By Tiságoras Mariani and Layon Lopes*
This article aims at explaining the the particularities of Labor Laws in Brazil. It presents the major rules for a company to hire employees in Brazil, types of labor contracts, taxes that should be paid, advantages and disadvantages.
1- What regulates the major labor rules in Brazil?
The main rules of Labor Relations in Brazil are based on the Federal Constitution and in the Consolidation of Labor Law. The Federal Constitution presents the principles of labor law, while the Consolidation of Labor Law is the “code” where all the rules, procedures, most relevant types of contracts and general characteristics are found.
2- Federal Constitution
The Federal Constitution, like in any other country, holds the most important principles that need to be followed by every citizen and foreigner in Brazil, including the principles of labor laws. The article 7th Article of the Federal Constitution presents 34 rights employees have. Here are the main one:
1) The employee can’t be unfairly dismissed.
2) The employee cannot receive less than the minimum salary: R$1.100,00 (valid for 2021);
3) Irreducibility of salary: The Brazilian employer needs to pay attention to this law. The employee’s salary can’t be reduced, even if the employee is not performing his duties with the expected quality. If this occurs, the company may have problems in the Labor Court. The only chance of reduction is through an agreement with the union.
4) 13th salary: It is the benefit paid to the employee at the end of the year, with the purpose of helping him pay his “end of the year bills” and enjoy the year-end parties. In other words, the employer must pay 13 salaries per year, and not 12 salaries.
5) Workday: 8h or 44h per week: The workday, theoretically, cannot exceed 8h a day or 44h per week. If this occurs, the employer should pay overtime. Of course, this rule doesn’t apply to all professions.
6) Paid vacations: The employee has the right to paid vacations.
7) Retirement: The employee has the right to retirement.
8) Prohibition of difference in salaries based on gender, age, race or marital status. These practices are prohibited in Brazil; if this occurs, the company may be fined and sentenced in court.
Therefore, everyone who owns a company in Brazil needs to know that all these employees’ rights provided in the Federal Constitution are non-negotiable; in the event of a violation, they may be convicted in the Labor Court.
3- Consolidation of Labor Law
The Consolidation of Labor Law is the “Code” that determines all the rules and characteristics of labor relations, including the definition of employee and employer as well as the hiring modalities. It is the main labor law in Brazil.
All these modalities of labor relations in Brazil are carried out by signing a work record booklet. Hiring employees by signing work record booklet is the most traditional and common form in Brazil. In this contractual modality, the existence of an employment relationship between two parties is celebrated: the employer (contractor); and the employee (contracted).
There are three principles configuring a labor relation in Brazil: a natural person who provides services to a company where he is paid, is subordinate and is not in an eventual manner. In other words: if the employee receives for the services, performs daily tasks requested by someone hierarchically superior, configures a labor relation.
3.1 – Main Types of Labor Contracts in Brazil
3.1.1 – Fixed Term Employment Contract
The name of the contract says everything: there’s a fixed term. It is used for specific services, transaction activities and trial period contracts.
The Fixed Term Employment Contract can’t be stipulated for more than two years. However, it has a peculiarity: if it is extended more than once, it will be converted into an Employment Contract for an Indeterminate Term.
For example, John was hired with an with a trial period contract, with 45 days of fixed term. The contract can be renewed for remover than 45 days. After reaching 90 days, and the employee continues in the company, the contract automatically converts to indefinite term.
3.1.2 – Employment Contract for an Indeterminate Term
It is self-explanatory and is the most common contract of labor law in Brazil.
3.1.3 – Intermittent Employment Contract
In this modality, the employee works in a non-continuous form, with non-continuous labor, alternating periods of service provision and inactivity, determined in hours, days or months.
In other words, the employee only works and is paid when he is called by the company. If there’s no work, the employee is not called, therefore, doesn’t receive salary.
4 – Law nº 6.079/76
The Law nº 6.079/76 is a labor law in Brazil that presents the follow modalities of contracts:
– Temporary Labor Contract: It is used when the company needs to hire employees to supply urgent demands. For example, the company hires employees to work during Christmas or Easter time. Periods when there is an increase in sales.
– Outsourced Employment Contract This is one of the biggest novelties in Labor Law. The employer hires a company that provides services, in other words, it doesn’t matter who is working, only if the service is being done. For example, shopping malls hire companies to provide cleaning services. The shopping mall is not interested in who will clean the space. The only thing that matters in this case, is that the space gets cleaned.
Brazil has other types of labor contracts, however, these are the main ones, and therefore, the most utilized by employers when hiring someone.
5 – What do i need to pay beyond the stipulated salary?
The employer formalizes this relationship by signing the employees’ work record booklet. As of this moment, beyond the salary, the employer is obligated to pay a list of labor and social security taxes to the employee, all of them guaranteed by the Brazilian Constitution and Labor Code, nominally.
– INSS: The company is obligated to discount, in the payroll, the Social Security Tax, called INSS. The INSS ensures to the employee some benefits, like retirement, 13th salary and healthy care. The value discounted in payroll varies according to the salary range.
– Federal Income Tax deducted directy from the salary (IRRF): It’s the anticipated payment for the Federal Income Tax (IR), the most important Brazilian tax. It is charged to all employees who work with a formal contract. This tax is discounted in the employee’s gross payment.
– Guarantee Fund by Time of Service (FGTS): It is an obligated contribution to the employer. The objective of this tax is to protect the employee in case of an unfair dismissal. The employer must open a bank account on behalf of each employee at Caixa Econômica Federal Bank, and the contribution has to be paid monthly by the employer
The employer must deposit at the employee’s Caixa Econômica Federal bank account, every month, the amount corresponds to 8% of the employee’s gross payment.
6- Attention: Food Ticket, Transport Ticket and Health Care
In Brazil, according to labor laws, the employer is obligated to pay for transport ticket, but is not obligated to pay for food ticket and health care. However, there is another legal source in Brazilian labor law, called “Collective Convention”, which is an agreement set by both employers’ and employees’ unions, that might set a lot of others obligations for the employers, such as the payment of these (and other) benefits.
It is important to understand that the Collective Conventions are instruments with force of law, which means that the companies must abide by all commands previewed at the applicable Collective Convention. If the Collective Convention’s dispositions are not observed by the employer, later, the company might be convicted to pay all benefits to the employee, retroactively.
7- Advantages and Disadvantages
The main disadvantage for the employer is the obligation to pay all the mentioned taxes, which strongly increase the company’s costs, making it difficult for the employer to offer better conditions for working at the company.
On the other hand, labor laws in Brazil create a stable and equal relation between employer and employee, generating more safety for the employee, once he is protected by a series of tools which exist to guarantee adequate working conditions.
Also, once the company is compliant to its obligations, it will not be subject to judicial convictions pursued by the Brazilian Labor Court.
*Layon Lopes is the CEO of Silva | Lopes and Tiságoras Mariani is a member of the Silva | Lopes team.