Labor Legislation has been saved
Labor relations in Brazil are governed by the Consolidated Labor Laws (CLT), as well as numerous complementary laws and regulations. We present below relevant considerations related to labor and social security aspects in Brazil.
- Basic rights introduction
- Social Security
- Severance Indemnity Fund
- Employee Benefits
- Special Provisions Regarding Oil & Gas Activities Employees
Basic Rights Introduction
The 1988 Federal Constitution contains several labor provisions. Among other things, it legalizes unions, collective bargaining, negotiations and the right to promote strikes in both 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 rights, including maternity leave, vacation, worker’s compensation, social services, medical assistance and unemployment benefits.
In general, the constitution establishes a 44-hour workweek and overtime pay of +50% of the basic pay for Monday to Saturday overwork and +100% for Sundays and bank holidays. It requires that round-the-clock operations have a six-hour shift, with paid overtime for shifts exceeding six hours.
Labor costs are high because of the mandatory charges and taxes attached to employment. Wages remain moderate, but they account for up to 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 semi-annually.
If any of these rights or benefits is not observed, employees may claim them in court up to two years after the termination of their employment contracts. These claims may comprehend the five-year period prior to the request. An employee is not allowed 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 secured to employees under the labor laws.
Employees’ basic rights may be expanded through collective negotiations between employers and employees, who are generally led by the unions or representatives. In certain cases, these negotiations may grant workers broader rights. Collective negotiations are usually held on an annual basis; a collective labor agreement term shall not exceed two years.
In general, the employment relationship is deemed as permanent. In this respect, an unlimited-period labor contract is in force when the employee is hired.
Temporary Labor Contracts
In cases of temporary activities (for example, for the construction of a building or bridge), a special labor contract may be used (temporary labor contract and limited period labor). Contracts are generally executed in writing, for a fixed term. These kind of contracts may be renewed once and their total term must not exceed two years. When the contract expires, the employee is entitled to all labor rights granted upon dismissal, except for the previous notice period and the FGTS fine for wrongful dismissal.
There is also another type of contract, the so-called “experience labor agreement”, which is a special kind of temporary labor contract. An experience labor agreement is a contract to hire a worker for a fixed term; upon termination of the fixed term, the employer is under no obligation to hire the employee on a definitive basis.
This type of agreement may be renewed once and the total term must not exceed 90 days, after which, if the employee continues to work, the contract is deemed to be automatically converted into an unlimited period contract.
Upon termination of the experience period (up to 90 days), the employee is entitled to the same benefits provided to temporary labor contracts previously mentioned. An experience labor agreement may be used in any activity.
All workers must hold an Employment and Social Security Authorization Booklet (Carteira de Trabalho e Previdência Social, or CTPS), which holds the records of the terms of one’s employment contracts. 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)
The normal working week in Brazil is 44 hours over a six-day period, which represents 220 working hours per month.
Monthly Minimum Wage
The government specifies monthly minimum wages to acknowledge the inflation. The effective monthly minimum wage is currently equivalent to BRL 954.00 (according a Brazilian government determination from January, 2018).
Salaries are payable at least once a month and cannot be reduced. If an employer also grants some other payments on a regular basis, such as bonuses or overtime pay, those figures are considered as part of the total base salary for purposes of the labor laws. Bonuses and overtime are generally paid through payroll.
The law does not provide for mandatory salary increases. Any adjustment must be the result of free negotiations between employees and employers. However, a common practice is to negotiate annual salary adjustments during the collective negotiation.
Social charges: Social Security Contribution and Severance Indemnity Fund
Social Security Contribution: INSS
Both employers and employees perform social security contributions. Those contributions are used to fund government paid retirement pensions for citizens.
Individuals who receive remuneration from a Brazilian source are subject to local social security tax that is withheld by the employer or the source of income. The contribution is calculated on a monthly basis and the rate ranges from 8% up to 11% of the employee’s remuneration. There is a cap to the individual contribution, which represents 11% applied upon the maximum contribution revenue (BRL 5.839,45), thus resulting in a maximum BRL 642,34 of contribution for the employee.
On the other hand, local companies must contribute with 20% of the total compensation paid to employees, without limitation, to the INSS. Moreover, there is a group of additional social contributions, the so-called “S” system, which are collected on behalf of third parties and are in force to support several entities, such as: Education Salary, INCRA (Land Reform Institute), SENAI, SESI, SENAC, SESC (entities responsible for providing assistance to industrial and commercial workers), SEBRAE (assistance for small companies), among others. These contributions are paid by the employers along with the INSS contribution (the maximum rate is 5.8%).
In addition to the aforementioned contributions, employers shall also pay a percentage of 1%, 2% or 3% of payroll as mandatory insurance to prevent occupational injuries (“Risco de Acidente de Trabalho” – RAT). The rates may range depending on the risk of the activity performed by the employee. There is also another element called FAP (Fator Acidentário de Trabalho, which was created in order to avoid occupational injuries) can reduce in 50% or increase in 100% the RAT due by the company.
