(this article was originally written in English)
Operating Payroll, Admissions and Benefits in Brazil
This article attempts to cover the key aspects of an HR back office in Brazil – so fundamentally what a foreign company would have to setup and run in order to have a local team in the country.
Employee-related operations require navigating a complex labor system that strongly favors employees. After the initial legal setup (company incorporation, registration, etc) it is time to hire the first team member. These are the key considerations:
1. Should I hire someone as a Contractor or Full-Time Employee?
Contractor (Pessoa Jurídica – PJ):
- Independent service providers, often registered under a CNPJ (Brazilian business entity).
- No formal employment relationship, meaning the company is not responsible for benefits such as FGTS (a kind of enforced savings/unemployment pool), vacation pay, or severance.
- Suitable for short-term projects or specialized services.
- However if the contractor works under conditions similar to an employee (fixed hours, exclusivity, direct supervision), the company may face legal claims for misclassification.
Full-Time Employee (CLT – Consolidação das Leis do Trabalho):
- Employees are entitled to labor benefits and protections.
- Governed by the CLT, which mandates specific rights and employer obligations such as vacation time, meal benefits, overtime.
- Usually more expensive for the company due to payroll taxes and benefits, but provides workforce stability.
2. Full-Time Employee Benefits
Brazilian labor laws mandate several benefits for full-time employees under CLT, including:
- 13th Salary: An extra monthly salary paid in two installments (November and December).
- FGTS (Fundo de Garantia do Tempo de Serviço): A severance fund where employers deposit 8% of the employee’s monthly salary.
- Paid Vacation: 30 days after 12 months of work, plus an additional 1/3 salary bonus.
- INSS (Social Security): Contributions fund retirement, disability, and other benefits.
- Severance Pay: If terminated without cause, employees are entitled to a 40% fine on their FGTS balance.
3. Legal Risks and Employee Lawsuits
Brazil has a strong labor court system, and many employees seek legal action when they feel their rights have been violated. Common reasons include:
- Unjustified termination without proper severance payments.
- Misclassification of employment (contractor vs. full-time employee).
- Unpaid overtime (beyond 8 hours/day or 44 hours/week without compensation).
- Failure to provide legally required benefits.
- Moral harassment or discrimination claims.
- Workplace safety violations leading to accidents or illness.
4. Payroll Calculation
On average, an employer’s total cost can range from 60% to 100% above the employee’s gross salary, depending on benefits and industry agreements. Payroll calculation is quite intricate and errors generate immediate liabilities to employers and/or the firms performing the calculations.
At Warun we provide all core services related to HR operations in Brazil, serving both local and foreign companies.
