Episode 5: Payroll in Brazil

Luisa Rollenhagen (00:07):

Hi, I’m Luisa Rollenhagen and you’re listening to another episode of ADP Payroll Around the World. This audio series is your all-inclusive guide to understanding how payroll operates across different countries. We explore the unique aspects of each nation’s payroll system with insights from ADP experts on the ground and locals who share their experiences with work and pay in their home countries. After all, for payroll to be truly global, it needs to be local as well.

Today we’re going to Brazil. As the largest economy in Latin America, Brazil is a vibrant and dynamic country that’s rich in natural resources. Its diverse demographics reflect its history as many of the country’s citizens have African, European, Middle Eastern and indigenous roots. The Brazilian economy has traditionally relied on agriculture and manufacturing, but sectors such as e-commerce are starting to thrive as well. With an increased sensibility for conservation efforts, climate-smart land use and low-carbon agriculture are also gaining traction.

Brazil is also in the midst of a digital transformation strategy, called E-Social, which aims to digitalize many public services and processes. As you can imagine, this has a direct impact on payroll as well. 

Luiz Bernabe (01:32):

I think something that is unique about Brazil is this need to submit information quite often to the government. Sometimes you have a very short time to submit a change in your payroll and you are subject to fines if you don’t do it.

Beatriz Neves (01:48):

The government has been trying to modernize the obligation from the payroll before. We used to have almost 30 obligations that we have to send different information and sometimes the same information from different government agencies. And right now we are unifying all this information in one obligation called E-Social here in Brazil.

Luisa Rollenhagen (02:11):

You just heard a little preview from our two ADP experts for this episode, Luiz and Beatriz. They’re going to be our guides today as we explore payroll in Brazil.

One thing that characterizes Brazil’s labor landscape is the strong presence of unions, with the latest figures registering 8.4 million people as union members. But it’s not only that: There’s seemingly a very specific union for every sector, including fast food workers and bakery employees.

Jocinete (02:40):

It’s quite a lot, there are so many people who are in unions, there are so many people that you can’t even count. That’s because every time someone opens a hotel, a restaurant, or a pizzeria, the employees are automatically linked to a union.  

Luisa Rollenhagen (02:54):

That’s Jocinete, a hotel maid in São Paulo who’s a member of the hotel’s union there. We’ll be hearing more from her later. 

But now, without further ado, I’d like to bring in our two experts. Hi, welcome Luiz and Beatriz ! Would you mind introducing yourselves? 

Luiz Bernabe (03:11):

Hello, Luisa. I’m Luiz Bernabe. I’m the general manager for ADP Brazil, and I’m also vice president for service delivery in Latin America. I’ve been with ADP for nine years. 

Beatriz Neves (03:24):

Hi Luisa. I’m Beatriz Neves. I’m product compliance here in Brazil and I have been working for ADP for almost eight years.

Luisa Rollenhagen (03:33):

Thank you so much for joining us today. I’d like to start us off by asking one of my favorite questions. What do you love about working in payroll in Brazil?

Beatriz Neves (03:43):

I think one of the most exciting for me actually, because I’m a lawyer and I work with compliance for the product, and I think what is exciting is we have changes every day, every month, and I’m always doing something different and trying to think what can be innovative for the system but in compliance. And I think this is something that is exciting.

Luiz Bernabe (04:06):

I didn’t know that payroll could be so complex and at the same time so dynamic. And I think it’s part of our job to be kind of invisible to the client and so if we do our job right, everybody gets paid, the client is compliant with the law and we are kind of invisible and that’s what we try to do here.

Luisa Rollenhagen (04:30):

Yeah, absolutely. It’s all about being the silent engine that keeps the machine running smoothly. So we just heard a snippet from Jocinete who mentioned how prevalent unions are in Brazil. With that in mind, could you two tell me a little bit more about what the current labor market in the country looks like?