Considering this, the final percentage can vary between 0.5% up to 6% (the percentage is calculated based on the historical of occupational injuries and will depend on the company’s preponderant activity listed on the National Classification of Economic Activities (CNAE, Classificação Nacional de Atividades Econômicas). In this sense, the entire employer’s contribution amounts to a minimum of 25.7% and a maximum of 31.8% on the total remuneration basis paid to each employee. Additionally, since 2016, the employer’s contribution is entirely calculated per establishment.
Self-employed individuals may participate in the official social security program. If they are not enrolled and they use the social security services, they must contribute with 20% of the amount of the service rendered. Self-employed citizens who are enrolled must pay, every month, 20% of their base salary, even when not working, and their employers may choose to pay 20% of the base salary or 20% of the amount of the service rendered. The amount of the base salary depends on when the self-employed citizen joined the social security system. In this, case the cap contribution also applies: BRL 1.167,89
Social Security: Penalties
The Law 11941/09 brought important changes in social security legislation regarding the penalties imposed for liabilities and debits arising from the delay or the non-payment of the social security.
The Law prescribes that, in case of any delay in paying the social contribution, penalties may apply, such as fines and interest. The latter is calculated based on the SELIC rate.
In addition, the fines may be subject to reduction considering the percentages of 20%, 30%, 40% or 50%, depending on each case and eventual assessment.
Payroll Tax Burden Reduction
Established in 2011, the payroll reduction program aims to develop the local industry by replacing the employer social security contribution calculated upon payroll cost at 20.0% rate for a contribution upon company revenue at rates 1.5% to 4.5%, varying as company activity.
It is important to emphasize that the program only replaces contributions due by the employers, maintaining the previous treatment for the contributions due by the employees, the FGTS - Government Severance Indemnity Fund, work accident insurance and additional social contributions.
Nowadays, the payroll tax burden reduction is optional.
Severance Indemnity Fund: FGTS
Employers are obliged to contribute to the Federal Severance Indemnity Fund (FGTS), in an amount corresponding to 8% of the employee's monthly remuneration. Under certain circumstances (i.e. wrongful dismissal, retirement, severe diseases), employees may withdraw the contributions made by the employer.
Company contributions are made as deposits in a limited access bank account, opened on behalf of each employee and managed by a Federal Savings and Loans Bank (Caixa Econômica Federal - CEF). The deposits made on such accounts are subject to annual interest of 3% plus inflation.
Severance Indemnity Fund: Penalties
If an employee is dismissed without reasonable cause, the employer is also required to pay a fine equivalent to 50% of the accumulated balance of the FGTS account. Note that 40% of this amount is paid directly to the employee and the other 10% is paid to the Government.
Employee benefits increase a company's payroll costs by 70% to 80%, in average. These benefits include, 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. This vacation bonus is provided by the Federal Constitution;
- A mandatory "Christmas Bonus" (also known as the 13th salary), calculated with the salary earned by the employee in December. The legislation allows to split the Christmas Bonus payment in two parts: the 1st half must be paid between February to November. The 2nd one must be paid until December 20th;
- Overtime considers, at least, an additional of 50% upon the normal hourly wage;
- Work performed on night shifts (from 10:00 pm to 5:00 am of the following day) has a minimum of 20% additional upon the base salary. This benefit is cumulative with the overtime additional, in case of overtime performed on the night shift. Those hours also benefit from a correction factor of 14.28%. Therefore, the employees actually work 7 hours but are paid in an corresponding amount of 8 hours;
- Eventual work on weekends (Sundays and bank holidays) must be paid double;
- Working on hazardous conditions (with electricity, fuels, flammable or explosive materials) grants the employee an additional of 30% calculated upon the base salary, which is also reflected on all other labor rights – paid vacation, 13th salary, etc.;
- Working on insalubrious conditions or unhealthy conditions, such as noisy environment, x-ray or other radiation, diving, mining, etc., grants to the employee an additional calculated at 10%, 20% or 40% 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 of 20% upon the hours comprised in this period;
- Certain employees’ categories are granted with special labor shifts, such as: physicians, journalists, teachers, oil & gas upstream and refineries, among others. In general, such categories require the employers to adopt shorter working days and working on rotation shifts (“turnos de revezamento”), which leads to the additional costs with overtime and night shift additional.
The Constitution expressly grants workers the right to receive potential profit sharing bonuses paid by companies, as defined by law. In this regard, Law 10101, enacted in 2000, provides all formal aspects to be observed by a Company when defining goals to be achieved and calculating profit sharing bonuses, which includes: (i) the obligation of the Profit Sharing Plan being signed by both employer and employees; (ii) the obligation of filling the Profit Sharing Plan with the employees’ Labor Union; and (iii) the possibility of setting goals to be achieved by the employees.
Employees unfairly dismissed have the additional following rights:
- At least 30 days' previous notice (some collective agreements provide for additional days). The employee can convert this period in cash to be paid upfront and the 30-day period is computed for calculating 13th Salary and Vacation;
- A 13th salary calculated in a pro-rata basis to the months effectively worked in that year;
- Balance of salary dismissal;
- Vacation (and the additional 1/3 bonus) correspondent to the period not rested (on a pro-rata basis);
- The employer is required to pay a “fine” equivalent to 50% of the accumulated balance of the FGTS account, where 40% is paid directly to the employee and the other 10% is paid to the Government, as comment above.
