Brazil’s enormous consumer base, highly skilled talent pool, and open attitude to foreign investment make it an ideal market for global companies.
However, navigating Brazil’s complex payroll tax regulations on your own as you build a distributed workforce in the country exposes you to fines, litigation, and other noncompliance penalties.
Fortunately, with a little due diligence, global companies can minimize risk while hiring and paying top Brazilian talent from anywhere in the world—even without a local entity.
Read on for a breakdown of Brazil’s payroll tax regulations. Find a list of mandatory payroll taxes, get step-by-step instructions on how to set up local payroll, and learn how to compliantly run payroll for a distributed workforce in the country.
Mandatory payroll taxes and contributions in Brazil
Mandatory federal payroll taxes and contributions in Brazil include Social Security (INSS), a pension fund (FGTS), work accident insurance (RAT), and social assistance.
Additional mandatory payroll contributions include a 13th-month salary, payable to all employees who have worked for their employer for at least 12 months, and a vacation bonus worth one-third of the employee’s standard monthly earnings.
Employers must also comply with applicable CBA-mandated contributions, such as life insurance or meal vouchers, and deduct and remit federal income taxes on employee gross earnings.
We discuss each of Brazil’s mandatory payroll taxes and contributions in detail below.
Social security (INSS)
Brazil’s social security fund, the Instituto Nacional do Seguro Social (INSS), provides income support for retired, ill, and disabled individuals. INSS also provides benefits for dependents of employees who have passed away.
The employer contribution rate is usually around 20%, although companies in some sectors, such as clothing manufacturing and textiles, have additional obligations that add 1% or 2% to that rate. Employers in other sectors, such as IT, calculate their social security obligation based on net revenue instead of payroll.
The INSS tax rate for private sector employees ranges from 7.5% to 14%, depending on the employee’s income bracket, and is capped at R$828.38. The table below lists INSS income brackets:
|R$0 to R$1,212
|R$1,212.01 to R$2,427.35
|R$2,427.36 to R$3,641.03
|R$3,641.04 to R$7,087.22
Public sector employees are subject to additional INSS tax brackets, the highest of which is 22%, which starts at a monthly income of R$50,140.33.
The FGTS fund (Fundo de Garantia do Tempo de Serviço) is an employer-only contribution that provides severance payments to employees whose employers terminate them without just cause. The severance payment amounts to 40% of the employee’s accumulated FGTS funds, which goes to the dismissed employee.
Funds in this account can also serve as an additional retirement benefit for qualifying employees.
Employers contribute 8%, calculated as a percentage of the employee’s base monthly earnings, including 13th-month salary, overtime, holiday pay, and vacation bonus when applicable.
Work accident insurance (RAT)
RAT (Riscos Ambientais do Trabalho) is an employer-only contribution that provides financial support for individuals who are injured or become ill due to a workplace accident.
The employer contribution rate usually ranges from 1% to 3%, depending on the risk level of the company’s main activity. However, companies in exceptionally high-risk industries, like the chemical, biological, and manufacturing sectors, must pay an additional contribution of up to 12%.
Brazil’s social assistance scheme, called System S, includes multiple programs focused on improving employee qualifications and training to reduce unemployment and provide opportunities for marginalized groups across the country.
System S has established a network of schools, laboratories, and technology centers throughout Brazil, offering free and low-cost courses in critical areas of industry, ranging from commerce and agriculture to transportation and cooperatives.
This scheme includes many programs going by various acronyms starting with the letter “s,” such as SENAR, SENAC, SESC, SENAI, and SESI—hence the name System S. Employers contribute to different programs depending on their industry, with total contributions usually ranging from 5% to 6% of payroll.
Employee income taxes
Any company that hires employees in Brazil must deduct and remit income taxes from employee gross earnings on their employees’ behalf.
Income taxes finance a different set of public services than most payroll taxes. While payroll taxes fund things like healthcare and pensions, income taxes finance general public services, like road maintenance, fire services, and education.
Brazil has a progressive income tax that ranges from 0% to 27.5% for all employees liable to taxation. The table below lists Brazil’s federal income tax brackets and their rates:
|R$0 to R$1,903.98
|R$1,903.99 to R$2,826.65
|R$2,826.66 to R$3,751.05
|R$3,751.06 to R$4,664.68
|R$4,664.69 and over
Additional payroll contributions in Brazil
In addition to the above payroll taxes and contributions, employers in Brazil must offer employees a 13th-month salary and vacation bonus and comply with applicable CBA-mandated contributions.
