Employer of Record in Brazil

**Employment Contract Requirements**: All employment in Brazil must have a written contract following CLT guidelines. The contract must be in Portuguese and specify: job title, duties, salary (base and any allowances separated), benefits, work schedule (typically 44 hours/week, negotiable), vacation policy, and termination clauses. Both parties must sign and the employee must receive a copy. The contract is mandatory and creates an employment relationship immediately upon execution. **FGTS (Fundo de Garantia do Tempo de Serviço)**: This mandatory severance fund requires 8% monthly deposit into an account owned by the employee (deposited with the government, not the employer). The employee can withdraw funds for: purchasing a home, dismissal without just cause, retirement, or certain life emergencies. Example: A developer earning BRL 10,000/month accumulates BRL 80,000 FGTS after 10 months of work. Upon termination without just cause, the employer must also pay an additional 40% of the total FGTS balance (BRL 32,000 in this example) directly to the employee. This is a significant liability that must be budgeted. For a long-term employee earning BRL 20,000/month after 5 years, total FGTS + penalty = BRL 96,000 + BRL 38,400 = BRL 134,400 (~$27,000 USD at current rates). The EOR manages all FGTS calculations and deposits. **13th Salary (Décimo Terceiro)**: Mandatory annual bonus equal to one full month salary, paid by December 20th. It's typically paid in two installments: 50% in November and 50% in December. For employees hired mid-year, the 13th is prorated: (months worked ÷ 12) × monthly salary. Example: An employee hired in July earning BRL 10,000/month receives 6/12 × 10,000 = BRL 5,000 13th salary. At separation before December, if the employee worked 7 months, they receive 7/12 × monthly salary as 13th salary. This is non-negotiable and is one of the strictest requirements. **INSS (Social Security)**: The employer contributes 8-12% depending on the state and payroll structure. São Paulo typically requires 10-12%. The contribution is calculated on salary and remitted monthly to INSS. The employee also contributes 8-11% from their salary (withheld). INSS provides: retirement pension, disability insurance, survivor benefits, and workers compensation. The contribution is mandatory and goes into the national social security system. **Vacation (Férias)**: Employees accrue 30 days minimum per year (mandatory, cannot be reduced). Vacation must be taken in at least one 2-week block annually. Employers can split vacation if agreed, but one block must be 14+ consecutive days. Employees can voluntarily sell up to 10 unused vacation days back to the employer annually (typically 1/3 of daily salary for sold days). At separation, all accrued unused vacation is paid out in full to the employee. Unused vacation cannot be forfeited. **Severance and Termination**: Termination without just cause requires: notice period (typically 30 days from the employer, or paid in lieu) + 1 month salary + pro-rata 13th salary (if not yet paid) + all accrued vacation days (paid in full) + FGTS balance transfer to the employee + 40% FGTS penalty (paid by employer). Total severance for a 2-year employee earning BRL 10,000/month can exceed BRL 50,000. Just cause termination (theft, gross insubordination, willful damage) has no severance, but the employer must prove just cause—this is heavily scrutinized and difficult. The burden of proof is on the employer. **Contractor Classification Risk (PJ vs CLT)**: Brazil's tax authority (Receita Federal) and labor courts aggressively reclassify "PJ" (independent contractor) arrangements as CLT (employment) if they find subordination or regularity. Red flags include: work performed regularly (not episodic), work specified by client, use of client's equipment or tools, work at client's location, economic dependency on that client, and personal performance (cannot be substituted). Misclassification can result in back payments of 8 years of FGTS (8% × salary), 13th salary, vacation, plus penalties of 50-100% of owed amounts and potential criminal liability for the employer. The labor court presumes employment unless the contractor proves independence. Using an EOR avoids this risk entirely. **Payroll Timing**: Salaries must be paid by the 5th business day of the following month (e.g., April salary must be paid by May 5th). FGTS must be deposited by the 7th business day of the following month. Income tax withholding (IRRF) must be filed monthly. All timings are strictly enforced. **Work Schedule and Overtime**: Standard is 44 hours/week (can be negotiated, typically). Hours over 44/week are overtime, paid at time-and-a-half (1.5x) for the first 2 hours over and double time (2x) thereafter. Example: An employee working 50 hours/week has 6 hours overtime: 2 hours at 1.5x and 4 hours at 2x. Overtime must be pre-authorized and recorded meticulously (the EOR tracks this). Employees have the right to refuse excessive overtime beyond legal limits. **Union Requirements**: Some states or sectors have union representation. If the employee's sector has a union, the employer may be required to contribute to union funds (typically 1% of payroll) and follow collective bargaining agreements. The EOR confirms union requirements for the specific state and sector. **State Variations**: Some states have unique requirements. For example, some states require additional contributions (e.g., union dues), different vacation policies, or different tax treatments. The EOR should specify the employee's state of work to ensure full compliance.