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Payroll in Brazil – The complete guide

Payroll in Brazil

Do you know exactly how much an employee costs to your company? 

If you are in North America or Europe, probably the calculation is quite simple the payroll – on the other hand, in Brazil this same task tends to be more complex. The complexity of the Brazilian tax system is notorious worldwide, and it probably will affect your planning when it comes to hiring new employees in the southern country.

In order to help your team understand how the employee cost in Brazil is calculated, we’ve prepared a few valuable tips. 

In this article, we’ll also cover the impact and importance of the INSS tax on payroll costs and why you should count on experts to help your company calculate the payroll correctly. 

INSS stands for the Brazilian Social Security Administration or National Social Security Institute.

INSS have two components:

  • an employer tax (outside the exception of fiscal regime of Simples Nacional in which the employer is exempted of patronal INSS)
  • and an employee tax deducted from the gross salary.

The tax contributes to the social security system nationwide. Along this article, we will explain its importance in the economy and its role in the Brazilian payroll.

How much does payroll in Brazil cost?

Get ready – it’s an extensive number: in Brazil, an employee can cost a company up to 183% of their gross salary, according to a survey by the Getulio Vargas Foundation in partnership with the National Confederation of Industries.

Understanding the real value of an employee to the company has an impact on several issues that must be considered. That’s why it is also strongly advised to count on specialized consultancy to avoid running any risks.

This approach also includes strategic cost issues, such as finding ways to save on hiring and identifying whether that employee brings a return to the company, allowing the business to face growth with the best cost-benefit ratio.

In the next topic, you will see what charges are payable under the different Brazilian tax regimes. 

What is the payroll cost in Brazil?

Understanding the employee cost in Brazil involves delving into taxes and regulations that govern the country’s labor market. One of the key factors influencing this cost is the tax regime that an employee falls under.

Let’s explore some of the different tax regimes in Brazil and their impact on employee costs

Simples Nacional

Companies registered with Simples Nacional are those with annual gross revenue of up to R$4.8 million (a rule that came into force in 2018).

This system was created in 2007 in an attempt to make life easier for micro-entrepreneurs and small business owners. As a result, the taxes are significantly lower than those paid by large companies.

According to the legislation, companies operating under this regime are exempt from the employer INSS contributions, work accident insurance (SAT) and contributions to some specific entities.

The charges included in most of the activities are:

  • Vacation fraction: 11.11%
  • 13th salary fraction: 8.33%
  • FGTS*: 8%
  • FGTS/termination fine: 3,8%
  • contribution to the Social Security: variable, < 8% generally.

*FGTS is the Severance Indemnity Fund, could be also known as an Employee Dismissal Guarantee Fund, a mandatory fund primarily used to protect workers in case of job loss. Both the employer and the employee contribute to it.

Under this tax regime, about 35% of the money spent by the company to pay for an employee does not go into their salary, but is converted into tax or social benefit.

Presumed Profit or Real Profit

Companies that fall under Presumed Profit are those that had revenues of up to R$78 million in the previous calendar year and don’t carry out activities that would prevent them from doing so, such as commercial and investment banks, leasing and insurance companies.

These companies, in addition to having the same tax obligations as Simples Nacional, have an additional third-party tax rate (Incra, SENAI, SESI or SEBRAE), the employer’s social security – INSS – and other charges that do not exist for small companies. Check below:

  • Vacation fraction: 11.11%
  • 13th salary fraction: 8.33%
  • INSS: 20%
  • Education salary: 2.5%
  • Incra/SENAI/SESI/SEBRAE*: 3.3%
  • FGTS: 8%
  • FGTS/termination fine: 3,8%
  • RAT**: 1 to 3%

* These organizations offer services such as professional education, social assistance, health and leisure to workers and their dependents.

** RAT is the Occupational Accident Rate, a contribution designed to pay for the treatment of occupational illnesses resulting from the exercise of the job or accidents at work. 

At Presumed Profit or Real Profit, about 59% of the money spent by the company to pay for an employee is converted into tax.

Read also: How to register a company in Brazil

What costs can be included in the calculation of employee costs in Brazil?

Labor charges are the legal and tax obligations companies must fulfill for their employees. These charges, included in employee payrolls, encompass taxes, social security contributions, Severance Indemnity Fund (FGTS), and more.

To avoid legal issues, HR departments must be knowledgeable about labor regulations. The calculations generally involve:

  • Gross salary calculation
  • Tax deductions
  • Social security contributions
  • Bonuses
  • Overtime

The initial step is to identify the necessary taxes: INSS, Income Tax (IRRF) and FGTS. The amount of these taxes varies based on employee income and government-set rates

After all these examples, let’s take a deeper dive into the INSS and how it’s calculated.

How is the INSS charged in the Brazilian payroll?

The INSS, or Brazilian Social Security Administration, is a tribute charged both to the employer and the employee. It’s a contribution to guarantee rights such as the payment of retirement and the main benefits offered by Social Security.

The advantages for the employee: it is guaranteed a monthly benefit after certain conditions have been met, which may involve time spent working or even be the result of an accident at work. In other words, it is through the INSS that workers can guarantee their rights, such as maternity leave, unemployment insurance and retirement.

This contribution occurs through the automatic redirection of a percentage of the worker’s salary in tax profit regimes (lucro presumido e lucro real).

