Labor Law: What you need to know when doing business in Brazil

Hiring professionals is not simple. It implies having an excellent recruitment and selection process, understanding how to retain talent, and, above all, correctly understanding and complying with labor legislation.  

Companies that come to Brazil need to know about labor rights established in the Consolidation of Labor Laws (CLT), which defined all the norms that govern the models of the employment relationship between companies and their employees. 

Failure to comply with these standards can pose legal problems for the organization and, consequently, for legal representatives. Therefore, understanding, even from a macro perspective, the functioning of labor standards is essential for any business that seeks to establish itself in Brazil. 

See below for more details on how labor regulation works in Brazil.

Labor regulation in Brazil: the CLT – Consolidation of Labor Laws

In force since 1943, the Consolidation of Labor Laws (CLT) is the law that establishes and regulates the norms of labor relations in Brazil. Therefore, Brazilian companies that maintain employment relationships with individuals residing in Brazil, whether of Brazilian origin or not, are subject, upon payment of a specific recurring salary, to follow the rules of the CLT. 

That is, the CLT establishes the functioning of the working day, possibilities, and applicability of overtime, time control, FGTS (Guarantee Fund for Length of Service), individual and collective vacations, leaves, and any other rules applicable to employment contracts. In addition, the CLT also provides for the operation of the Public Ministry of Labor and the Labor Court in possible conflicts of interest and possible penalties. 

We can highlight as the main rules established by the CLT, the following points:

1. Work Card: the Work and Social Security Card (CTPS) is the document that proves the contractual links between a person and a company, recording events such as promotions, vacations, dismissals, and hiring. 

2. Salary: determines the days on which employees must be paid, forms of payment, and constitution of the minimum wage. 

3. Working hours: the CLT defines that the limit of hours worked must not be greater than 44 hours per week, or 220 hours per month. The CLT also determines the operation of overtime, in addition to specifying the calculation for payment of these hours (in general, the value of overtime corresponds to 50% of the normal hour worked). 

4. Night: pay establishes an increase in remuneration for activities carried out between 10 pm and 5 am the following day.  

5. Rest period: determines the rest period between two consecutive workdays (at least 11 hours of duration), in addition to the weekly paid rest period – it is 24 hours in a row and must occur every 7 days worked. 

6. Annual vacation: determines that after 1 year of service, the employee is entitled to 30 days of paid vacation. The rest period can be divided into up to 2 times, as long as none of them are less than 10 consecutive days.  

7. 13th salary: this is a mandatory annual bonus that can be paid in two installments, the first between February and November and the second until December 20th. 

8. Maternity and paternity leave: granted to women close to having a child, it implies a leave of at least 120 days. For men, a period of 5 days of leave is legally granted, which can be extended for another 15 days. 

9. Food and transport: stamps food stamps are not a mandatory benefit. However, the law says that its value cannot exceed 20% of the employee’s salary. The transportation voucher, on the other hand, is a mandatory benefit and must be made available in advance, ensuring transport from your home to the workplace, and vice versa. 

10. Accident at work: CLT says that work accidents occur while carrying out an activity at the service of the company and that they cause bodily harm. For these cases, CLT says that the contracting party is obliged to repair the damage caused. 

11. Absences from work: establishes situations in which an employee can be absent without economic losses. It also determines the number of days an employee can be absent according to different scenarios (marriage, death of spouses, illnesses, etc.). 

12. Unemployment insurance: is a monthly amount made available for a pre-established period to professionals who leave a company.

In this context, and strictly following the Federal Constitution of Brazil, the CLT aims to protect workers and reduce inequality of rights between employers and employees.

Types of contract contemplated in the CLT: 

The CLT currently contemplates formats that imply different categories of employment relationships. Check which are:

1. Effective contract for an indefinite period: 

As governed by article No. 452 of the CLT, the provision of services is carried out in a continuous and subordinate manner and implies a series of labor rights (which we will see later) such as vacations, 13th salary, and other benefits. In addition, this contracting model has a margin for variations such as bonuses, discounts on absences, commissions, etc. 

2. Temporary contract: 

In 2017, the legislation underwent changes that explained the working model under a transitional regime. That is, both the professional and the employer know how long the employment relationship will last. Temporary work contracts do not exceed 180 days in duration. 

3. Part-Time Work  

Contracts for part-time work are those that do not exceed a weekly workload of 30 hours or even those that do not exceed a weekly workload of 26 hours with the possibility of adding 6 additional hours per week. 

4. Contract for a fixed term 

This model only occurs when the company hires employees for the purpose of carrying out activities of a transitory nature, and which do not justify the maintenance of employees after they have been carried out. The extension can occur only once, having a maximum duration of two years.  

Once the term expires or the extension becomes necessary for the second time, automatically, the bond becomes effective as an effective contract for an indefinite period. 