Luiz Bernabe (04:47):

Talking specifically about the labor market, we have an environment in which the labor market is highly regulated. It’s still very influenced by whichever government is in place. Rules change very rapidly and companies are subjected to auditing from time to time. I mean, informality is still high. We have around 50% of Brazil’s labor force still in informality, but it’s something that has been changing over time. An important aspect, and probably Beatrice can talk about that, is the presence of unions in Brazil. There are many, many unions, many different collective agreements, which also poses a challenge for companies.

Beatriz Neves (05:40):

We have 28,000 collective labor agreements here in Brazil active right now. So this is a lot to manage.

Luiz Bernabe (05:47):

Yeah, one of our clients has around 700 different unions and it’s one single client.

Luisa Rollenhagen (05:55):

Whoa, that’s quite a lot.

Beatriz Neves (05:56):

Besides that, just to add information that Luiz just told us, we have here almost 900 legal changes that we have to analyze to see if these impacts payroll or HR activities every year. So this is a lot of legal changes.

That’s because every government has a different priority. So we had, our last president has had a different priority from this president and we have a lot of legal changes right now. There are some reforms that are happening at this moment that impact directly the payroll. And besides that, the government sees, I think about for the last 10 years, the government has been trying to modernize the obligations from the payroll. Before we used to have almost 30 obligations that we have to send different information and sometimes the same information from different government agencies. And right now we are unifying all these informations in one obligation called E-Social here in Brazil.

This obligation has a lot of information, personal information about the employees and information about the life of the employee inside the company. So every time he goes on a vacation leave, you have to send an information. Every time he has an absence, every detail from his payroll, you must send this monthly. So it’s a lot of details and information to send to the government every day or every month.

Luisa Rollenhagen (07:26):

Just really quickly, would you mind explaining what you mean by obligations?

Luiz Bernabe (07:30):

Obligations refer to social obligations, I mean taxes that you have to pay on top of your payroll. There are several different types of obligations that need to be paid. There is a fund for unemployment. There is the official retirement agents, you have income taxes. There are several… Beatriz, please help me here.

Beatriz Neves (07:57):

Yes, just to add, you declare what will pay for taxes. So for income tax, I’m going to pay a thousand. I have to declare that in an obligation, and after that I will pay the taxes. So you have the declaration and the payment, and this is a part of this obligation. The other part is you have to send information to the government to have some metrics about the employment status and about, I don’t know, informality. So this is information you send to the government so they can have metrics to publish.

Luiz Bernabe (08:32):

And then you have the events. The events are everything that happens in the life of an employee. Someone gets hired, gets terminated, gets leaves on vacation, leaves because of sickness. So all these events, they have to be informed to the government online. I mean. there are APIs that allow for this submission of events, and then you have SLAs. SLAs are referred to the time, the maximum time you have to submit the event. Sometimes you have to send it immediately. Other events can be sent until the end of the month. So it depends on the type of event. And if you don’t do it, you are subject to, as I mentioned, to penalties and fines.

Luisa Rollenhagen (09:25):

That sounds like a lot of manual work for payroll departments. How does ADP help clients in Brazil so that they’re not bogged down by all of these reporting requirements?

Luiz Bernabe (09:34):

It can be a lot of manual work. I think here in ADP we have automated pretty much all that it was possible to automate. We have created dashboards. We have created interfaces that allow the client to interact with all these needs, to submit information to the government. It’s easier than if you try to do it all manually, especially if you are a large company, if you are a mid-size company with many, many events.

Beatriz Neves (10:07):

Yes, imagine if it was a manual activity. This obligation, one of our biggest clients sends about 600,000 events for the government every month. So this is a lot information.

So when you hire someone, you have almost 50 informations for that employee that you have to send to the government. In some systems here in Brazil, when you fill the fields in the system, you have to go to another function of the system and send the files. Here in ADP we made this automatically. So when you fill in the hiring information of the employee in the system, we will automatically send this information to the government.

Luisa Rollenhagen (10:48):

Do you find that multinationals are surprised when they first arrive in Brazil and find out about all of these things?

Beatriz Neves (10:54):

I think so. And I think what amazed them also is the amount of information that we have to send to the government. So this is something that we are always questioned about because our system requires a lot of information and sometimes they come and ask why I need this information from my employee and this is because the government needs this information. So I think this is something that we are questioned quite often.

Luiz Bernabe (11:19):

When you hire someone, you have to submit data like your mom and dad’s names, your vaccination status, you have to submit your diploma, you have to go through a health check. So it’s more than 50 different information, types of pieces of information that you have to send to the government. And someone might ask, well, but the government already knows my mom’s name or my dad’s name, why do I have to send it again? So these are usually the questions that we get.

Luisa Rollenhagen (11:56):

I bet.

So picture this. If you were to sit down with a friend who happens to run a multinational company and they tell you they’re interested in expanding to Brazil, what would your main piece of advice to them be?

Beatriz Neves (12:08):

First of all, I think it’s to keep on track with legal changes. We have a lot here as Luiz mentioned, and a lot of them are retroactive, so you have to change something today in the end of the month that started in the first day of the month. So it’s very important to have a legal watch team so you can keep on track of these legal changes.

Luiz Bernabe (12:31):

I think if you’re not familiar with Brazil and if you haven’t been here already, it’s important to partner with someone that you can trust because things that we didn’t mention is that most of the times the legislation can be grey. And here in ADP, we try to be more conservative in our approach so that we don’t expose the client to unnecessary risk. And depending who you partner with, some companies have more aggressive approach than others, and that means adding risk to your operation.

Luisa Rollenhagen (13:07):

What do you mean when you say that the legislation can sometimes be grey?

Luiz Bernabe (13:10):

It can be subject to interpretation. So it’s not black and white. Sometimes it’s not really clear what the government meant with the law, and you have to interpret, and that’s why we have Bea’s team. Beatriz has a large team that does that. I mean, interprets the laws to give the most conservative approach to our clients.

Beatriz is part of some associations here in Brazil that actually discuss those changes prior to being implemented. And some of these changes are discussed with the government itself because sometimes we actually help the government in how to implement specific types of legislation, because we have a view of the entire process. And it’s not uncommon for Beatriz to come to my room and say, okay, the legislation is not ready yet. We have option A, B, and C. We have to work on the three of them because if we don’t start now, we won’t be ready when it gets published.

Luisa Rollenhagen (14:22):

So ADP is actually right at the source of many of these legislative changes and even offering advice on implementation. I’m sure that sort of access is incredibly valuable for clients.

Beatriz Neves (14:32):

Yes, this is something important because sometimes, the law is published and we don’t always know exactly what the thinking was when they wrote the law. So through this association, we can get a lot of information that we understand how or why they wrote the law, and what they were thinking about so  we can drive better our development and our decisions here. This is very exciting.

Luiz Bernabe (14:57):

Another thing I would say is that we try to invest a lot in communication because sometimes, it’s not ADP that has to make the decision for the client. The client may have two or three options to choose from depending on the change. So we try to explain to the client what are the changes so that the client can talk to its legal department. Sometimes we have round tables with clients, we have webinars. We try to use different means of communications to reach out to our different clients and explain the changes that are coming.

We don’t want to expose clients to any sort of risk. We want to be transparent, we want to be helpful, and we want to be a strategic partner for the client. We’re not only a software provider, we are a service provider and we see ourselves as strategic partners of the client. So I think that’s what makes the difference because we’re not just providing a software, we are there because we know this. Navigating through these changes can be quite messy and we are there to support our clients.

Luisa Rollenhagen (16:11):

Can you think of an example where you were confronted with rapidly changing laws?

Beatriz Neves (16:13):

During Covid times, we had a lot of legal changes specifically for payroll because the government was trying to maintain employment, and it changed every day. So on Monday we had a new law published that was suspending contracts but maintaining the salary, and on Thursday, that had some changes on the way you had to do that. So we had to develop and change our routine every day, and our clients were very satisfied with our rapid answers to those changes. It was very exciting times.

