New Reporting Requirements in Brazil to Hugely Impact HR


By Roy Maurer June 27, 2014

The collection of employees’ tax, social security and labor information and the reporting of that information to the government is undergoing a significant transformation in Brazil, leaving employers operating in the country a closing window to ensure the information they have is ready for transmission.

The Brazilian government’s ambitious recordkeeping transformation project, known as eSocial, aims to streamline the transmission of employment-related data to various federal government institutions, including the internal revenue service, the social security institute, the labor and employment ministry and the government bank that manages the national employee savings fund system.

“We do not know the implementation dates yet, because it will depend on when the guidelines will be published,” said Renata Neeser, a shareholder at Littler Mendelson, based in New York City. Neeser explained that eSocial reporting will go live for large and midsize employers (those with revenues of over $3.6 million reais in 2014) one year after the government issues final guidelines. The publication date for the guidelines is still uncertain, she said. No timeline for small employers has been published.

“This will have a major impact on multinationals working in Brazil,” said Maricleier Rennie, global payroll solutions manager for CloudPay, a provider of multinational payroll technologies and services. All employers will eventually be required to use eSocial, “bringing great alterations in comparison with the present system,” she said.

Some of these changes include:

  • Centralizing obligatory labor, social security and tax information into a single database and furnishing various government agencies with that information.
  • Integrating company data into a single system and enabling online transmission of that data, eliminating dozens of paper forms.
  • Standardizing and integrating employment records of individuals and corporations.

Employers will be required to report specific data related to the employment relationship, including information relating to hiring, compensation, working hours, leaves, contract modification, accident notification, social security payments and contributions, and termination.

Some of the major goals of the eSocial initiative include decreasing insolvency, tax evasion and fraud; increasing the ability of the government to inspect employment records; creating a single point of reference for employees and employers to monitor tax and labor obligation information; and reducing bureaucratic costs for employers who “today produce about 70 different forms for the government,” Rennie said.

“It’s a huge transformation, but, in the long term, it will be very positive for business in Brazil,” said Marcelo Godinho, a Sao Paulo-based director at Ernst & Young. Godinho explained that, once companies invest in the technology and get past the learning curve, businesses will experience cost reductions from less time and energy consumption filling out paperwork the old-fashioned way. “The new obligation is a very good opportunity to reduce the bureaucracy in Brazil,” he said. “One company in Brazil spends on average 2,600 hours a year to fulfill obligations just to the tax revenue service. If we reduce the time spent filling out forms, that’s a great benefit to HR.”

There is no legislative change to the existing employment, tax and social security laws, reminded Marco Santana, a director at Towers Watson who is based in Sao Paulo. “No additional duties will be imposed on employers,” he said. What is changing is the way information on employees is collected and communicated to government departments. “The new portal will fundamentally change employer interactions with government agencies simply by facilitating reporting requirements and making it easier for the government to ensure compliance,” he said. Provided the system works as intended, it has the potential to give the government something closer to real-time intelligence on labor markets, he added. Employers will benefit from simplified administration and more data on various aspects of their own operations’ human capital metrics, Santana said, although there will be administration and operations costs and the need to adapt company culture to this new level of transparency.

eSocial will not only affect the technological operation of human resources, but it will greatly affect the management culture of the company, said Lelio Tocchio, an attorney and director of HR for the Rhind Group, a consultancy based in Sao Paulo. “Information that presently is not routinely registered will be required, procedures for admitting new employees and records of working hours that are not completely compliant with the law should be changed, new information and records in relation to health and safety will be adopted, and ultimately the responsibility of the company in respect of people management will be total,” he said.

The government has said that eSocial is being designed to simplify and expedite the processing of information by eliminating duplicated information and forms. However, it will also allow inspection agencies to monitor and audit employers, said Neeser. Employers should improve the quality and accuracy of the information provided to avoid penalties, she added.

Rennie agreed, saying that going forward all employment activities will be open for inspection. “Government audits will no longer be conducted in person, unless you’re under investigation. They will be done electronically, and much more frequently than they are today,” she said. “It is important to point out that failure to comply with obligations will automatically generate hefty fines.”

How Should Employers Prepare for eSocial?

To ensure readiness for eSocial’s go-live date, employers should immediately:

  • Validate current employee information. “Employers should develop a project plan for the implementation and maintenance of eSocial, starting with a review of their employment files and labor practices, and correction of any mistakes or discrepancies,” said Neeser.
  • Coordinate the internal collection and transmission of information. Employers should determine internally how separate departments such as HR and finance will coordinate the collection and transmission of information, and which department head will lead the efforts, said Neeser. “Small employers may delegate their recording and reporting obligations under the eSocial system to their payroll providers and accountants, but should implement mechanisms to review and assess the service to reduce the risk of mistakes that may lead to unwarranted audits and potential fines,” she said.

Employment information will be loaded and transmitted almost immediately after work history events such as being hired, getting approved for a raise or submitting a leave request, whereas payroll and social security information will be transmitted on a recurring monthly basis. But take care with entering information, because “the labor and payroll info will be matched up to make sure they complement each other at the end of every payroll period,” said Rennie. “If they don’t match, you will be penalized.”

Roy Maurer is an online editor/manager for SHRM.

Follow him at @SHRMRoy

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