Brazil is known for its high tax burden and complex tax system. Payroll taxes are a part of this system and represent a monthly obligation for social security.
In addition to salary, several other costs need to calculated in order to know the real cost of labor. Some charges determined by law have a fixed percentual rate over the payroll. Employees are also entitled to payments such as the 13th salary, vacation and social contribution.
The actual cost of an employee to a company can reach three times the amount of salary paid to the employee. This value may vary depending on certain circumstances such as class union, tax regime and the kind of profession and role in a company.
Among the payroll taxes, there are tributes known as INSS, FGTS, IRRF and RAT.
INSS stands for Instituto Nacional do Seguro Nacional, which translates as the Brazilian National Institute of Social Security. Social Security is a governmental policy that aims to support and assist the employee and their family in situations such as retirement, sickness and unemployment.
The institution is dedicated in particular to the distribution of retirement contributions to benefit citizens, and the value of the INSS tax is deducted directly from the payroll. It provides four types of pensions covering retirement, retirements contributions, disability and special retirement for health reasons.
According to the law, the charges for Social Security are to be paid by both employers and employees. The share paid by employers is calculated on top of compensations paid to the employee that include monthly earnings, vacation, overtime and other additional bonuses or allowances. The contribution amount depends on the salary level and can vary from 8% to 11%. The higher the salary, the higher the contribution, whereas the limit to be paid by the employee monthly over the paycheck is currently BRL 513,01.
INSS is also responsible for Social Assistance, which is a contribution to fund several government or private services that qualify for education and employee assistance. It is equivalent to 5.8% of the payroll. The beneficiaries are institutions like Senac/Sesc, Senai/Sesi, Sebrae and Incra. INSS is responsible for collecting it and passing on.
FGTS stands for Fundo de Garantia por Tempo de Serviço, which is the Employee Indemnity Guarantee Fund. The tax corresponds to 8% of the remuneration of each employee, and companies must submit payment before the 7th day of each month.
This contribution is also compulsory for cases in which an individual is unable to work, such as illness assistance/aid for a maximum of 15 days or during any period of absence due to workplace accidents, maternity or paternity leave.
The amount is deposited in an individual account for the employee in Caixa Econômica Federal. It can be drawn by the employee only in special conditions, such as after dismissal or to buy a home.
IRRF, which stands for Imposto de Renda Retido na Fonte, is the Withheld Income Tax. This tribute is directed to the Inland Revenue Service. IRRF tax varies from 7.5% to 27.5% according to the salary range. This tax is exempt for employees with a monthly income below R$ 1.903,98.
There are some benefits that the INSS taxpayer may use. The Holiday Accrual grants every employee, after one year of work, 30 paid days of vacation plus a third of their the normal salary. In addition, the thirteenth salary is an extra salary paid at the end of the year. It is proportional to the number of months the employee has worked during that year.
Maternity leave is a right for all women working in Brazil and contributing to Social Security. Maternity leave entitlement is up to 180 days after giving birth. The child’s father is also entitled to 05 days paid paternity leave from the birth date.
The Disease Aid is used when an employee is affected by illness or accident and therefore is unable to work. The employer has to go through the INSS medical specialist to prove the employees inability to work. The benefit will be granted to guarantee your income during your recovery period.
Finally, the Accident Risk at Work, know in Portuguese as RAT, is a compulsory insurance instituted by law. The contribution is an exclusive responsibility of the company. RAT is intended to cover events resulting from accidents in the workplace. The rate applied on payroll ranges between 1% to 3%, according to the degree of risk and chance of accidents.