Every worker registered under the CLT regime is entitled to FGTS – the acronym for the Severance Indemnity Fund. 

It is important for companies to be familiar with the FGTS and to know details about how it works, such as who is entitled to the benefit, the situations in which it can be withdrawn and how to calculate it at the time of termination.

It was created in 1966 with the aim of protecting employees dismissed without just cause and, since then, it has appeared on the payslips of workers all over Brazil. 

In practice: what is FGTS? Who is entitled to it? How does it work? Find out below.

What is the FGTS in Brazil?

The Severance Indemnity Fund (FGTS – Fundo de Garantia por Tempo de Serviço) is a right of CLT workers paid by their employer and not deducted from their payroll. The CLT stands for Consolidated Labor Laws and it is the main labor legislation in Brazil, establishing the rights and duties of both employers and employees.

The government created the FGTS as a way of protecting workers who were dismissed without just cause – which is an important part of Brazilian legislation, creating a financial reserve for them. Therefore, this is a social benefit for salaried workers.

The benefit was instituted by Law No. 5,107 of 1966 and has more than 50 years of history. 

Initially, it was a solution to replace an old rule in the Consolidation of Labor Laws (CLT), ten-year stability. This rule established the following: any worker who stayed in the same job for ten years would have the position for life, and could only be dismissed for just cause.

However, it was often circumvented by employers, who dismissed employees before they had completed this period of service. Another problem at the time was that severance pay had to be paid in one lump sum by the employer, adding up to huge sums of money. For these reasons, the first changes were made to the law and, since then, its wording has undergone numerous changes. 

Currently, the FGTS solves these issues and is governed by Law 8.036 of May 11, 1990, and is much more comprehensive than ten-year stability.

What was the FGTS fund created for?

The FGTS in Brazil was created so that workers could have a financial reserve in case they were dismissed without cause. Therefore, they would have more security and the ability to support themselves and their family while unemployed. 

Currently, it has other purposes, such as supporting seriously ill people (with severe nephropathy, HIV/AIDS, malignant neoplasms – cancer – Parkinson’s disease, among others) or being used to finance home ownership.

In March 2025, the Brazilian government also started using the value of the FGTS as collateral for loans. 

Read also: Tax in Brazil

How does FGTS work?

When an employee is hired with a formal contract – the CLT regime in Brazil – the employer is obliged to deposit their FGTS every month.

The deposit is made into the state-owned Caixa Econômica Federal bank account in the employee’s name and is equivalent to 8% of their gross salary. This is an extra amount paid by the company to build up the employee’s reserve. 

The FGTS is such an important fund that even in some cases where the worker is on leave, it is still necessary to make monthly deposits. These cases are:

• Accidents at work;
• Compulsory military service;
• Vacation;
• Maternity and paternity leave;
• The first 15 days of sick leave;
• Any other cases of paid absence.

Employees can only access the value of their FGTS in specific situations, such as in cases of dismissal without just cause or to finance their own property.

How long does an employee have to work to be entitled to FGTS?

CLT employees are entitled to FGTS from the first full month of employment. This is because the employer is obliged to deposit the benefit every month that the employee works for them. 

This guarantee, established in 1966, aims to protect workers in the event of unfair dismissal by offering them a sum of money to help them transition to a new job or for other purposes.

In the event of dismissal without just cause – which is a specific feature of Brazilian legislation – the FGTS amount can be withdrawn in full, regardless of how long the account has not been used. 

This amount can also be withdrawn from the account if the person has not been employed for 3 years or more.

Read also: Understanding Brazilian accounting standards

Who is entitled to FGTS in Brazil? 

All employees working under Brazil’s Consolidated Labor Laws (CLT) are eligible for FGTS contributions. This includes both Brazilian citizens and foreign workers with formal employment contracts.

The FGTS eligibility extends to all employees in Brazil who are employed under the CLT, which includes:

Full-time Employees: All full-time workers employed under a formal contract (CLT) are entitled to FGTS contributions from their employers. This includes those working in both public and private sectors.

Part-time Employees: Part-time employees with a formal CLT contract are also eligible for FGTS contributions. The calculation is based on their earnings, similar to full-time employees.

Temporary Workers: Employees hired under a temporary contract (for a fixed term or specific project) are eligible for FGTS contributions, as long as they are employed under the CLT framework.