Furthermore, it is common for employers to provide other benefits to their employees, such as medical and dental assistance plans, company car, life insurance, private pension plans and others. According to how they are granted, these benefits may be considered part of the base salary and are understood as fringe benefits. In this sense, it is important to analyze the Brazilian Federal Revenue understandings and the tax advantages of these benefits before defining them, in spite of them working as a relevant tool in the business market.
Regarding employment contracts termination, the Brazilian Labor Legislation establishes that companies cannot terminate contracts of workers who are candidates for a labor union post or if the worker is elected, during the year following the end of the their office term. The same rules apply to employees elected to the Internal Accident Prevention Commission (“Comissão Interna de Prevenção de Acidentes, or CIPA”), whereas pregnant workers may not be dismissed during the pregnancy and until five months after the birth. These are some examples of job stability forecasted in the labor legislation.
Main Labor Levies and Social Security Encumbrances
In the following table, we list and summarize the main labor charges levied upon the salaries paid by a Brazilian company. We emphasize that this is a theoretical model for illustration purposes, since it does not consider other employee benefits, such as: overtime, eventual allowances/additional bonuses forecasted in labor collective agreements, dismissal rights and other benefits (social care, transportation, etc.). In addition, it does not consider the payroll tax burden reduction regime.
(1) This rate depends on the activity performed by the company. It could range from 1% to 3% and it can be reduced in 50% or increased in 100% according to the FAP. In this sense, the final percentage can be from 0.5% up to 6%. In this example, we have considered the maximum rate of 6%.
(2) Social entities funded by taxpayers, which develop recreational and apprentice activities for industry workers, commerce employees and small business firms. For the Financial Institutions, these contributions are not due.
(3) 22.5% for Financial Institutions and Insurance Companies.
The extent and requirements of Brazilian labor legislation are large. There are many provisions and fulfillment to comply with, in addition to the encumbrances mentioned above.
Labor Special Aspects – Oil & Gas
The Law 5811, enacted in 1972, provided for some specific labor treatment for Oil & Gas companies engaged in upstream, refining, petrochemical and pipeline transportation activities. According to those provisions, two pre-defined labor regimes could be adopted, as follows:
- 8-Hour Shifts Regime
In this regime, the employees work on 8-hour shifts in pre-determined groups (also know as “turmas de revezamento”), according to rotating work schedules previously arranged. After three consecutive shifts, the employees have a day off. Alternatively, they can also work on a schedule containing six consecutive shifts followed by two days off.
In addition to the regular salary, these employees are entitled to receive three extra hours and the employer must provide free meals and transportation. In this specific case, the additional for night shifts must be paid proportionally (only considering the shifts that occurred in the night period – from 10:00pm to 5:00am).
- 12-Hour Shifts Regime
For employees working on 12-hour shifts, the previously commented rotating work schedules can be implemented in two different ways:
- One shift followed by twenty-four resting hours; or
- Fifteen consecutive shifts (12 work hours plus 12 resting hours) followed by fifteen days off
In addition to the benefits mentioned in the previous item (a), the employer must also grant onsite lodging to the employees. Moreover, this regime is deemed as a “permanent duty call” work and, therefore, the employees are granted with an additional hourly compensation (20% upon all worked hours).
Labor changes – Law 13.467/2017
In July 2017, the Brazilian National Congress approved changes on the current labor legislation, as described below:
- Labor collective bargaining x Law: Such law provides that labor collective bargaining should be analyzed before the legislation. In summary, labor rights agreed between unions (employer and employee), or between an employee union and the employer, prevail over labor rights provided by law. Additionally, employees with salaries higher than BRL 11.679 may negotiate labor conditions directly with employer.
Labor rights that can be negotiated:
- Workday controls, hours bank, trust position, career plan, home-office, stand by regime, continuous regime, incentive bonus, profit sharing, arbitration clause (not applied to employees with legal and financial inability), among others.
However, other rights cannot be negotiated:
- Minimum salary, unemployment insurance, FGTS, Christmas bonus, vacation and 1/3 vacation bonus, paternity and maternity leave, overtime under 50%, and indemnity for prior notice, among others.
- Unions Contribution: Currently, the union contribution is optional for both employees and employers.
- Home-office: According to the law 13.467/2017, home-office is an official employment agreement, provided by legislation. This type of agreement does not encompass overtime, the expenses and office stationery should be mentioned in the signed agreement between employer and employee, among others.
- Intermittent work: In this case, the employer hires the employee on demand (by hour or day). In the end of the services, the employer must pay specific and proportional rights, such as: vacation plus 1/3 of vacation bonus, Christmas bonus, weekly remunerated days off and eventual legal additional. All payroll taxes should be paid upon these mentioned rights.
Lastly, these changes are in force since November 2017, according to the Ministry of Labor position published on May 2018.
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