Every employee in Brazil who has worked for their employer for a year is entitled to an additional annual salary, called 13th-month pay.
Employees who work all 12 months of the year receive a full salary, while employees who onboarded after the first of the year are entitled to a pro-rated 13th-month salary proportionate to the number of months they have worked throughout the year.
Employers usually pay the 13th-month salary in two installments. They must pay the first installment by November 30 and the second installment by December 20.
Learn more in our guide to 13th-month pay.
In addition to offering 30 days of paid annual vacation, employers must give employees vacation pay at 8.33% of the employee’s gross monthly salary. Employers must also pay employees an additional vacation bonus worth one-third of their vacation pay.
Terminated employees are entitled to a pro-rated vacation bonus proportionate to the time they have worked for their employer throughout the year.
Most companies in Brazil are subject to collective bargaining agreements, or CBAs, which mandate additional contributions and benefits to employees beyond the statutory federal minimums.
CBA-mandated contributions can range from supplementary healthcare, life insurance, and pension plans to fringe benefits like meal, grocery, and transportation vouchers, which are especially important for lower-income employees.
How is payroll tax calculated in Brazil?
To calculate payroll taxes in Brazil, start by determining your employees’ gross monthly earnings. Next, calculate employer and employee payroll tax liability for INSS, FGTS, RAT, social assistance, and employee income taxes as specified percentages of the employee’s gross earnings.
When building a distributed workforce in Brazil, remember to factor payroll taxes and contributions into your total employee cost calculations.
Interested in hiring an employee in Brazil? Use our employee cost calculator below to accurately calculate payroll contributions and annual costs for your talent in Brazil.
Key elements of payroll in Brazil
Global companies that hire employees in Brazil or do business in the country should familiarize themselves with the key elements of local payroll to avoid fines, limited business opportunities, and other noncompliance penalties when running payroll for their local team.
Key aspects of Brazilian payroll include but are not limited to the following:
- Fiscal year. Brazil’s fiscal year is from January 1 through December 31.
- Payroll cycle. The payroll cycle in Brazil is monthly, with employers paying wages on the last workday of the month. However, employers can pay wages twice monthly if an employee agrees to these terms in their work contract.
- Minimum wage. The minimum wage in Brazil in 2023 is R$1,302 per month.
- Overtime. A standard workweek in Brazil is eight hours daily, Monday to Friday, plus four hours on Saturday for a maximum of 44 hours. For any additional hours an employee works, they are entitled to at least 150% of their regular wage or 200% on holidays and weekends (percentages may change per CBA).
- Termination. For termination without just cause, employers must give at least a 30-day notice, plus three days for each year of the employee’s service up to 90 days maximum (one year equates to 30 days of notice, two years equates to 33 days of notice, etc.). CBAs may mandate longer notice periods.
- Severance. In case of termination without just cause, employers must pay the employee 40% of the total sum of the employee’s FGTS account, plus a salary balance, a pro-rated 13th-month salary, accrued and unused vacation pay, and a pro-rated vacation bonus.
- Annual leave. All employees in Brazil who have worked for their employer for at least 12 months are entitled to 30 days of paid annual leave.
- Maternity leave. Employed mothers have the right to 120 calendar days of maternity leave. Under certain circumstances given by law, these periods may be expanded. The employee may also choose to start their leave before their due date.
- Paternity leave. Fathers are entitled to five days of paid paternity leave.
- Adoption leave. Mothers are entitled to 120 days of paid adoption leave if the child is under 12 years old. If a couple adopts a child, only one person is entitled to the leave.
- Sick leave. Employees are entitled to at least 15 days of company-paid sick leave. From the 16th day onward, the INSS covers the leave payment. Employees have no limitation for sick leave and can take as many days as they need.
How to set up payroll in Brazil
The process for setting up and administering payroll for a distributed workforce in Brazil varies, depending on individual circumstances. However, the following steps provide a general outline for setting up payroll in the country:
- Register a local entity. Gather notarized documents, file articles of incorporation, register with the local state where your business is located, and register with the Social Security Institute (INSS).
- Register with the eSocial system. Set up an account with the eSocial system, which allows you to transmit employee and employer data to the federal government and file tax and social security reporting.
- Set up a local bank account. Set up a local bank account to issue payments to employees and authorities.
- Establish your payroll process. Set up a structured payroll process to help ensure compliance and reduce errors. Clarify your payment schedule, correctly classify workers, and establish payment methods.
