By Globalization Partners
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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.
As the largest and most populous country in South America and the eighth-largest economy in the world, Brazil is an attractive place for companies looking to expand globally. Brazil does present some challenges for international companies since they have strong employment laws in place that favor employees. Establishing and operating a business there can be a complex process.
U.S. companies hiring in Brazil have traditionally been required to set up a full legal entity, with an administrative overhead of at least three months to set up and substantial costs and headaches. HR 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.
If you’re looking to expand your company into this country or to simply hire a few remote employees to join your company, you need to understand hiring practices in Brazil and the requirements you’ll have to meet. If you can navigate the process correctly, then you can enjoy a positive experience adding new talent to your team.
What to Know Before Hiring in Brazil
There are some aspects of Brazilian employment laws that companies from other countries should understand before they start the hiring process in Brazil.
1. Employee categories and contract types
The Consolidacao das Leis do Trabalho (CLT) in conjunction with the Federal Constitution of 1988 directs all the employment laws in Brazil, from the more general to the minute. The most recent Federal Constitution, introduced in 1998, enhanced certain standards provided in the CLT like the minimum wage, work week hour limits, and irreducibility of wages. Adherence to the CLT standards is critical for hiring in Brazil, and determining their practical application is overwhelming to say the least.
All employees must be registered with the tax authorities in Brazil. There are six employee categories and two contract types:
- Celetista – an employee with a written and signed CTPS (contract or book) with an employer. This is the most common relationship with an employer.
- Trabalhador Cooperado – a cooperative or partner of an employer.
- Trainees – recent graduates entering the job market.
- Interns – students in high school, technical school, or college who are hired part-time.
- Self-employed – a person who provides services to one or more companies without a traditional celetista relationship.
- Domestic worker – person providing domestic or household work. The CLT has specific rules for these types of employees. They enjoy many of the benefits of the celetista relationship.
- Indefinite term – most common type of contract. Based on the “principle of continuity” employment concept, the general rule is that any CTPS entered is for an indefinite time period.
- Definite term – used in limited circumstances like seasonal or project-oriented work.
A written employment contract is not necessary in Brazil. However, filling in the details of the employee’s employment book is a mandatory requirement and serves as the official employment contract.
Most employees will fall into the celetista category for whom detailed records on employment, payroll information, job position, salary, benefits, and social security contributions must be kept. Improper record keeping creates a substantial risk for an employer should a labor dispute arise.
As mentioned above, all registered employees, including international workers, are required to hold an employment registration book or carteira de trabalho that details the employment terms. Employers must keep official registers on each employee and must submit returns to the local employment office every year listing employees, interns, etc. on their books. Overtime work during regular business days requires a minimum payment of 50 percent of the regular rate. Work on Sundays requires a special permit and pay at 100 percent of the regular rate.
2. Employee-friendly regulations
First, it’s helpful to understand that Brazil’s employment laws tend to favor employees. Brazilian employees may be entitled to more rights and benefits than you are used to in your home country. This puts some companies at risk of non compliance if they do not carefully study the local employment laws or consult a lawyer. If you work with an Employer of Record (EOR), you can pass the burden of legal compliance onto them.
It’s also important to know that terminating an employee in Brazil is likely to result in a lawsuit. Of course, this means you need to make firing decisions carefully, but it also means you’ll want to do your best to hire the right people for the job so you can avoid these scenarios. It’s also wise to have a written employment contract in place even though they are not legally required in Brazil. This document will create more transparency around your expectations for employees.
Portuguese is the official language of Brazil and is by far the most widely spoken language there. Brazil is the only Portuguese-speaking country in South America, and Spanish — the prevailing language throughout the rest of the continent — is not a quite common second language for Brazilians, though it has recently begun to catch on more. You may also hear a pidgin language that combines features of Portuguese and Spanish along Brazil’s borders.
As with most countries, you are more likely to hear English in city centers in Brazil than in other parts of the country, but English is not widely spoken. English-speaking companies that do not have someone on staff who is fluent in Portuguese should plan to work with a translator when hiring in Brazil.
4. Working hours and compensation
The workweek in Brazil is 44 hours, which can be divided across the five weekdays, or can be eight hours Monday through Friday with a half-day on Saturdays. Employees typically take an hour or more for lunch. When employees work overtime, they should receive 1.5 times their usual hourly wages or double their usual pay if it is a holiday or Sunday.
Pay must equal or exceed the national minimum wage, which is regularly adjusted to account for inflation. Some states in Brazil have their own minimum wage, which may differ from the national standard. These changes may not affect you if you are paying your employees well above the minimum wage, but you should still be prepared to adjust their salary each year since labor unions will negotiate for annual pay raises.
Brazilian law also requires employers to pay their employees a “13th-month salary,” which is equal to one month of wages plus the medium of commissions and bonuses (if applicable) received during the year. The 13th-month salary is used to compensate for any months in the year with shorter four-week durations based on a five-week month’s pay.
