This article outlines the social services and contributions comprised in the Brazilian payroll tax.
In Brazil, many additional costs must be calculated or estimated in addition to the liquid salary in order to know the real extent of the cost of labor. Certain charges are determined by law as a fixed percentage of the payroll. However, most have to be calculated from estimates of the number of days actually worked to the fertility rate, accidents at work, etc.
Brazil is a country with a high tax burden and a complex tax system. There are Federal, State and Municipal taxes on a company’s operations, as well as social security and labor charges. Payroll tax is part of the country’s taxation system and it is a monthly obligation for collecting social security and other mandatory contributions levied on payroll.
Social Security corresponds to the government’s responsibility for management of the Brazilian retirement system. It must be paid by employers and employees according to the law. The taxes applied to both are different in some ways. For example, the employee has a limit established by the law that is review every year by the Brazilian Social Security Office.
There is no cap on the contribution by employers because the calculation over the tax is based on the total compensation paid to the employee. The compensation paid every month to the employee includes the monthly earnings, the vacation pay, overtime and others additional bonuses or allowances paid.
The Employers contribution can be divided in three parts:
- Employer’s Contribution
- Working Accident Contribution
- Other Entities Contribution
INSS is the Instituto Nacional do Seguro Nacional, which is the National Institute of Social Security. The institution is responsible for collecting contributions that will be designated for retirement, death benefits, sick leave, incident assistance, and other benefits designated by law. The total of these main social security contributions is equivalent to approximately a rate of 25.8% to 28.8% of the company’s earnings.
FGTS is the Fundo de Garantia por Tempo de Serviço which is the Employee Indemnity Guarantee Fund and an employee compulsory fund. All Companies are obligated to deposit the FGTS contribution into their employers account by the 7th day of the month. The tax corresponds to an 8% rate on top of the gross salary.
The contribution of FGTS is mandatory even in cases of contract interruption and the law requires the following:
- illness assistance/aid for a maximum of 15 days
- during any period of absence due to workplace accidents
- maternity leave
- paternity leave
The Risco de Acidente do Trabalho, also known as RAT, which is the Labor Accident Risk, is an exclusive compulsory company payroll contribution instituted by law. It refers to the coverage of the consequences and expenses workplace accidents. The rate applied on payroll ranges from 1% to 3% as follows:
- 1% rate is taxed over companies in which the risk of labor accident is considered low.
- 2% rate is charged on companies that presents a medium risk of labor accident.
- 3% rate is applied on companies presenting a high risk of labor accidents.
Social Assistance is a contribution to fund several government or private services that qualify such as education and employee assistance. It is equivalent to 5.8% of payroll. The following institutions are beneficiaries of this type of tax:
By the end of the year, a company needs to pay an extra month’s salary, which is the Christmas Bonus, to each employee. In the case where the employee has been working less than a year in the company, the payment is proportional to the months he has worked.
For every year worked, the employee is entitled to 30 days of vacation. When going on vacation, the employee is granted an extra salary composed of the normal salary plus 1/3 of the normal salary as a mini bonus. 12.67% is the rate charged on payroll.
Maternity and Paternity leave
Maternity leave entitlement is up to 120 days after the birth. The salary is maintained and the employer can deduct this amount from the social security payment. Paternity leave entitlement is up to five days after the birth. There are no additional benefits.
The first 15 days of sickness should be paid by the employer; all additional days will be paid by
government pension system. 1.90% is the rate charged on payroll. If it is a work incident, the employee is entitled to a year of work stability.
All men must attend military service at the age of 18. If the employee was designated to serve in the army, his salary payments are suspended, although the employee is still maintained on payroll.
Employee Benefits Not Levied on Payroll
In Brazil, the following benefits are typically provided by the employers, although are not covered in the payroll tax contributions: