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Labor legislation in Brazil : what’s the Pro-Labore about ?Posted 01/10/2020
Pro-labore and salary are terms that are often confused, but have different meanings in the context of a company. One is aimed at the managing partners of the business, while the other is related to employees. As experts on the brazilian market, we know that the subject can be a little confusing, so we wrote a short guide that should help you understand the difference between these two essential notions of the brazilian labor market and the legislation in Brazil.
You’re planning to start a new business in Brazil and need advice to optimize the launching and management of your activity ? Feel free to contact our team of experts on the brazilian labour market.
What’s the “Pro-labore” about ?
The term pro-labore means, in Latin, “for work” and corresponds to the remuneration of an administrator for his work in the company. It refers to the remuneration of members for administrative activities, being optional and different from the distribution of profits or dividends.
Within the social contract of a company there is the figure of the administrator, who can be just one person among the partners or even all the partners.
From the perspective of Brazilian labor laws, pro-labor is very different from what is called wages. There are no mandatory rules on it regarding the 13th salary, the Severance Pay Fund (FGTS), vacation etc.
In this case, all so-called labor benefits are optional, intermediated through an agreement between the company and the administrator.
For example: both can establish in a contract that the administrator receives the vacation, but does not earn a 13th salary.
What is the exact difference between pro-labore and salary ?
Although similar, there are important differences. While pro-labor is paid to partners for administrative work and is not governed by labor laws, the salary is paid to other employees of a company and must be under the Consolidation of Labor Laws (CLT) .
For example, members who receive pro-labore status may not receive 13th salary or have no vacation, in contrast with employees.
The big difference between the two types of remuneration is flexibility and assignments.
Pro-labore is a flexible remuneration. However, only for partners of the company. Salary is a remuneration more linked to market variations and is subject to labor laws.
How to determine the withdrawal of managers’ pro-labore ?
Within labor law, pro-labor is organized differently from a salary. In order to arrive at the exact amount for the company’s managers, we can make this comparison.
After all, how much would you pay for an employee to perform all the functions that your company’s administrator does?
As soon as you define your answer, it will reach the amount of withdrawal from pro-labore. In the law there is no definition of a minimum amount, but as a basis we can take the INSS table that defines the minimum and maximum ceilings for collection. Hereby, the minimum ceiling is one minimum wage.
If your company already has employees, it makes sense to stipulate a withdrawal amount higher than that of your employees, as this factor is used as a basis for inspection to check if there is any divergence in the pro-labore.
Having said that, don’t forget that specific taxes are levied on the pro-labore, which, depending on the company’s tax regime, can be very high.
In general, 11% of INSS is retained, but this amount may increase if the company opts for Presumed Profit or Real Profit, or even if the partner has a formal contract or is a manager at another company.
The administrator appointed in the company’s articles of association is required to pay Social Security. The company that does not record the amount of the pro-labore paid to the administrator within its accounting can be arbitrated by a revenue inspector and consequently obliged to pay an amount related to the INSS.
However, the issuance of pro-labore starts to be valid from the first month that the company registers invoicing in its accounting. For example: if the company opened in July 2013 and the first invoice was issued in September, the issue of pro-labore should start from September and stop only if the company is inactive.
What is Pro-Labore Income Proof ?
As it differs from the employee’s salary, the entrepreneur does not receive a paycheck. Thus, if the owner or partner of the company needs to prove income or contribution to the INSS, the accountant needs to issue a declaration of pro-labore as proof.
Any question about creating the legislation in Brazil and new business in Brazil? Need administrative or financial support to set-up and launch your local or international activity ? Our customer advisors will deal with you personally and give you exactly the right advice about the legislation in Brazil for your needs.Author's post: Europartner Accounting