5. Vacation leave and sick leave
Annual leave requirements are generous in Brazil compared to some other countries. After one year of service, employees are entitled to 30 days of vacation leave. Rather than taking a day here and there, employees should use their leave all at once or in a couple of large chunks. Employees can divide their vacation time into three periods; one lasting at least 14 days, and two more lasting at least five days. Additionally, employees have the option to “cash-in,”, or sell, up to 10 vacation days back to the company should they choose to do so. These vacation days are paid, and employers must pay a vacation bonus equal to one-third of the employee’s monthly salary. Vacation time is on top of the 11 paid holidays that Brazilian employees also enjoy.
These paid holidays include:
- New Year’s Day
- Martyr’s Day
- Labor Day
- Corpus Christi
- Brazilian Independence Day
- Patron Saint of Brazil
- All Souls’ Day
- Proclamation of the Republic Day
- Christmas Day
When employees have to miss work due to a medical issue, employers must pay them for their first 15 days off if the employees provide a doctor’s note. If they miss more than 15 days due to their medical condition, then the National Institute of Social Security (INSS) will take over.
Female employees are entitled to 120 days paid maternity leave. Employers may extend this by 60 days.
6, Required benefits
The Federal Constitution and CLT provide for a series of minimum benefits that must be granted by all employers in Brazil.
- Minimum wage by category of worker
- Maximum hours – eight hours per day/44 hours per week
- 13th month or Christmas bonus – one extra salary payment per year. This payment is made in two installments — one between February and November and the other before the Dec. 20. The bonus is based on the employee’s entire remuneration and not just the base salary.
- Profit sharing – negotiated between the employer and employee’s labor representative.
- Social Security benefits – both employees and employers must contribute to Social Security. Rates vary depending on the total amount of employee remuneration, from 8-11 percent. Employers must deduct the employee portion and pay on the employee’s behalf.
Summary of Social Security contributions paid over employee payroll:
Includes: Education contribution, INCRA, SENAI, SESI and SEBRAE contributions
- Severance fund – 8 percent of the employee’s monthly compensation is set aside in a Federal Savings Account and paid out upon termination. Withdrawals can also be made under certain circumstances like a home purchase. This is a severance fund that employees will receive if you ever terminate their employment, but not if they resign.
- Training – training appropriate to the workplace.
Collective Bargaining Agreements are common in Brazil and will add an extra layer of complexity regarding wages, overtime, and additional benefits.
Brazil is known for a robust system of employee benefits. This includes the vacation time we just discussed, as well as other statutory benefits that can add to an employer’s costs. It’s safe to add on an additional 80 percent or so of an employee’s salary when you are estimating what the end cost will be with both salary and statutory benefits. This makes the cost of employing Brazilian workers exceptionally high. The required benefits include the following:
- Social security: Employers must withhold a portion of employees’ paychecks and add their own contributions to go to the INSS. The rate of contributions varies based on an employee’s salary.
- Meal and transportation vouchers: One thing that may surprise international employers is that, in Brazil, you are required to give your employees vouchers for meals and transportation. In the case of transportation vouchers, employers deduct 6 percent from employees’ paychecks for the vouchers, and employees can opt out if they want.
Since all the above benefits are guaranteed to all employees, if you want to attract employees with your benefits package, you will need to offer more than this baseline. Some other common benefits include private medical insurance, dental insurance, daycare, and tuition assistance.
The cost of hiring an employee in Brazil
In addition to costs related to compensation and benefits, there are also upfront costs associated with recruiting employees in Brazil for which you should budget. These costs can include:
- Legal services: Because Brazil guarantees many rights to their employees, you need to have legal help to ensure your employment practices are legally compliant. If you don’t hire Brazilian lawyers early on, then you may have to hire them to represent you in a lawsuit later.
- Incorporation: Incorporating your business in Brazil can also involve registration fees. You need to establish your company legally before you can start hiring employees in the country.
- Hiring agencies: A staffing agency can simplify the recruitment process a great deal, so it can be a good option to consider, despite the cost.
- Job advertisements: Advertising job openings can also add to your recruitment costs. You can post on some free job portals online. While roughly one-third of Brazilians do not use the internet, sites like LinkedIn and Indeed are ideal resources for the other two-thirds that may serve as qualified candidates.
- Hiring committee: If you handle hiring internally rather than partnering with a hiring agency, you should factor your hiring committee’s time spent on recruitment into your total hiring costs. This includes creating job descriptions, evaluating applications, and interviewing candidates, among other tasks.
- Translator: Unless you have a member of your team who is fluent in Portuguese, you’ll need to hire a translator to facilitate your hiring process in Brazil. This is helpful for communicating with job seekers and for understanding and filling out government paperwork.