5. Telework or home office 

Popularly known as a home office, telework comprises the provision of services through information technologies outside the employer’s premises as telework. 

6. Intermittent Contract 

For intermittent contracts, the employee will work only when requested, as long as communicated at least three days in advance. 

7. Young Apprentice 

With a maximum duration of 2 years, the young apprentice category inserts young people between 14 and 24 years old into the labor market, as long as they are enrolled in any institution offering a technical or equal course. The working day cannot exceed 6 hours a day and the apprentice has labor rights such as 13th salary and FGTS. 

8. Internship 

There is no specific age to be an intern. However, in order to carry out this type of employment contract, the professional must also maintain a relationship with some educational institution at a technical or higher level. The working day can be between 4 and 6 hours a day, without interfering with academic hours. 

9. Contrato Verde e Amarelo 

Created in November 2019, to benefit young people between 18 and 24 years old, the Contrato Verde e Amarelo can last up to 24 months and provides, in addition to CLT rights for the employee, tax benefits for contracting companies. 

10. Contract with a self-employed person 

There is no employment relationship here. Therefore, the hired professional is responsible for the relationship with his or her employer, having no level of subordination. Remuneration does not meet established salary levels and remuneration occurs through the issuance of a Receipt of Payment from an autonomous RPA.

The Remuneration Structure

In Brazil, remuneration can be described as the set of values ​​that an employee receives during their relationship with a company. In addition to salary, companies have adopted different compensation categories as a competitive market strategy (study benefits, health, profit sharing, etc.) to attract and retain highly qualified professionals.  

But, in addition to that, there is also a set of information related to remuneration that is composed, in addition to competitive strategy measures, by a set of legal obligations and established by Collective Labor Convention – formalized by labor unions.

1. Monthly Salary: defined by the management of positions and salaries, the company establishes, based on market research, for example, a salary plan where the remuneration is consistent with the professional’s position. In Brazil, salary differences are allowed between employees with the same position and having a difference of two consecutive years in the period of admission. 

The monthly salary can include overtime, nighttime pay or bonuses. They can also, according to legislation and rules established by the unions of the category, suffer variations due to expenses with commuting to work, daily meals during working hours. 

With regard to compensation adjustments, employers are not authorized to make deductions from the initially agreed amounts, except for those arising from legal agreements, or for social security contributions, or those pertaining to the payroll. As for the mandatory annual adjustments, these follow the determinations defined in the Collective Bargaining Agreement of each union responsible for the company’s area of ​​operation. 

Finally, at the end of each year, the employer must pay employees a bonus (13th salary). This is equivalent to the monthly salary divided by the 12 months of the year and multiplied by the number of months worked by the professional. 

2. Pay during vacation 

All employees are entitled to a paid annual vacation of 30 days after the 12-month period – from the date of admission. These must be exercised within the next 12 months. 

The remuneration for the vacation period is equivalent to the value of 1 full monthly salary added to another ⅓ of the monthly remuneration as a bonus provided for by law. 

3. Indirect or non-mandatory 

benefits These are benefits that companies voluntarily offer their employees. They can consist of: medical assistance, food, life insurance and policy, and even loans. 

Some companies offer profit sharing, distributing part of the annual net income to professionals. This is a benefit that, when granted, must meet specific legislation requirements. 

There are numerous other benefit models, ranging from bonuses through company share quotas, or incentives to qualification and studies.

Payroll Taxes and Contributions

Currently, Brazilian labor law states that employee earnings constitute a taxable and taxable basis for taxes and social contributions, which must be borne by the employer. The main social security taxes and contributions applicable on the payroll are:

1. Contribution to Social Security (INSS – National Institute of Social Security): These monthly contributions to social security correspond to rates that vary according to the professional’s gross salary range, ranging from 7.5% to 14%.

In addition, there are rates corresponding to insurance against accidents at work, also paid by employers (between 0.5% and 0.6%), contributions to government agencies (FNDE, SESC, SESI) which can reach up to 6%.

2. Income Tax (IRRF – Imposto de Renda Recolhido na Fonte): employers are also responsible for withholding and paying income tax, which also has progressive rates between 7.5% and 27% per month. 

3. Guarantee Fund (FGTS – Severance Indemnity Fund for Employees): monthly, deposits referring to the Severance Indemnity Fund must be paid by employers. Late payments incur interest and a penalty. The rate corresponds to 8% of the employees’ monthly salary.

Dismissals

CLT does not ask for prior approval to terminate a professional, unless your company, for some reason, plans a mass dismissal. Therefore, there must be a prior negotiation with the unions of your company’s category. 

Dismissals in Brazil have 4 different formats. Check out the main categories in force below:

1. Dismissal for just cause: occurs when the employee commits serious acts (improperly, insubordination or indiscipline, criminal conviction, bad procedure, or drunkenness while on duty) that justify it. In this context, the employee loses part of his labor rights, receiving only the balance of his salary, any vacations due plus ⅓ of the allowance. 

