for strike votes.
Companies may hold discussions and negotiations with labor representatives to avoid or settle strikes. If the two sides fail to reach a mutually agreeable compromise, labor may opt to strike. Industrial action is then usually resolved in a renewed round of collective bargaining between labor and management. If the parties fail to reach an agreement, the dispute is referred to the regional labor tribunal for arbitration. The labor tribunal can declare on the legality of the strike.
Wages and other issues are often negotiated with representatives of industrial federations and union confederations for entire sectors. Negotiations at the company level are also common, and a settlement that encompasses a whole company (or a group within a company) is called a collective agreement.