The contribution can also be made voluntarily by anyone and is also compulsory for self-employed professionals and entrepreneurs, provided they meet specific conditions.

Payroll in Brazil

Company Contribution

The company contributes a fixed percentage on the payroll, which varies according to the type of activity and the number of employees. It is common to find a rate up to 20% for companies registered in the tax regimes Lucro Presumido and Lucro Real. For those registered in the Simples Nacional, there is no INSS company contribution.

The calculation basis for the company’s INSS is the total amount of remuneration paid to employees, including salaries, bonuses, commissions and other income.

Employee Contribution

The employee’s contribution is deducted directly from their pay. The rate varies according to the employee’s salary and is progressive: the higher the salary, the higher the rate.

After the gross salary, consult the INSS 2024 table to find out what percentage the company  will have to pay.

 

Employee Contribution Example Table (BRL) Rate (%)  Deductible Portion
until BRL 1.412,00 7,5%
from BRL 1.412,01 to BRL 2.666,68 9,0% 21,18
from BRL 2.666,69 to BRL 4.000,03 12,0% 101,18
from BRL 4.000,04 to BRL 7.786,02 14,0% 181,18

The current payment will assure the following benefits for the employee:

  • Retirement for contribution time;
  • Age and disability pensions;
  • Death pension;
  • Sickness benefit;
  • Accident benefit;
  • Maternity allowance;
  • Family allowance;
  • Professional rehabilitation;
  • Unemployment insurance

Read also: Simplifying accounting in Brazil

What other deductions should be on the payroll?

Alongside with the INSS there are other deductions to consider:

Personal Income tax

Withholding Income Tax (IRRF) is the tax due on an employee’s earnings. It must be calculated and withheld by the source of payment. The company is responsible for making the payment or transferring the amounts to the government.

To calculate IRRF on payroll, it’s necessary to check a monthly contribution table, which contains the rates that must be paid, according to the amount of contribution.

Down payments

The salary advance is made to the employee who requests it, and the amount must be deducted from their paycheck the following month. The deduction also affects deductions from full pay.

However, there are not many rules on advances and it is only mandatory if it is signed in a collective agreement or convention.

Absences and delays

For unjustified absences or delays, the company may deduct the day not worked, as well as the corresponding DSR amount. In addition, if the week in which the absence occurred falls on a public holiday, the employee may have the corresponding day deducted.

Transport vouchers

Transport vouchers are the right of workers who use public transport. In other words, the company must pay the employee’s travel costs from home to work and vice versa.

However, the company has the right to deduct up to 6% of the employee’s basic salary, depending on the cost of the journey. And if it offers free transportation, the company must not offer this benefit.

The total amount of the transport voucher must be entered on the payroll and this amount must be sent on an informational basis.

Food vouchers

As well as not obliging companies to offer this benefit, the legislation does not set a minimum amount for the deduction of food vouchers, meal vouchers and basic food baskets from employees’ payrolls, but the maximum cannot exceed 20% of their salary.

In addition, companies that adhere to the Workers’ Food Program (PAT) are entitled to deduct up to 4% of their employees’ food expenses from their income tax liability.

Benefits for the employee

The employees under the “CLT law”, work under the primary legal framework in Brazil.

When a company hires employees under CLT, employers must adhere to specific rules and regulations. Here are some of the benefits they can access:

13th salary

The Brazilian CLT employee receives a 13th salary every year. If they have worked since January 1st, they are entitled to one month’s salary. 

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, but exceptions may apply.

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.

Read also: FAQ about accounting and tax for international companies in Brazil

Remuneration of “positions of trust” in Brazil

The remuneration of positions of trust (“cargo de confiança”)  in Brazil has some particularities and can vary according to the level of the position, public or private body and specific legislation. However, some common points can be highlighted:

  • The remuneration of positions of trust depends on the collective convention, and it is generally commissioned: it does not follow the same criteria as permanent positions.
  • The occupants of these positions are appointed and dismissed at the discretion of the competent authority, which gives greater flexibility in personnel management.
  • In addition to the regular salary, it is common to receive a bonus for job performance, which can vary according to the position and the complexity of the duties: this bonus must represent at least 40% of the salary.
  • There is no control over the working hours.
  • If there are subordinates who receive a 40% higher salary, there’s no need to receive the 40% bonus.

If your business demands more details on this type of hiring, it’s worth consulting a service specializing in accounting, HR and law in Brazil.

How to calculate payroll correctly?

If your company is planning to hire Brazilian workforce, it’s definitely recommended to count on specialized help in accounting and law.

Facing such a detailed and complex tax system requires the best consultancy: Europartner is the best option for your business.

It’s been over 15 years working along with international companies opening branches or hiring employees in Brazil – it’s a range of adaptable services that you can count on.

Their team is specialized in accounting, law and the administrative needs of international companies seeking to succeed in the Brazilian environment.

Their experts are waiting for your contact: to promptly start this new success partnership.

2 Responses

  1. Hi Rakesh here from Axiom technologies Pty Ltd, Australia.We are looking to hire local employees in Brazil
    Please share us your quote for EOR/ Contract model service for 1-3 employees.

    1. Hello,
      We apologize for the late reply. Is your request still relevant ?
      Thank you for your interest.
      EUROPARTNER

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