Payroll in Brazil | Payroll Process and Payroll Taxes in Brazil

Brazil is the largest country in South America, serving as the hub for many multinational corporations expanding into or operating in the region. The world's sixth-largest country by population and the world's twelfth-largest economy, Brazil's GDP is projected to reach 1771.00 USD billion by the end of 2022. Companies establishing operations in Brazil can achieve successful business growth because of its large and well-educated workforce. The Brazilian Real (BRL, R$) is the main currency of Brazil. Because of constantly changing payroll laws in Brazil and the impact of labor unions on employment and compensation requirements, payroll in Brazil is one of the most complex payroll systems.

Payroll Cycle and Working Hours In Brazil

The payroll process in Brazil is generally done biweekly or monthly, and employees are paid on the 15th and 30th of each month according to the payroll cycle. A normal workday is eight hours long, with a typical workweek of no more than 44 hours for the payroll process in Brazil. The working days in Brazil are normally from Monday to Friday.

Social Security Contribution as Payroll Tax in Brazil

Payroll tax in Brazil is a tax that is levied on the salaries and wages paid by employers to their employees. This tax is collected by the Brazilian federal government and is used to fund various social security and welfare programs in the country. The employees and employers contribute to the Brazilian Social Security system which is administered by the National Institute of Social Security (INSS), which is part of the Ministry of Social Welfare. Workers' retirement, education funds, workers' remuneration, disability benefits, and other welfare initiatives are all supported by the system under payroll in Brazil. Both employer and employee are required to contribute to social security as a part of the payroll tax in Brazil and the rates depend upon the type of work and industry.

For the payroll process in Brazil, social security contributions are mandatory for all workers and these contributions are collected via payroll tax in Brazil. An employee’s contribution (employee cost) to social security is between 7.5% to 14% of the monthly salary. The employer’s contribution is 20% to 22.5% depending upon the industry. It excludes the 8% contribution of the FTGS Fund. Hence the total employer contribution (employment cost) to social security is nearly 28% to 30.50% of the payroll tax in Brazil.

There are several components to the social security system to payroll process in Brazil, including:

Retirement Pension Fund: This component provides financial support to workers who have reached retirement age or who are unable to work due to disability or illness. As per payroll laws in Brazil, men receive this benefit at the age of 65 and women at 60 years. The pension benefit amount starts at 70% of the employee's average monthly salary and increases by 1% each year up to a maximum of 100%.
Disability: This component provides financial assistance to workers who are unable to work due to a disability or illness. In general, the disability benefit in Brazil is calculated as a percentage of the individual's average salary over the 12 months preceding the onset of their disability. The rate used to calculate the benefit depends on the individual's contribution history and ranges from 60% to 100%.
Survivor Benefits: This component provides financial assistance to the surviving family members of a worker who has died as per the payroll laws in Brazil. The amount of the "survivor benefit" is determined based on the contribution history of the deceased contributor and other factors, such as the survivor's age and relationship with the deceased.
Health Care Fund: This component under the social security scheme of Brazil provides access to medical care and other health-related services such as hospitalization, outpatient care, and prescription drugs.
Unemployment Insurance: This component provides financial assistance to workers who have lost their jobs and are seeking employment. Both employer and employee make contributions to the unemployment insurance component of INSS under social security.
Guaranteed Fund for Length of Service (FGTS): Adhering to payroll laws in Brazil, every employer must enroll in and contribute to an FGTS fund or employee severance indemnity fund for each employee hired for payroll in Brazil. Employers must contribute the equivalent of 8% of employees' salaries to FGTS accounts held by the employee in a federal savings bank.

Employer Contribution (Employment Cost) to Payroll Tax in Brazil (2022)

Employee Contribution (Employee Cost) to Payroll Tax in Brazil (2022)

For payroll in Brazil, workers are required to contribute to the social security scheme at a variable rate ranging from 7.5% to 14% of their monthly salaries. As per payroll laws in Brazil, employee contributions are limited to BRL 828.38 per month.

Income Tax in Brazil

In Brazil, the tax year is a calendar year i.e., 1st January to 31st December. Companies must continue to pay deducted taxes monthly and file an annual return to the Ministry of Finance for the payroll process in Brazil. Monthly income tax payments are made on the 20th of the next month.

The income tax rate in Brazil varies depending on the income earned. For individuals, the tax rate ranges from 7.5% to 27.5% of the taxable income. The tax rate for businesses varies depending on the type of business and the amount of income earned.