Accelerating your Growth in Brazil with a PEO (Professional Employer Organization) solution
Published by Hector Lopez | SetupGlobal.Com
What is a PEO ?
The acronym PEO stands for Professional Employer Organization.
PEOs work with small businesses to help them manage payroll-related taxes, certain human resources functions, access to benefits, and other employer-related administrative functions necessary to running a business.
As your dedicated Employer of Record (EOR), we will hire employees in-country directly on your behalf. We will handle risk mitigation and compliance to take care of the big picture—while you maintain the day-to-day control of your employees.
Benefits of Implementing a PEO Solution
About Brazilian Labor Law and Employment Contracts
The main difference between the Fixed-term Employment Contract and the Indefinite Duration Employment Contracts is that in the first situation the employment relationship is intended to last for only a specific and definite length of time or until a specific project is completed, therefore once the term or project is finished the fixed-term employment relationship ends. Now, in a contract of an Indefinite Duration, the employment is one of continuous service and it is intended to last for an indefinite period of time, with no specified or foreseeable end to the relationship. So, it is important to note the Brazilian labor law only recognize the employment contract with an Indefinite duration, where the company is not allowed to hire an employee for a specific period of time and it is mandatory to provide the notice upon termination on the dismissal within 30 days.
How PEO works
Cost Savings during and after implementation of PEO
The cost savings in using a PEO service arise at every stage including:
- No need to set up, register and meet capital requirements for a local legal entity – we are already in place. - No requirement to engage the full suite of host country advisors: tax advisors, employment lawyers, immigration specialists, payroll providers, incorporation advisors, etc. - Minimizing the potential for permanent establishment and corporate taxation. - No corporate tax or social security filing requirements – all covered by us. - Simple closure of employment free from the requirement to close down the entity.
Is there a minimum or maximum period to engage "Setup Global" as a PEO service provider in Brazil ?
We have had different situations where clients engaged with us for 3 to 6 months whilst their local entities were being established or whilst developing the core business.
Also we have clients who have been with us for more than a year. However, according to the Brazilian legislation the legal notice period for termination of employee contract is a minimum of 30 days, or longer if the agreement states this specifically, up to a maximum of 90 days - as Brazil largely follows the ‘employment-at-will’ model, meaning any party may terminate the employment agreement without cause upon providing sufficient notice and severance payment -. Thus, in case of a desire to end the service contract, the final employee has the duty to inform us at least 30 days upfront, as well to provide payment in lieu of notice for the employee.
About Taxes and Social Security Contributions Payments
Employer and employee taxes are handled according to the requirements of the Brazilian regulations. These will be clearly outlined in your initial proclaim along with an explanation of how they are calculated. Each month we’ll invoice you, in advance of the payroll date, for what we call the Total Cost of Employment. Total Cost of Employment is the gross salary, bonus payment or allowances to the employee, employer contributions like tax or social security, expense reimbursements and our monthly management fee. Employer taxes (e.g. payroll taxes) and social security contributions are shown as itemized inputs on the monthly invoice and included in our client reporting. When we run our monthly payroll process these amounts are paid to the local authorities as required. Employee individual income tax and social security are deducted (withheld) from the gross salary in the monthly payroll process and then paid to the local authorities as required. These deductions are reported on the employee payslips and their summary reports.
Managing the Relationship with the Employee
The client maintains primary responsibility for the employee’s activity and conduct in Brazil, however as the EOR (Employer of Record), Setup Global is directly responsible to the authorities for the employment. Specially as concerns immigration, tax or labor issues related to the employment. We’ll work with our Client to make sure that both Client and Employee understand any Brazilian unique statutory requirements such as working hours restrictions, annual leave entitlements and the like.
Going Global and getting a legal presence in a foreign country and hiring new team members is an exciting time for growing the business. But it doesn’t have to be the perfect storm. With our PEO solution, the headaches associated with the global expansion process will be mitigated.