Important Basic Information on Investing in Brazil
VIII - SOCIAL SECURITY AND LABOR ASPECTS
8.1. Overview
In Brazil, labor relations have certain idiosyncrasies, the most important of which may be the fact that only subordinated work is legally protected by specific legislation: it is the so-called employment agreement. Another idiosyncrasy of employment is its completely informality: an agreement may be formed expressly in writing, verbally or even implicitly*. Clearly the most advisable, given their legal security, written agreements are the general rule.
(* Without an express show of will by the parties. See outsourcing precautions in section 8.6)
Social Security is financed through charges paid by employers and employees. The employer pays a monthly amount on the payroll, at the rate of 20%, plus worker's compensation insurance and a contribution to various third parties.
Remuneration received by officers and high executives is generally included in the calculation base described in the preceding paragraph.
The employer must also pay the Contribution to the Severance Pay Fund (FGTS) at 8% of the monthly payroll.
In total, labor charges represent between 35% and 37.30% of the payroll.
8.2. Main Characteristics of Labor Agreements in Brazil
a) Parties: Employee and Employer
a.1) Employee: For a worker to be considered an employee, the law requires the simultaneous fulfillment of five requirements: he or she must (i) be an individual (as opposed to a legal entity); (ii) receive pay; (iii) work under subordination; (iv) provide services habitually; and (v) be irreplaceable by just any another person.
a.2) Employer: According to the labor legislation it is the company that assumes the risk of the business (economic activity), which is why it is prohibited from negotiating directly with the employee to make any changes to the employment agreement that might be disadvantageous to the employee, such as a reduction in salary and/or benefits. In exchange, the employer is empowered to direct and regulate the employment relationship.
b) Duration of Employment
As a rule, employment agreements have an unlimited duration. However, labor law allows four exceptions: (i) if the engagement is for a probationary period (up to 90 days); (ii) if the company's purpose is to perform temporary activities (up to two years); (iii) if the employee's provision of services is of a temporary nature (up to two years); and (iv) if there is an agreement with the union (up to two years).
c) Special Rules
There is specific legislation to govern labor entitlements called the Consolidated Labor Act (CLT). Nevertheless, the Federal Constitution has a specific chapter exclusively dedicated to labor entitlements, and the Ministry of Labor has issued certain special rules, referring mostly to issues related to work safety and inspections. Union agreements also set forth exclusive rights for groups of employees in a particular bargaining unit, depending on the specific location in which the union operates. Therefore, the effects of these union agreements are local, not national.
8.3. Basic Rights of Employees
An employee is entitled to 30 days of vacation for each 12-month period worked. Vacation pay corresponds to the monthly salary plus 33.33%.
An employee receives a year-end bonus in the amount of one month's salary.
When terminating employment other than for cause, the employer must give at least 30 days' prior notice and pay vacation entitlements and the year-end bonus in proportion to the amount of time worked in the 12-month period.
When terminating employment at his or her own initiative, an employee is entitled to vacation pay and the year-end bonus in proportion to the amount of time worked in the 12-month period.
Each month, the employer is required to pay the FGTS contribution, which corresponds to 8% of the employee's salary. In the event of termination of employment without cause, the employer must pay a fine to the employee in an amount equivalent to 40% of the updated total of deposits into the employee's FGTS account.
Further regarding the salary, the employer pays 0.5% per month to the federal government. For termination without cause, the employer pays 10% of the total deposits existing in the employee's FGTS account also to the government.
The employer pays social security at 28.8% (industry) or 26.8% (services) of the salaries paid to employees.
8.4. Salaries
a) Classification: Direct and Indirect
a.1) Direct: The employee's salary must be paid at least once a month, in Brazilian currency. The salary may be composed of a fixed sum, commissions, or both. In any event, a minimum salary is guaranteed by law (or by union agreement, if greater than the legal minimum).
a.2) Indirect: All indirect benefits granted gratuitously and habitually by the employer-and not excluded by an express legal provision-will be considered salary and subject to the labor and social security charges referred to above.
b) Salary Adjustment: Amount, Form and Frequency
In Brazil, there is no law governing salary policies, which means that the law does not establish any obligation to grant salary adjustments at any specific times. The law leaves this up to the parties to freely negotiate. Nevertheless, once a year (in the month of the so-called data-base, or base date), companies are required to discuss the union agreements with the unions, and requests for salary adjustments are always made at this time. This is the time to negotiate and stipulate whether or not an adjustment will be granted.
c) Legal Possibility of Reducing Salaries (and/or Benefits)
The Federal Constitution prohibits the reduction of salaries and benefits. The only exception lies in collective bargaining, whereby a union agreement may provide for a reduction in salary for a limited period in exchange for some advantage to employees.
8.5. Legal Forms and Consequences of Severance
a) General Rule:
According to the labor legislation, employees do not have job stability. Thus, the employer has the right-at its own discretion-to terminate employment whenever it finds it convenient to do so as long as it pays the severance-related amounts mentioned above.
b) Legal Exceptions (Employees with Job Stability)
Despite the above rule, it should be mentioned that-if conditions are met as set forth by law or union agreements-certain employees may benefit from some type of temporary job stability. Examples: union representatives (during the term of office and for one year thereafter), expectant mothers (from confirmation of pregnancy until five months after childbirth).
8.6. Outsourcing Precautions
Outsourcing is recognized and legally permitted in Brazil. However, three aspects deserve special attention.
a) The first concerns its purpose. The objective of outsourcing is the performance of services and not the pure and simple lease of labor, since-as noted in section 8.1-if the outsourcing is misused the employment relationship will be (implicitly) considered to be directly between the company receiving the services and the worker.
b) The second concerns its scope. The understanding of the labor courts is that outsourcing is admissible for a company's support services but not its main activities.
c) A third point concerns liability. The company receiving the services is always jointly and severally liable for labor and social security issues.
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