Navigating Labor Compliance in Brazil

By Roy Maurer August 5, 2013

Brazil’s economic and political stability, increased levels of consumption, as well as its upgraded infrastructure have transformed it into an increasingly attractive destination for businesses seeking to expand in Latin America.

What many companies don’t know is how challenging it is to successfully establish a presence in Brazil because of its complicated labor laws, according to Randy Gulian, executive vice president and general manager of the Allegis Group, a global human capital and workforce management solutions provider.

Brazil’s largely employee-centric regulations are strictly enforced and have cost many international companies significant money in labor settlements, he said.

“Generally, courts side with the worker in labor disputes, many of which can arise when foreign companies enter the country for the first time unaware of the specific regulations they need to follow,” Gulian wrote in the recently released white paper How to Succeed in the Complex Labor Compliance Environment in Brazil.

“Further, failing to comply with the strict standards of the law can be extremely costly for employers, particularly considering the statute of limitations for which companies can be brought to court over violations of the labor code, which can be up to five years.”

Three Employment Law Areas to Consider

Developing a sound human resource strategy—particularly for permanent hiring, total rewards and dismissal—should be part of any preparations for doing business in Brazil, Gulian advised.

“This is absolutely critical, as Brazil’s employment regulations are markedly different from those of many other countries in this area,” he said.

Total Rewards. Full-time employees in Brazil are paid 13 times a year, receiving one paycheck permonth and a Christmas bonus equivalent to onemonth’s pay. The bonus is paid in part throughout the year, with the rest paid in December.

“Performance bonuses, though not mandatory, represent good practice in Brazil, while companies are required to give vacation bonuses equivalent to at least one-third of an employee’s monthly salary,” Gulian said.

Corporate employers provide private health insurance plans to most Brazilian workers. Unions set a suggested employer contribution toward insurance costs, which generally results in 80 percent coverage, he explained.

Organizations must provide transportation vouchers to compensate employees for their commute; workers must pay up to 6 percent of the vouchers’ cost.

Meal vouchers are regulated by the unions, which are industry specific. If a company provides its employees with a free cafeteria, it can dispense with the meal vouchers.

Termination. There are also several intricacies in Brazil’s labor code regarding employee dismissals, Gulian said. For instance, the employer or the worker must give 30 days’ notice of employment termination, much longer than is required in many other countries. If a company does not want to provide this notice, it must still pay the 30 days’ salary, he added.

The proper proportions of vacation and Christmas bonuses must also be paid to those who are fired unless the dismissal is for just cause. Contract workers are in a separate category and are entitled to receive only what was negotiated with the company upon dismissal.

A business is also on the hook for a portion of a worker’s retirement fund if the individual was fired without just cause. The employer must pay the worker 40 percent of the actual balance of his or her retirement account while owing another 10 percent to the government.

Permanent Hires vs. Contract Workers

Under Brazil’s labor code, temporary employees may be hired only as replacements for workers on vacation or as seasonal workers, and their contracts are limited to 180 days.

Gulian said a recently established company was caught employing approximately 200 temporary workers in positions that the Brazilian government considered to be “core” jobs, meaning those that temporary workers are ineligible for.

Brazil’s Superior Labor Court brought a lawsuit, and, in this example of an unsuccessful market entry, the company was forced to make its temporary workforce permanent and assessed penalties by the government.

“Understanding when and where you can use contract workers and for which types of positions is key, as hiring these individuals without a legitimate reason under Brazilian law can result in steep penalties,” Gulian warned.

Complex Salary Landscape

Designing attractive yet cost-effective expatriate remuneration packages is another increasingly difficult area for companies operating into and out of Brazil, said ECA International, a leader in international employee assignment management.

According to ECA’s National Salary Comparison, senior-level executives in Brazil have some of the highest buying power in the world. A shortage of suitably qualified staff coupled with high inflation has contributed to pushing up salaries for senior employees in Brazil at a faster rate than many of their peers in Europe.

“Intense competition for skills, high inflation and more cosmopolitan workforces are all putting extra pressure on companies in Brazil looking to establish equitable yet attractive pay approaches for their globally mobile staff,” explained Lauren Smith, General Manager ECA International, based in New York.

If an expatriate employee in Brazil sees that their local counterpart’s cash salary is considerably higher than their own they could feel underpaid even though the value of the total rewards package they might receive could change the comparison. Likewise, providing a senior Brazilian with a salary that maintains their purchasing power while on assignment could be extremely expensive, said ECA.

“Attracting and retaining the right talent while remaining cost-effective is a major challenge for companies operating in the region and they need to be fully aware of the complexity when they design their expatriate pay policy,” added Smith.

Roy Maurer is an online editor/manager for SHRM.

Follow him @SHRMRoy

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