Domestic Workers: As of 2015, domestic workers, such as housekeepers and nannies, are entitled to FGTS contributions, ensuring they receive the same protections as other formal employees.

Apprentices: Apprentices, who are typically young workers receiving job training, are also eligible for FGTS contributions, albeit at a reduced rate (2% instead of the standard 8%).

Foreign Workers: Foreign nationals working in Brazil under a formal CLT contract are eligible for FGTS contributions, just like Brazilian citizens.

Rural Workers: Those employed in agricultural activities under a formal CLT contract are also eligible for FGTS contributions.

Independent contractors and those working under RPA (Recibo de Pagamento Autônomo) arrangements are not eligible for FGTS contributions, as they are not covered by CLT.

How to calculate the monthly contribution to the FGTS

The amount of FGTS varies according to the employee’s salary, since it is equivalent to a portion of the salary. As a rule, this is 8% of the gross salary.

However, there are exceptions, such as domestic workers, for whom the employer must deposit 11.2% of the gross salary, and young apprentices, who are entitled to only 2% of their gross salary, to be deposited monthly.

FGTS and the severance fund

FGTS in Brazil is a key aspect of severance payments. If an employee is dismissed without cause, they are entitled to a portion of their fund balance. 

The employer must pay an additional 40% of the total FGTS balance as a penalty for the dismissal. This serves to compensate the employee for the sudden loss of income and help them while they look for new employment. Overall, the FGTS-linked severance payment system ensures employees are treated fairly and have a financial safety net between jobs. 

Additionally, the fund can be accessed in various life situations beyond severance, making it a cornerstone of Brazil’s labor protection framework.

FGTS benefits for employees and employers

FGTS provides a safety net for employees, offering financial security during job loss, illness, or major life events. It also allows employees to use funds for homeownership, easing the financial burden and providing peace of mind.

Employers are legally obligated to contribute to it, which promotes fair treatment and workforce stability. While it adds to employment costs, the fund increases employee loyalty and satisfaction. Adhering to its regulations also helps employers avoid legal issues and maintain a positive workplace environment.

Overall, FGTS is a relevant part of Brazil’s social security system. It supports employees during difficult times and reinforces employer responsibility for their workforce’s financial well-being. Understanding it is essential for both employers and employees to fully benefit from this system.

FGTS for foreign workers in Brazil

Foreign workers who are employed under CLT in Brazil have the same FGTS rights as Brazilian citizens. This means that eligibility for FGTS contributions is based on formal employment under Brazilian labor laws, regardless of nationality.

Similarly, the conditions for withdrawing FGTS funds remain the same for both foreign and Brazilian workers, including situations like dismissal without cause and retirement. However, if a foreign worker chooses to leave Brazil permanently, they cannot withdraw their entire FGTS balance.

How can foreign workers request their FGTS funds if they are leaving Brazil?

If foreign workers decide to leave Brazil permanently, they can withdraw the funds that they have accumulated in their FGTS accounts. To do this, they must submit two formal declarations to the Brazilian tax authorities: the Comunicação de Saída Definitiva do País and the Declaração de Saída Definitiva do País. These documents confirm that the workers no longer live in Brazil and that they have settled their tax obligations. 

They must also provide proof of residency in their new country, such as a residence permit, utility bills, or a rental agreement with their address abroad. After these documents are submitted, Caixa Econômica Federal will process the request and transfer the funds directly to the worker’s chosen bank account in Brazil. However, foreign workers can only withdraw their funds if their FGTS account has been inactive for three years.

How to manage FGTS in Brazil properly

Managing FGTS and ensuring compliance can be complex and challenging, particularly for foreign businesses operating in Brazil. To manage them effectively, partnering with a direct and local expert like Europartner can provide great support.

With a team of local experts specializing in Brazilian labor laws and regulations, Europartner can assist businesses throughout the entire employee lifecycle. This includes managing FGTS payments, handling employment contracts, payroll, and benefits administration. By handling these important HR tasks, Europartner can give your business the time and resources to focus on their most important work and goals.

Europartner’s local experts and HR services can help your business run smoothly, lower risks, and grow in the fast-paced Latin American market. 

Contact their team today to learn more about how they can help. They’re ready to offer customized solutions and expert advice to help you find and hire the best talent and build a successful business in Latin America.