- Pre-employment screenings: Background checks to verify a candidate’s credentials or right to work in Brazil can also add to your costs. Keep in mind that criminal background checks are only permitted in Brazil in exceptional circumstances, such as in the hiring of armed guards.
- Termination: Dismissing employees in Brazil is costly. Dismissal without cause, obligates the employer to pay an additional 40 percent of the accumulated balance in the employee’s severance fund and 10 percent to a government social fund. If the employee and employer are mutually at fault, the additional percentage is reduced to 20 percent. This is in addition to any salary and vacation compensation owed to the employee. A severance notice of 30 days is required for all employees who have worked for 12 months or less. After 12 months, an additional three days per year worked is added to the notice period.Severance payments must be documented and signed in the presence of the employee’s labor representative.Employee actions that allow employers to terminate with cause:
– Performing a dishonest act
– Performance on behalf of the business without prior permission
– Criminal conviction
– Violation of company secrets
– Abandoning the position
– Defaming the reputation of a person during work hours
– Physical violence
What does a company need to hire employees in Brazil?
Before you can start hiring someone in Brazil, you need to establish your business there legally and prepare to take on these new employees. You can establish a branch of your company, but you can only do so with special authorization from the Brazilian Ministry of Development, Industry, and Foreign Trade. Most companies choose instead to set up a subsidiary, which can take on one of nine different corporate structures. To establish your subsidiary, you must have the following in place:
- Articles of organization
- Board of Trade registrations
- Tax ID
- Brazilian bank account
- Business license specific to the municipality where you will operate
- Inscricao Estadual registration for paying taxes
- Authorization to Issue Notas Fiscais (AIDF)
- INSS registration
Setting up a branch or subsidiary of your business in Brazil is not a simple task. Brazil currently holds the 124th spot in the ease of doing business index, meaning there are 123 countries where setting up and running your business is easier. That doesn’t mean you should choose not to hire employees in Brazil, though.
Steps to hiring in Brazil
Let us turn our attention to how to hire in Brazil. The process will likely resemble what your company is used to.
1. Publish job ads
First, you need to create detailed job ads for all the positions you want to fill in Brazil. Make sure you note whether you are hiring remote employees in Brazil, or whether you are looking for people to come work in your Brazilian office. This is important since the second scenario will limit the geographical pool of candidates. Once you have written job ads, post them on online job boards, and look for at least one way you can also advertise your job offline.
2. Evaluate applications
Your staffing agency or hiring committee will need to look through applications to determine which candidates are worth further consideration and an interview. Brazilians are typically used to applying for jobs with a succinct CV of about one or two pages and a cover letter. If you want to get additional information from candidates, you could include a questionnaire in your application process.
3. Interview top candidates
When you have narrowed down your list of candidates, you can schedule interviews. For in-person interviews, you’ll need to travel to Brazil and host interviews in your new branch or subsidiary office or reserve another location to meet with interviewees.
If you are conducting interviews remotely, make sure you consider the time difference in Brazil so you can schedule interviews at a time that works for the interviewers and the interviewees. Brazil has four time zones, so, check the time zone for your candidates if you’re interviewing residents from various parts of the country.
4. Extend job offers
Now you can select your best applicants and contact them to offer them a job with your company. Make sure the applicant has an opportunity to ask any questions they may have. If you have not already discussed salary, now is the time. You do not need to outline all the benefits you are offering if those benefits are in line with the legal requirements. Instead, emphasize any special benefits that go beyond these requirements, whether it’s extra vacation days, a private health insurance plan, or any other bonus.
5. Onboard your new hire
Once applicant have agreed to join your company as employees, you can onboard them. Or your Employer of Record will take care of this step. In addition to necessary paperwork, make sure you take time to get to know your new employees as much as possible. You should also provide your new hires with an itinerary for their first week and give them whatever training they need.
1. Partner with an Employer of record (EOR). 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. Partnering with an EOR will take your HR and legal compliance responsibility.
2. Anticipate a lawsuit. Labor law in Brazil is extremely employee-friendly so make sure you to comply with all the laws and regulations.
3. Plan for the end of the employment arrangement in advance. Put a strong, locally compliant employment contract in place in accordance with all laws.
4. 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 US$100,000 per year, you can assume that the cost of paying him or her will exceed US$200,000 per year.
5. Factor in the 13th month salary. Brazilian employees enjoy many benefits such as the “thirteenth salary” or “décimo terceiro”.
6. 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.
Hire Brazilian employees with Globalization Partners as your EOR
Because of the complexities and extensive requirements involved with setting up a business and hiring in Brazil, many companies have found partnering with an Employer of Record to be the ideal choice.
Globalization Partners has a presence in Brazil and 187 countries across the globe, so we can help you expand quickly and easily. Our platform is AI-driven and powered by our HR experts, who will handle hiring, onboarding, and payroll so you can focus on growing your business while remaining compliant with Brazil’s labor laws and regulations.