Luiz Bernabe (16:49):

Yeah, I remember some of the changes even challenged some fundamental principles that we had already built in the system. You couldn’t change someone’s salary, remember? And then all of a sudden you had to change, you were allowed to change someone’s salary and you have to kind of figure out creative ways to do it. And we had a war room of experts working like 24/7, so we could deliver everything that was, and sometimes when we were ready, there was another publication and we were not ready. We had to keep working.

Beatriz Neves (17:28):

Yes, in Brazil it’s forbidden to reduce the salary, but during Covid times, one of the measures from the government was to reduce the salary and reduce the hours of work of the employees. So our system does not allow us to reduce the salary because it’s forbidden. And this is something that we had to think outside the box to think of a solution that would work, and very fast. And we used to say that Friday was a scary day because usually on Friday there were new legislations that changed everything. So we used to work until late hours just to figure out what we are going to do.

Luisa Rollenhagen (18:05):

The new laws would be published on a Friday? Oof. There goes your weekend.

Luiz Bernabe (18:09):

Yeah, because usually, the publication happens Friday night so that the companies could have the weekend to adapt and banks had to adapt as well. So that by Monday morning it was ready.

Luisa Rollenhagen (18:22):

That definitely sounds really hectic.

I want to change course for a minute. Remember Beatriz and Luiz telling us how important unions are in Brazil? Here’s where I’d like to introduce Jocinete Souza, who works as a maid at a hotel in São Paulo.

In this series, we don’t just share the invaluable local knowledge of ADP’s experts and partners, but also speak to real people on the ground about their own lived experiences with work and pay. Jocinete has been working at a hotel chain for 23 years and is not only a union member, but also a director of the union’s board.

Jocinete (18:58):

When I started working in the hotel industry, I heard about the union. I looked into it, got informed and saw that they help a lot when it comes to communication between the employees and employers. They provide a certain level of comfort. They work hard to increase our salaries and there are several benefits. The hotels provide health insurance for our children up to the age of 21, but the union doesn’t have an age limit. You pay a fee as a member and you have access to all the benefits. My children and I both. We can also access vocational training, doctors, and dentists. They offer us vacation camps at an affordable price.

Because I had been in the union for a long time and participated in the vacation camps, I created a bond with the people there. Then in 2000, 2001, I was invited to join the board. Most of the members were men and they needed women in politics. So I was invited. I thought it was great and I accepted.

Luisa Rollenhagen (20:00):

Jocinete told us that almost everyone who works in hotels, in restaurants in São Paulo is unionized, with some unions representing very specific sectors, such as pizzeria workers. Jocinete’s union is an important arbiter between her and her employer, especially when it comes to wages.

Jocinete (20:18):

The union negotiates our salaries once a year. They fight, no, they talk to investors, to employers, and ask for the maximum minimum wage for the sector. This starts around April. Then when it gets to the middle of July, August, they close the deal. The negotiations cover all employees in a sector. When it comes to hotels, everyone with the same job has the same minimum wage. There’s not a minimum for one person, and another minimum for someone else. It’s general.

Luisa Rollenhagen (20:53):

Jocinete has also taken advantage of her union’s educational offerings.

Jocinete (20:57):

This is something that the union gives to me and to all its members. Not just to me, who is part of the board, but to everyone. I’ve taken professional courses for the tourism industry as well as English, Spanish, and administration classes. You can learn how to be a waiter or a bartender. There are several professional courses to choose from.

Luisa Rollenhagen (21:20):

With so many unions active in Brazil, I could imagine that it must be a bit overwhelming for some multinationals who first set foot in the country. I went back to Beatriz and Luis to hear what their experiences with their clients were like.

