As in many other countries, the payroll in Brazil establishes the amounts paid to employees, as well as taxes and levies. It also brings agility, precision and security to business owners and employees.

Read on to navigate payroll, taxes and its importance for businesses in Brazil.

Brazil Payroll Taxes: an overview

What is payroll in Brazil?

This is a legal document that contains all the information on salaries, benefits and deductions for each employee of a company over a given period. 

It is a mandatory record by law that every contractor must keep up to date to ensure compliance with labor and tax laws.

It contains information such as the employee’s name, position, basic salary, hours worked, tax deductions, among others.

Calculating employee pay in Brazil is quite complex, which is why it is advisable to rely on a specialized consultancy to carry out this task while avoiding possible errors and penalties.

Brazilian legislation imposes a series of rules and obligations for the preparation and maintenance of payroll.

Every company with at least one employee must keep an up-to-date payroll. The legislation stipulates that the payroll must be delivered to employees on a monthly basis and that the records must be kept by the company for at least 5 years.

How is payroll calculated in Brazil?

Labor charges are the legal and tax obligations that companies must comply with in relation to their employees. These charges are calculated and included in the workers’ payroll and include taxes, social security contributions, Severance Indemnity Fund (FGTS), among others.

This calculation requires your Human Resources department to be aware of labor obligations in order to avoid possible errors that could cause legal problems for the organization.

The calculations generally include

• calculation of gross salary
• tax deductions
• social security contributions
• additionals
• overtime

The first step is to identify the taxes that must be paid. These include INSS, Withholding Income Tax (IRRF), FGTS and PIS (Social Integration Program). 

The amount of these taxes varies according to the employee’s remuneration and the rates established by law. 

Let’s study an example below.

How to calculate Social Security (INSS)

The INSS is a social security benefit deducted from every employee. It is from this contribution that the employee will be able to apply for retirement, sickness benefit or any other benefit guaranteed by the social security system.

For this reason, a percentage is deducted monthly from the employee’s payroll so that they can use the benefit in the future.

The company’s INSS payment is calculated according to the salary received. You have to add up the amount shown on your pay slip, plus any deductions and bonuses.

With your gross salary, you only need to consult the INSS 2023 table to find out what percentage you will have to pay.

Exemptions

Service providers opting for the Integrated Tax and Contribution Payment System (Simples) do not have to pay the 11% social security contribution on their invoices.

How to calculate Income Tax

Withholding income tax on payroll is calculated based on the professional’s gross salary after the INSS deduction.

1. Consider the gross salary and deduct the INSS amount
2. With the remaining balance, find out which band you belong to in the table below:

1. Calculate the tax rate according to the percentage shown
2. With this result in hand, subtract the deduction amount
3. The result is the tax deduction to be made

Deduction of benefits

Benefits such as transport vouchers, food vouchers and meals also need to be included in the payroll.

In the case of transport vouchers, the maximum that can be deducted is 6% of the basic salary. If the amount needed is less, the deduction should be limited to what is necessary.

Food and meal vouchers may or may not be deducted from the payroll.

Other important calculations of payroll in Brazil

13th salary

Every CLT employee in Brazil receives a 13th salary every year. (CLT stands for the Consolidation of Labor Laws). 

If they have worked since January 1st, they are entitled to one month’s salary. 

If they haven’t worked all year, they will receive an amount based on the number of months they have worked.

Paid leave

Vacation, or paid leave, is a period of rest guaranteed by law to a company’s CLT employees. 

The law stipulates that every 1 year of employment, the employee has the right to take 30 days off. The first 12 months of the contract are called “the vesting period”.

Normally, you can’t take a paid leave before completing the vesting period.

Exceptions to this rule occur for collective vacations, which take place during market downturns. They usually take place at the beginning or end of a year and are usually proportional to the length of the vesting period.

The anticipation of vacation or paid leave must be agreed upon by the sector and filed with the Ministry of Labor and the employee’s union.

Vacations can be divided into up to 3 periods: as long as one of them is not less than 14 calendar days and the others are not less than five calendar days each.

The amount of paid leave is calculated by adding the employee’s gross salary to ⅓ of this amount.

For example, if the employee is paid R$3,000, this amount must be multiplied by ⅓. The result is added to the gross. In this case, R$3,000 + R$1,000. Paid vacation is worth R$4,000.

Maternity leave

 Maternity leave is the right of a woman who is pregnant or who is going to adopt a child to remain away from her job and still maintain her employment rights.

This leave lasts 120 days from the date indicated by the doctor. The mother can also choose to take part of her leave before giving birth.

There is a period of stability after maternity leave, which begins to run after returning to work. 

Paternity leave

Paternity leave lasts 5 days, starting from the day of the child’s birth or the date of adoption of children up to 12 years old.

Illness and accident at work

In the event of illness, the employee must present a medical certificate. In some cases, the ICD (International Classification of Diseases) is not required. 

The legislation stipulates that, in the event of illness, the employee may be absent from work for up to 15 consecutive days (for the same illness). After this period, the INSS controls the process.

In the event of an accident at work which provokes an absence lasting more than 15 days, the employee is entitled to accident sick pay from the INSS.

The employee is also automatically entitled to 1 year’s stability after returning to work.

Some common payroll mistakes

Managing payroll is a task that can be optimized with organization and practice. Although it requires attention, knowing the main points to look out for making the process simpler and more efficient.

Here are some insights worth bearing in mind.

Incorrect calculations

All calculations should be made by experienced professionals to avoid this kind of simple mistake that can cost the company dearly.

Centralizing data and automating processes

With so many details to take into account, it is essential to keep processes automated to avoid missing important details.

Lack of knowledge of labor laws

Brazilian legislation has many nuances that only specialized professionals can understand.  If you make a mistake in this area, you could even run into legal problems.

What are the benefits of payroll?

• Greater control of human resources costs;
• Increased transparency and trust with partners and employees;
• Better control of the company budget;
• Easier access to the social benefits offered to professionals.
• Payroll must be carried out with great care so as not to damage employee relations or the company’s cash flow.

How to manage payroll in Brazil?

The ideal way to generate the payroll is by using computerized systems. The market offers a wide range of software to automatically generate documents for each employee.

Due to the complexity of payroll management and control, here are some tips to help you save time along the process:

• Keep strict control of the employee’s time sheet
• Plan in advance what will be on the payroll
• Pay close attention to calculating taxes and deductions

How can payroll complexity be reduced?

It is possible to reduce bureaucracy by:

• Making benefits more flexible, giving workers the opportunity to choose how they prefer to earn that money;
• Hiring a consultancy specializing in human resources and accounting in Brazil, to make it easier for your company to work in the country.

If you want to start a company or hire employees in Brazil, Europartner is the ideal company to be your business consultant.

With 20 years’ experience, Europartner can help you set up a company, obtain legal representation, obtain accounting and tax services and financially manage your business.

While you operate your business, Europartner will manage it for you in Brazil.