Payroll In Brazil

Brazil is favorable for foreign investment due to its domestic market of more than 210 million citizens. It has a diversified economy that is less susceptible to international crises, provides easy accessibility to raw materials, and has a strategic geographic position. 

Companies aiming to expand their business in Brazil must be familiar with local rules and regulations stated by the Brazilian government. They should also follow up with the nation’s continuously changing laws and the influence of labor unions on employment and compensation requisites to set up a compliant payroll system.

To attract, hire, and retain the best talent in Brazil, companies should be familiar with how to competently manage all steps of the onboarding process, including the Brazil payroll process. They should register with tax and social security offices to acquire a federal tax ID number, Cadastro Nacional da Pessoa Jurídica (CPNJ). Moreover, a company may need three to six months to establish its business in Brazil.

You need a thorough understanding of payroll tax in Brazil and labor requirements to guarantee accurate and compliant payroll. The following guide discusses all facets you must know about payroll in Brazil. 

How Is Payroll Calculated in Brazil?

Payroll implies the employer’s compensation to the employee for their services for a fixed period. Commonly, the accounting or the HR department controls it.

Brazil’s payroll policies and procedures cover releasing payments and tracking the employees’ working hours. You should maintain record-keeping to ensure precise payroll calculation. Moreover, it is also crucial to withdraw social security contributions and other deductions conforming to the payroll rules and regulations in Brazil. 

Important Elements of Salary Structure in Brazil

The following section describes the elements that contribute to the salary structure in Brazil:

Cost to Company (CTC)

The CTC is an annual amount a company must pay while hiring an employee. It entails gross remuneration, employee net remuneration, additional benefits, payroll deductions in Brazil, etc.

Gross salary

This element incorporates all elements contributing to Brazil’s employee compensation package. It includes the total income before calculating payroll deductions in Brazil. Some of the components it covers are social security contributions, health insurance, etc.

Net salary

It refers to the amount remaining after the employer has made all deductions from the gross salary. The amount is credited to the employee’s bank accounts.

Basic salary

It refers to the amount employees get after calculating all additions and deductions from the annual package. This element depends on two factors, i.e., the employee’s job designation in the company and the sector’s undertakings.

Allowances

It involves all the job-related expenses employers must pay to their employees. It benefits employees with a decent work-life balance. All employees are entitled to multiple allowances, irrespective of the company and the industry.      

How to Set Up a Payroll in Brazil?

An overseas business intending to set up payroll in Brazil can follow these steps:

• Step 1: Register your business as a locally-owned or foreign-owned company.
• Step 2: Acquire a company registration PIN from the Securities and Exchange Commission.
• Step 3: Register your company name, labor and tax registration, and national tax number.
• Step 4: Open a Brazilian bank account to disburse payroll-related payments.
• Step 5: Calculate the employee payroll amount.
• Step 6: Confirm the payroll cycle and payroll structure for your company.

A Step-by-step Process of Payroll Processing in Brazil

The payroll processing in Brazil involves three stages, which are discussed below.

1. Pre-payroll stage

To formulate a legal and standardized approach to managing payroll in Brazil, you first establish your organization in the country. In addition, inspect and manage payroll requirements and authenticate payroll inputs.

You must define policies related to:

Business profile

You must register your business as a legal body. The Department of Federal Revenue of Brazil (Secretaria da Receita Federal do Brasil) handles the business registration process and offers a unique business number. You must mention this number in all official payroll communication.

Attendance policy

Work attendance significantly influences payroll calculation. Hence, it is crucial to define organization policies that can calculate overtime, standard and special attendance, permissions, and more.

Salary components

You must consider various factors affecting salary calculation i.e., deductions, allowances, and leave types.

Employee information

You must collect personal and professional information about all your employees because it influences payroll. The details include employee names, roles, departments, nationalities, etc. If there are any payroll issues, these details will serve as references and ensure the particular employee gets regular payments.

Pay schedule

It involves selecting the day to disburse payments to employees and specifying a fixed payment schedule. This will inform employees about when they will receive their salary each month.

