By Globalization PartnersJune 2013
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Over the course of the past decade, U.S. owned companies have begun flooding into Latin America, but hiring in Brazil often inspires raised eyebrows when they see what it will cost to dip a toe in the water.
U.S. companies hiring in Brazil have traditionally been required to set up a full legal entity, with an administrative overhead of 3+ months to set up and substantial costs and headaches. H.R. Directors can also expect red tape that includes appointing local legal registration, company secretaries and registering office address services that make the cost of establishing (or unwinding) an entity prohibitive.
Top tips for hiring in Brazil:
- Either create or find an Employer of record. In order to hire an employee in Brazil, a company must either establish a local subsidiary or entity, or find a company willing to put the employee on the payroll. Establishing a subsidiary in Brazil takes 3+ months but may provide tax benefits
- Anticipate a lawsuit. Labor law in Brazil is extremely employee friendly. As one of our local legal advisers recently suggested, when an employee is terminated the company should be as cautious as possible because it is likely the employer of record will be pursued in a labor court.
- Plan for the end of the employment arrangement in advance. Put a strong, locally compliant employment contract in place in accordance with all laws.
- Budget for Benefits. Benefits are very costly in Brazil. As a rule of thumb, we suggest doubling the monetary compensation for an employee when calculating the total cost of employment, including mandatory social insurances and other benefits. For example, if you are hiring an employee who makes $100,000 USD per year, you can assume that the cost of paying him or her will exceed $200,000 per year.
- Factor in the 13th Salary month. Brazilian employees enjoy many benefits. For example, Brazilian law calls for a “thirteenth salary” or “décimo terceiro”. This often catches an employer by surprise when they tell an employee they will pay the equivalent of “$10,000 USD per month” which to the employer means, $120k and the employee interprets as $130k USD/year.
- Review the “Total Compensation Package” before making an offer. Brazilians earn 30 days of vacation time. Once you factor in the 13th month bonus, 30 days of vacation and benefits budget, you may want to reconsider offering stock options as you would to your US employees who get 2 weeks off and no guaranteed bonus.
In Brazil, the labor legislation is far more friendly to employees than employers. Luckily, Globalization Partners’ tailored PEO services and Global Employer of Record Platform allows our clients to skip the red tape in Brazil and put their employees on our payroll. It’s global employment, streamlined.