- Determine salaries and ensure compliance. Determine employee salaries and clarify employer and employee payroll tax liabilities. Ensure your work contracts and payroll procedures comply with local payroll regulations and relevant CBA mandates, satisfying things like minimum wage requirements, paid leave entitlements, and notice periods.
- Calculate your tax liability and pay employees. Calculate taxes and contributions as specified percentages of employees’ gross monthly earnings. Withhold and remit employee taxes, submit employer contributions, and provide payslips to employees specifying their net earnings and deductions.
- Register new employees. File an electronic hiring notification via the eSocial system and register new hires with the Ministry of Labor, the IRS, and applicable labor unions to compliantly incorporate them into your payroll cycle.
Payroll options for employers in Brazil
When administering payroll for a distributed workforce in Brazil, most global companies use one of the following methods: internal payroll administration, local payroll outsourcing, and global payroll outsourcing.
We discuss each method in detail below.
If your company has a Brazilian entity, one option is to source local talent and build in-house finance teams to administer payroll internally for your local workforce.
While this approach gives you complete control over payroll administration, it also leaves you fully responsible for navigating Brazil’s complex tax and labor regulations, creating a serious payroll compliance risk.
To avoid potential fines, litigation, and other penalties, consider seeking proper legal counsel.
Local payroll outsourcing
If the idea of handing payroll over to a third party sounds appealing, consider local payroll outsourcing—another option for companies with Brazilian entities. With this approach, a local payroll provider handles everything from calculations to payments and filings on your behalf.
While local payroll outsourcing lightens your workload, allowing you to spend less time on HR tasks and more time overseeing your team’s day-to-day responsibilities, it also limits visibility into the payroll process, making it difficult to resolve payment errors and delays.
Plus, local payroll outsourcing offers limited scalability. If you plan on hiring and paying talent in multiple countries, you’ll be forced to partner with multiple payroll providers in each country, further siloing your payroll information, decreasing visibility, and creating operational inefficiencies.
Global payroll outsourcing
To streamline payroll administration, maintain scalability, and ensure compliance without increasing your workload, consider outsourcing payroll to a global payroll partner.
A global payroll partner is a third-party entity with expertise in payroll and tax laws worldwide, including in Brazil, that administers payroll for your international employees on your behalf.
By coordinating with local payroll vendors worldwide, a global payroll partner ensures compliance with local tax and employment regulations. Plus, by consolidating payroll into a single management platform that seamlessly integrates with your existing HR stack, a global payroll partner reduces errors and delays while maintaining transparency.
How to administer payroll in Brazil before entity establishment
To hire employees in Brazil, global companies must establish a local entity in the country. This is a major obstacle if you aren’t ready to make long-term investments in the local market. A simple solution is to partner with an employer of record (EOR).
An EOR is a third-party organization that acts as the legal employer of your international workforce, allowing you to quickly and compliantly hire and pay talent worldwide without first undergoing entity establishment.
Even if you’re already establishing an entity in your target market, partnering with an EOR while undergoing incorporation allows you to engage local talent within weeks, instead of waiting months or years.
With expertise in international payroll and tax regulations, an EOR serves as your global HR team, compliantly onboarding new hires and running timely and accurate payroll on your behalf, no matter what stage of expansion you’re in.
In addition to running global payroll, an EOR also handles things like talent onboarding, relocation, immigration, and global benefits administration, making it easy for global companies to build an international team and expand operations across multiple countries.
Learn more: What Is an Employer of Record (EOR)?
Simplify payroll and taxes in Brazil with Velocity Global
Don’t let the complexities of running payroll in Brazil stop you from engaging top local talent and building your dream team in the country. With the right partner, hiring and paying employees in Brazil is easy.
Velocity Global’s EOR solution makes it simple for global companies to hire and pay talent in 185 countries, including Brazil, without establishing local entities or risking noncompliance.
Our solution streamlines payroll administration for supported employees in Brazil and beyond by consolidating payroll into one workforce management platform. We provide quick, accurate, and compliant payroll and reporting for your distributed workforce while ensuring transparency and scalability as your team grows.
Lean on us to hire, pay, and manage your employees in Brazil so you can build a distributed workforce in the country with ease.
Contact Velocity Global today to get started.
Disclaimer: This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. You should contact your attorney or tax advisor to obtain legal and/or tax advice with respect to your particular situation. Only your individual attorney or tax advisor can provide assurances that this information—and your interpretation of it—is applicable or appropriate to your specific situation. All liability with respect to actions taken or not taken based on this information is hereby expressly disclaimed. All content is provided "as is," and Velocity Global makes no representations or warranties concerning this information.