2. Payroll stage

Currently, most businesses use a payroll system that automatically calculates salaries. If your company follows this approach, your payroll calculation stage will supply all the data collected during the pre-payroll stage into your payroll system. This stage ascertains that the accurate amount for every employee is fed into the payroll system. If the company doesn’t use a payroll system, it must manually calculate each employee’s compensation and disburse the amount in cash.

This stage involves feeding all the data gathered during the pre-payroll phase into your payroll system, which will return exact amounts for each employee. 

3. Post-payroll stage

Salary disbursements

The major part of the post-payroll stage involves disbursing salaries to your employees. You can do this in any of these two ways:

1 – Communicate with your bank and request them to initiate salary disbursement

2 – Work with software that automatically disburses salaries to your employees

Payroll accounting

It refers to accurately tracking your company’s accounts. It involves regularly recording your employees’ salaries to guarantee timely and accurate payments.

Payroll reporting and compliance

This sub-stage involves coordinating with local and national authorities to convey vital information about salaries, taxes, and invoices.

Payroll Contributions

Depending on the salary, the employers and employees must contribute to social security in Brazil as part of the Brazil payroll requirements.

Employee contribution

Personal income tax:

All Brazilians and foreign residents must pay the personal income tax [termed às imposto de renda das pessoas físicas (IRPF)]. The Ministry of Finance—Receita Federal do Brasil (RFB) is a department that manages the collection of IRPF.

The following table specifies the monthly personal income tax rates for Brazilian residents.

Note: The income earned by nonresidents is taxed at 25% without deductions.

Social security contributions:

The following table mentions the rates of employees’ payroll contributions based on social security contributions.

Other social security contributions

The employee should also make these social security contributions.         

Social Insurance Programs:

The social welfare (called Previdencia Social) specifies that employees must make payments for the following issues:

• Maternity

• Disability

• Illness

• Retirement pension benefit

• Death

• Unemployment

The employee’s contribution to the social security scheme ranges from 8%-11% of their monthly salary.

Sickness or disability benefits:

Employees are eligible for disability or sickness benefits after contributing for 12 months to the social security scheme. The corresponding payment benefit depends on short- or long-term incapacity. It can range between 50%-91%.

Employer contribution

FGTS:

The employer’s social security contributions are calculated at a rate ranging from 20.00% to 22.50%, depending on the industry’s sector.

All employers must enroll in and contribute to an FGTS (Guaranteed Fund for Length of Service) account for each employee hired. They should contribute an amount equivalent to 8% of employees’ salaries into FGTS accounts. Hence, Brazil’s total employers’ contribution ranges from 28% to 30.50%.

Pension:

The employer’s contribution towards a pension is 12%. The employers pay pension retirement benefits to male employees at age 65 and female employees at age 60. They must pay pension benefits equivalent to 70% of the employee’s average monthly wage. The increment is in the range of 1% to 100%.

SAT/RAT:

The Risco de Acidente do Trabalho (RAT) is the Labor Accident Risk. It is a special mandatory employer payroll contribution introduced by law. It involves the coverage of the consequences and expenses related to workplace accidents. 

Social assistance:

The employer must make a social assistance contribution equivalent to 5.8% of payroll to fund various private or government services, including education and employee assistance. The tax must be paid to the following institutions:

1 – Senai/Sesi

2 – Senac/Sesc

3 – Incra

4 – Sebrae

Payroll Cycle

In Brazil, employees are paid at least once a month. Typically, the payments are made fortnightly or monthly according to the employment agreement.

Brazil Payroll Options for Companies

Various options are available for employers to process payroll in Brazil. They can choose this option according to their budget and requirements. The below section describes various payroll options in Brazil.

• Internal payroll: Larger companies with a long-term commitment to Brazil can operate their internal payroll. This option is costly because the company should dedicate time and hire an experienced workforce proficient at setting up payroll in place.
• Remote payroll: It suggests that incorporating remote payroll with your payroll company can streamline the process in the country. The remote payroll will pay the employees at your subsidiary. Although cost-effective, the company must know different labor laws in Brazil.
• A Brazil payroll processing company: After thoroughly researching the market, you must use this option. It implies that you must use a reliable and experienced payroll processing company that is familiar with setting up payroll and payroll rules and regulations in Brazil.
• Brazil payroll outsourcing: This option in the Brazil payroll guide provides a straightforward, flexible, and cost-effective method of managing payroll in Brazil. Companies can partner with a global PEO service provider like Multiplier. It administers all the elements of the Brazil payroll process and guarantees that the corresponding processes conform to Brazil’s payroll requirements. Besides, it eliminates all the challenges of payroll processing in Brazil and keeps you focused on the company’s growth.