Luiz Bernabe (21:33):

I think it depends on where the multinational is coming from because, for example, depending on the country in Europe, unions can be also pretty diverse and as complex as in Brazil. What I think is tricky about the unions here is, as Beatriz was mentioning, the unions are divided by city and divided by activity. So you have bakers in São Paulo, bakers in Rio, bakers in Porto Alegre. So within a company that operates nationally, that company needs to be able to handle all these different unions.

Beatriz Neves (22:17):

I think the challenge for multinational companies that comes to Brazil is to find the right union because as you mentioned, they are hyper-specific unions here in Brazil and you find the one that is applicable to the company. And for each city, if you have a lot of branches, as Luiz mentioned, it means a lot of labor agreements. And this is something that is challenging to keep up because the labor agreement is valid for a maximum of two years. So every two years you have to renegotiate.

Luisa Rollenhagen (22:49):

What other kinds of sectors have union representation?

Luiz Bernabe (22:52):

Oh, you have bank workers, you have data processing, which is a very large union. What else, Bea?

Beatriz Neves (23:03):

Market workers, supermarket workers. We have in every type of industry a different union. And I think it’s interesting because when we talk about banks, this is a labor agreement, totally different from processing data companies. It’s very different, the labor agreements and the rights that are in their agreements. A few years ago, we had a labor reform from our past government and it gives, I don’t know how to say this, but this labor reform empowered unions here in Brazil. So labor agreements have a priority in some matters over the legislation, the federal legislation. So we have very different types of rights between labor agreements of each union, and this is very interesting.

Luisa Rollenhagen (23:49):

That’s definitely really important for multinationals to keep in mind.

Speaking of unions, what are some employee requests that you’ve seen come up in contract negotiations? Maybe something like hybrid working or special benefits. This doesn’t necessarily need to be a union agreement. I’m just curious in general.

Luiz Bernabe (24:06):

I think a major request is inflation update. So it’s quite common to have inflation in Latin American economies. So the inflation update gets built into the collective agreement and usually, it’s an inflation update plus a percentage point or two percentage points, depends on the negotiation. And you mentioned hybrid work. I think this is a demand that has been growing a lot, especially in the very large cities where commuting is difficult. So unions are kind of pushing to have more hybrid work adopted in the different industries.

Luisa Rollenhagen (24:49):

What about pensions? Do the unions negotiate pensions as well?

Beatriz Neves (24:53):

Pension is something that is a federal legislation. You don’t have a lot of changes from the union. This is something that unions cannot change in the labor agreement. This is federal legislation, but it can be requested or can be negotiated for some types of private pensions. And usually companies contribute with the same amount as the employee. And this is something that usually is negotiated between employees and employers, but not the federal pension.

Luisa Rollenhagen (25:25):

Got it. We’re going to start wrapping up, but I’d be curious to hear whether you have any specific hopes for the future Brazilian payroll or anticipate any trends?

Beatriz Neves (25:34):

I think we’ll simplify the process for payroll. With this modernization, we still have some obligations to be replaced by E-Social, and I think in the future when everything is replaced by E-Social and we have set everything up for these obligations, I think we have a simpler process for payroll.

Luiz Bernabe (25:54):

As a Brazilian, I really would like to have simpler processes and I think it’s been a tough journey, but one day we’re going to get there. Simpler taxes, simpler contributions, better infrastructure from the government side. I mean, we all would love to be in this better state of things.

Luisa Rollenhagen (26:14):

That’s lovely, thank you very much to both of you for sharing your expertise and being our guests today! I enjoyed learning about all of the different, hyper-specific unions in Brazil, and I love the story you two told about the Covid war room. Although I’m sure you’re very pleased you’ve gotten your weekends back!  

I hope we were able to give you a bit of a deeper insight into how payroll in Brazil works today. If this episode has piqued your interest or your company is considering expanding into Brazil and you want to learn more about payroll there, please go to the ADP Brazil website br.adp.com.   

And don’t forget to subscribe to learn more about payroll around the world with each new episode.  

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