Japan — 9 min
Brazil — 8 min
With its young, dynamic, and highly skilled workforce, Brazil has emerged as a top destination for global outsourcing. If you’ve decided to hire an independent contractor in Brazil, you’ll need to learn the employment regulations in the country to stay compliant with the law. You’ll even have to draft an employment contract in Portuguese!
Remote is here to help. This article will help you navigate the different aspects of hiring and paying independent contractors in Brazil. We’ll also share some information about labor laws, taxes, and compliance so that you have a stronger understanding of the contractor management process in Brazil.
Before you decide to hire independent contractors in Brazil, you have to understand the country’s employment and compliance laws.
Employment laws in Brazil have changed significantly over the years. As recently as 2017, the country updated over 100 articles of its labor laws and policies in a deliberate effort to attract foreign investors and employers.
If you’re planning to hire independent remote contractors in Brazil, you have two options. One is to do it yourself. You can get your legal team to sort out their employment contracts and pay them via a third-party platform.
The other is to save time and money by using a contractor management platform like Remote. We not only take care of payments and localized contracts, but we can also help you handle the more complex aspects of contractor management such as compliance and invoice management.
Brazil’s labor laws are mainly derived from the Consolidation of Labor Laws known as the “Labor Code” (CLT) and the Brazilian Federal Constitution.
Some information to keep in mind about hiring employees:
The standard working week for employees is limited to eight hours daily or 44 hours per week. The employee is entitled to paid overtime, which should not exceed 10 hours. They should be compensated for overtime work and paid an additional 50% of their regular salary.
Employees in Brazil are entitled to several benefits, including:
Severance pay, funded at 8% of the employee’s monthly salary and deposited to the FGTS, a fund run by the Brazilian government
A 13th-month salary or Christmas bonus at the end of the year
Transportation vouchers for commuting
Annual paid vacations
Statutory leave, depending on the number of days worked
Paid maternal leave for 120 days (contractors are eligible as well)
Paid paternity leave for five days
Paid bereavement leave for two consecutive days on the death of an immediate family member
Paid marriage leave for three consecutive days
Private pension plans
While employers in Brazil are obligated to pay employees the above benefits, contractors are not entitled to these. In fact, employers don’t have to provide any benefits for contractors.
In Brazil, employers need to withhold funds for both income tax and social security contributions, depending on certain criteria as explained below:
The income tax rate is progressive and ranges from 7.5% to 27.5% depending on the employee’s monthly gross salary.
Social security contributions for employees are usually a flat rate between 20% and 22.5% based on the industry, without a cap.
If the independent contractor is an individual, they are responsible for filing and paying their own taxes. However, in some cases, the company may need to deduct taxes for social security contributions.
If the contractor is a legal entity, no tax or social security contributions need to be withheld by the employer. The contractor (organization) would have to pay corporate income tax, and social security contributions themselves.
Digital payments are a popular option when it comes to paying international contractors. But you can also pay via bank transfer, check or money order, and wire transfer.
Ideally, the employer and the contractor should agree on the preferred payment method and include it in the contract beforehand. Payments are usually made from 14 to 28 days from the date the invoice is issued.
Another important consideration is currency exchange rates and the additional fees you can incur depending on the amount of money you’re sending.
While managing payroll might be easier for large companies, small businesses and startups with limited resources may struggle to keep up with it, especially if there are global contractors involved. Besides, you would probably need to spend a significant amount of time and resources dealing with invoicing and payment issues.
Or, you can make your life easier by using a reliable global payroll service like Remote.
We specialize in handling international payment processes so that your company can pay contractors all over the world compliantly in their local currencies. Plus, working with Remote also saves you additional fees that you might have to pay with some online payment providers.
Brazil treats self-employed contractors differently from full-time workers.
Misclassifying employees in Brazil may lead to fines and penalties for the offending company.
An employee is an individual who works for an employer regularly under fixed working hours, salary, and location, decided by the employer. An independent contractor, on the other hand, can be either an individual or a legal entity that has the freedom to decide how and when to work.
If you intentionally or unintentionally misclassify workers, you may be subject to:
Heavy penalties and fines. You may be fined around BRL 400 per employee if you’re found in breach of the law. For relapse cases, this fine can be doubled.
Back employee benefits. You may be asked to pay workers for unpaid wages, benefits, or social security contributions. The Brazilian Federal Tax Revenue inspection may ask the authorities to issue you a notice to pay the social security contributions from the last five years. As an employer, you may also have to pay a penalty ranging from 75% to 225% of the total owed.
Intellectual property protection issues. If you’re unfamiliar with local laws, you can also lose your intellectual property rights when working with contractors residing in other countries. With a bad contract, your contractor may be entitled to claim ownership of the work they did for you.
You might want to make your contractor a regular employee at some point because you want them to play a bigger role in your growth. Or, perhaps your company could decide to save money in the long term by expanding your team in Brazil.
Whatever your reason to convert your independent contractor to an employee, there are several factors to consider before you do it.
In Brazil, the labor court determines the conversion of an independent contractor into an employee. The independent contractor willing to convert to an employee has to provide proof of the four prerequisites of the employment relationship. In addition, you need to stay abreast of a suite of employment laws and regulations that protect the rights of Brazilian workers.
Converting your Brazilian contractors to employees can be a challenging process.
Luckily, Remote’s global contractor platform can help you do this quickly and easily. We can also help with every aspect of contractor management — compliance, taxes, and payroll. Visit our Country Explorer tool for specific information about hiring from Brazil.
You’ll need to understand Brazil’s tax and compliance practices before you begin engaging an independent contractor in Brazil for work.
To avoid double taxation, Brazil has signed tax treaties with several countries, including the United States, Germany, and the United Kingdom. This means that the tax paid in those countries is offset against the tax due in Brazil on the same earnings.
If you're a US-based employer hiring independent contractors in Brazil, you need to meet the tax compliance regulations specified by the Internal Revenue Service (IRS). You have to collect Form W-8BEN from all independent contractors working outside the US. If the company is working with an international contractor who is operating through their own legal entity, then you’ll need to use Form W-8BEN-E.
Brazil’s employment laws are unusual, and employers outside the country need to have a thorough understanding of tax and labor laws. Any small slip in the classification of workers, or oversights when it comes to legal regulations, income taxes, or social security contributions could result in significant penalties.
Remote’s international contractor management solution gives you the ability to onboard, pay, and manage contractors globally. From localized employment contracts to payroll and invoice management, we can help you handle every aspect of international contractor management.
Learn more about our contractor management services today. If you’re ready to start onboarding contractors or would like a demo of the Remote platform, sign up for free.
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