Entitlement and Termination Terms

Entitlement terms in Brazil

An employee in Brazil is entitled to the following benefits according to the Brazil payroll requirements.

Sick leave

15 days of paid sick leave is provided to all employees in Brazil.

They should present a medical certificate of the sickness’ first day within 48 hours.

The employers are entitled to provide sick pay for the first 15 days at the rate of 100% of the regular pay. Social Security (INSS) pays after that.

Maternity leave

In Brazil, all female employees are entitled to 120 days of paid maternity benefits.

This benefit is applicable even when the female employee adopts a child. INSS handles the maternity pay. 

Employers enrolled under the government scheme (Empresea Cidada) can extend the maternity period to 180 days.

Paternity leaves

In Brazil, male employees are entitled to 5 days of paid paternity leave upon childbirth.

Employers enrolled under the Government Program “Empresa Cidadãs” can prolong the paid paternity leave to 20 days.

Family leave

All employers in Brazil are entitled to 30 days of annual paid leave to take care of family members below age 12. 

The family leave lasts 15 days to take care of older family members.

Paid leaves

Employees who have finished at least one year of employment are eligible for a minimum of 30 days of paid leave.

It is calculated as a monthly wage with an additional bonus of one-third of the monthly wage.

The employer should pay the paid leave compensation two business days before the leave begins.

Public holidays

The employees receive 13 public holidays per year. 

Note: An employee who works on a public holiday is paid 200% of the standard wages.

Severance Pay

All employers in Brazil must deposit 8% of each employee’s monthly wage. The corresponding fund is credited into a special account which is opened with the Federal Savings Bank. With this account, the employees obtain the Severance Pay Fund (alternatively known as Fundo de Garantia do Tempo de Serviço (FGTS)). This fund can retreat at the termination of the employment (within ten days of the last working day). They will not receive this fund if the employee is dismissed with just cause.

Bereavement leave

An employee in Brazil receives a paid bereavement leave of two consecutive days if they encounter death in the family (husband/ wife, child, or direct relatives, including parents and siblings).

Termination Terms in Brazil:

In Brazil, the termination process is standard. Employees can be terminated with cause (when they have committed one of the breaches mentioned in the labor laws) or without cause (when they are dismissed at the employer’s decision).

The notice periods are required unless an employer can offer adequate cause for termination without notice (because of disobedience, misconduct, etc.). The termination notice should be in writing and submitted to the applicable governmental authorities.

The indemnities are calculated after the notification (called Pedido de Demissão) is completed in written form. The indemnities’ payment depends on the cause of the action and seniority.

The pre-notice period is a minimum of 30 days after the official notification. The termination is confirmed only after the pre-notice period ends, although the decision is to accept the payment rather than work that period.

Brazil Payroll Processing Company

Brazil’s payroll rules vary depending on company policies. You can partner with a global PEO company like Multiplier to gain the maximum benefits of payroll rules and regulations in Brazil.

It can be time-consuming for foreign investors to set up payroll in Brazil. Hence, businesses intending to set up payroll must first consider compliance with Brazil’s Labor and local employment laws. You can collaborate with a global PEO company to explore the optimum benefits of Brazil’s payroll policies and procedures.

How Multiplier Can Help with Global Payroll?

Companies can eliminate all compliance hassles and employ the Brazil payroll process by accessing the service from an international PEO platform like Multiplier.

Multiplier is prestigious for providing EOR solutions to worldwide corporations present in 150+ nations. Our skilled experts efficiently manage employee onboarding, payroll processing, management, contributions, and other associated tasks. Besides, our SaaS-based EOR services ensure that payroll processing completes efficiently in the country.