2. Dismissal without just cause: it is applicable when the employer is no longer interested in providing the employee’s services. This is the form in which the employee receives a series of rights: 

3. Dismissal request from the employee: it is applicable when the employee, for any reason, wishes to terminate the employment relationship with the company. Here, it only implies the receipt of balances pertaining to the days worked and proportional vacations. Professionals do not have access to their FGTS and unemployment insurance balance. 

4. Consensual termination: in this dismissal process, there is an agreement between the professional and the company, where the employee receives their rights with some specific conditions relating to the unfair dismissal process – FGTS fine paid by the employee drops from 40% to 20% and access to the guarantee fund balance is limited to 80% of the total amount. In addition, the professional does not have access to unemployment insurance.

Regarding employment relationships with foreigners 

In Brazil, foreigners can work regularly as long as they have a visa with a work permit. The work visa is granted to the immigrant who comes to carry out activities with or without an employment relationship in Brazil, as long as he can prove the offer of work formalized by a Brazilian company. If the immigrant holds a degree in higher education related to Brazilian institutions, the proof of employment offer is waived. 

In addition, companies residing in Brazil that hire foreign professionals must necessarily have ⅔ of their team composed of Brazilians, and only ⅓ of the available vacancies can be filled by immigrants.

Unions 

In Brazil, unions are autonomous institutions that can be founded without prior authorization from the State (although the government may interfere in union organization) and must be registered. The Constitution also governs the value of union contribution according to the category. Contribution amounts are deducted from the payroll and are used to fund the Confederate system of union representation. 

The contribution discount amount is equivalent to 1 working day and must occur in March of each year. The collection is carried out through the Urban Union Contribution Collection Guide.  

However, it is important to emphasize that the changes brought about by the Labor Reform determine that employers must deduct a relevant amount from the union contribution to their employees’ payroll, provided that it is previously authorized by the professionals.

Comparing labor laws: Brazil and USA  

There are numerous differences between the way in which the laws of Brazil and the United States deal with labor relations. Issues such as employment relationships or even those related to the remuneration and vacation model are different.   

In the US, while labor legislation is governed by the FLSA (Fair Labor Standards Act), created in 1938 – Parallel to the CLT, here in Brazil. It sets out minimum pay, overtime rules, minimum working age. Its coverage is applicable to the private sector at the Federal, State, and municipal levels. However, states are empowered to create specific labor laws.  

We list below the main differences between work in Brazil and the US:

	Brazil	United States
Work card and employment contract	It has a document of national validity and which guarantees access to the main labor rights.	The US does not have a work history record. Even with the Fair Labor Standards Act (FLSA) regulating labor relations, contracts govern the relationship between company and professional.
Workday	The labor legislation establishes, except in special cases, that the normal working day is 8 (eight) hours a day and 44 (forty-four) hours a week. Professionals can provide up to two extra hours of work per day through individual agreement, convention, or collective agreement.	In the US, the weekly workload is 40 hours, limited to 8 hours a day. Every professional working in the US is entitled to overtime paid at an amount of 150% of the hour. There is also no distinction between days of the week, with hours having the same value even if the work activity takes place on weekends or holidays.
Unions	Brazil has more than 16 thousand union entities, and they play a fundamental role in representing their members and defending labor rights.	US union regulation is governed by the National Labor Relations Act (NLRA), where workers decide whether they want to be represented by the entity or not. Having a much smaller volume of unions, if compared to Brazil, the USA has less intervention from entities and more flexibility in the relationship between employee and employer.
Vacation	The CLT establishes that every professional has the right to a period of 30 days of paid rest, with the addition of additional ones.	The US labor law does not provide for a 30-day vacation, and companies are responsible for establishing their own rules on the matter. Furthermore, the vacation model is commonly established in employment contracts.
Layoffs	CLT determines different shutdown formats. Each one has its specificity and payment of fines and acquisitive balances related to vacation, 13th salary, among others.	US labor laws do not rely on advance notice, guarantee fund or other indemnities (unless the company has proven wrongdoing).
Wage	In Brazil, remuneration is paid monthly, and at least the minimum wage (adjusted annually by the Federal Government of Brazil) must be met. Payment is made monthly, and I can count on an advance of up to 40% during the month.	The minimum wage in the US is set at $7.25. However, through bonuses (tips and commissions), it is possible that, in a contract, the value/hour is lower than the federal minimum. Payment takes place monthly, weekly or biweekly. In addition, contracts can also be established with a total annual value, not linked to working hours.
13th salary	The thirteenth salary, mandatory in Brazil, guarantees that the worker receives the equivalent of 1/12 of the salary per month of service, that is, an extra salary at the end of each year (for each month worked).	There are no 13th salaries in the US. However, it is common for companies to pay bonuses to their professionals at the end of the years, with values defined by the employer, without any legal obligation.