Risks of Hiring Individuals as Sales Representatives
There is fine line between hiring a professional as self-employed and a worker with employment ties. Business owners must have a good knowledge of how the law applies in each case to avoid lawsuits and other legal issues.
Different industry sectors use sales representatives to sell their products and services and to promote business expansion. This practice has been common in Brazil since the 1950s, when companies started to use this type of professional to reach remote places of the country.
Over the last few years, however, most companies have been avoiding hiring self employed professionals because of the risks involved in lawsuits for this type of contract.
One of the characteristics of self-employed activity is that it is sporadic. But when it comes to such regular activity like sales made by sales representatives, it often becomes work performed on a permanent basis. The main issue that arises from hiring a self employed person is that it can be used by the company to mask the type of activity that is being carried out by the person, in order to get a reduction in labour taxes and other employment obligations set by Brazilian Labour laws, known as CLT. This type of contract also can be used by the actual sales representative in litigations, to claim that the company was hiring them as a self-employed service provider, but they were actually working as a regular employee. That's why it is necessary to formalise all the aspects of the job proposal in a written agreement.
The service provider contract
The contract of service provision must contain information such as the description of the work that will be performed, the obligations of each part, the terms for the job execution, the payment terms and how it's going to occur. In addition to this contract, the company also requires a Recibo de Pagamento de Autônomo (RPA), which is a document proving that the payment was made.
It's important to highlight that there should be no employment ties between the sales representative and the company. This is not limited to a contractual employment tie but also a practical employment tie. This also means that the representative must be free to work for other companies, and non-compete clauses may be included in the agreement.
According to the labour law known as CLT, there are four requisites that indicate employment ties:
- Subordination – the employer commands how the sales representatives must perform their work; but it's only the modus operandi that is subordinated, not the sales representative
- Personal nature – the services are provided personally by the worker, being not possible to assign the activity to another person
- Non-eventuality – there must be a regularity in the time when the job is done: daily, weekly, biweekly or monthly. It cannot be sporadic
- Rewarding – it's the reciprocity. In exchange for their services, the workers will be remunerated with a salary
Recently, another item was added to this list, which is pessoa física, or individual. This requisite obliges the worker to be an individual, which makes it impossible for a legal entity to be hired as an employee.
If all the five items are present in the relationship between the employer and the sales representative, there is an employment tie. An employment tie obliges the employer to provide other benefits to the worker, such as meal, 13th salary, paid vacations and others. To avoid obligations of this nature, workers must not only sign the contract and present the RPA, but also employers must be alert and evaluate if the worker is not meeting the four requirements listed above.
Registration at the Sales Representative Regional Council
In order to legally perform the sales representation activity in Brazil, the professional must be registered with the regional council known as CORE, short for Conselho Regional dos Representantes Comerciais. The registration should be requested at the state office of CORE where the representative resides, or where the company that represents the firm is registered.
The documents required for the registration at CORE of individuals are the following:
- Copy of ID card
- Copy of CPF card
- Copy of the certificate of military conscription
- Copy of voting card
- Copy of proof of voting on the last election (foreigners are exempted)
- Copy of proof of residence
- 3 photos size 3x4 cm
- Proof of payment of contribution to the syndicate of the Sales Representatives
- Registration forms completed, available at the local CORE
For São Paulo state, the annual fees for both registering and contributions to the syndicate will total BRL 911,23 in case of individual sales representatives.
For a company, it is an advantage to have the business relationship registered at the regional council, as they have an ethic code that will protect the represented company.
High Worker Turnover Rates
Brazilian employees tend to change jobs quite frequently, with the average time they stay at the same employer between 135 and 160 weeks, according to IBGE. When the work is performed on a freelance or a self employed basis, the loyalty level drops even more, and you should expect that the worker will not stay long in the position.
To make matters worse, some of the sales representatives end up taking the customer portfolio to the next employee. As Brazilians are highly focused on the relationships built with colleagues and customers, it is expected that some of the customers will also be moving along together with the sales representative to potential competitors.