Payroll in Brazil: A Complete Guide for US Businesses

Brazil has one of the most employee-protective labour systems in the world, supported by a long-standing culture of formal employment, detailed labour laws and strong union influence. For businesses, this creates a uniquely complex environment where payroll is an important compliance responsibility that directly affects HR, finance and legal operations.

Companies operating in Brazil must navigate a tightly regulated system that includes mandatory benefits, government-managed severance funds, strict payroll cycles and progressive Brazil payroll taxes. This guide covers the necessary steps for staying compliant with Brazil’s labour laws, explains how social security and income tax obligations are calculated, and highlights key requirements like the 13th salary and legally mandated leave. We'll also talk about how BatchTransfer can help your team do international payroll.

How to Legally Set Up Payroll in Brazil

Running payroll in Brazil starts with establishing a legally compliant presence. The country has a formal, document-heavy employment system that requires businesses to follow a precise set of steps before they can hire or pay employees.

To operate lawfully, businesses must:

• Register with the Federal Revenue Bureau and obtain a Cadastro Nacional da Pessoa Jurídica (CNPJ), the company’s official tax ID.^1,2
• Sign up with Brazil’s social security system (INSS) and register for employer contributions.³
• Enroll in eSocial, the government’s unified digital platform for payroll, tax and employment records. This system is mandatory for employers and streamlines compliance across multiple agencies.
• Comply with labour regulations under the Consolidação das Leis do Trabalho (CLT), Brazil’s Consolidation of Labour Laws.⁴ This legal framework defines employee rights, benefits, tax obligations, and how payroll must be structured.

Employers are also required to draft employment contracts in accordance with CLT standards. These contracts should clearly outline job roles, working hours, salaries, benefits and termination procedures. Any deviation from CLT can lead to disputes or fines, even if both parties initially agreed to different terms.

How to Set Up Payroll in Brazil Without a Local Legal Entity

Outsourcing payroll is a simple and legal option. One way to do this is by using a Professional Employer Organisation (PEO), which handles HR and payroll tasks while the company stays in charge of day-to-day management. Another option is an Employer of Record (EOR), which takes care of everything from employment contracts to tax compliance.⁵ Both approaches make it easier and faster to hire in Brazil without going through the process of opening a local office, which is why they’re popular with international businesses and startups.

Understanding Brazil’s Payroll Cycle and Payslip Rules

Brazil follows a predictable and structured payroll cycle, but employers need to be precise with timing and documentation to stay compliant.

The standard payroll cycle is monthly. Employers must pay employee salaries by the fifth business day of the following month. This legal deadline applies to all formal employment arrangements under the CLT. While not required by law, many companies also offer a mid-month advance, typically around the 15th, known as an “adiantamento salarial.” This practice helps with employee cash flow but adds administrative complexity for payroll teams.

Every employee must receive a holerite, the official term for a payslip in Brazil. This document must clearly itemise:

• Gross salary
• Mandatory deductions, including social security (INSS) and income tax (DIRF)
• Employer contributions such as FGTS and RAT
• Net salary paid after all deductions

Employers may deliver payslips in print or electronically, but accuracy is non-negotiable. The holerite serves as a formal legal record and is often requested by employees when applying for loans or filing taxes.

What Counts as Gross Salary and Mandatory Allowances in Brazil

In Brazil, gross salary refers to the total fixed compensation an employee earns before any deductions are applied. This includes base pay and any additional amounts tied to regular work, such as hazard premiums, night shift differentials or commission payments.

Common mandatory benefits include:

• Vale-transporte (transportation voucher): Employers must subsidize the employee’s commuting costs. The company covers the full cost, but it can deduct up to 6% of the employee’s gross salary to offset part of the expense.
• Vale-refeição or vale-alimentação (meal and food vouchers): Many employers are contractually or union-bound to provide meal benefits in the form of daily vouchers or monthly food cards. The amount and format depend on the applicable labour agreement.
• Private health insurance: While not legally mandated by federal law, private health plans are often included in collective agreements or offered as part of a competitive benefits package. In some sectors, they are effectively mandatory.
• Childcare assistance: Under certain conditions, especially for companies with more than 30 female employees, employers may be required to reimburse childcare expenses or provide on-site daycare facilities.

These allowances are not subject to income tax or INSS contributions when structured correctly, but they must still be factored into payroll calculations and budgets. Inaccurate treatment of non-salary compensation can trigger tax audits or non-compliance with union agreements.

Brazil Payroll Taxes and Social Contributions

Payroll in Brazil comes with a range of mandatory contributions and taxes shared between the employee and employer.

Social Security (INSS)

Brazil’s Instituto Nacional do Seguro Social (INSS) manages social security. Employees contribute between 7.5% and 14% of their gross salary, depending on their income bracket. Employers pay approximately 20% on top of gross wages to fund the system.⁶

INSS covers retirement pensions, sick pay, maternity benefits and disability.

FGTS: Severance Guarantee Fund

The Fundo de Garantia do Tempo de Serviço (FGTS) is a government-backed fund designed to protect employees in case of dismissal.⁷ Employers must deposit 8% of the employee’s monthly pay into an individual FGTS account. Employees can access the funds under specific conditions like termination, home purchase or retirement.

Work Accident Insurance and Other Levies

Employers also contribute:

• 1% to 3% for Riscos Ambientais do Trabalho (RAT), based on industry risk⁸
• Additional levies for education, training (SENAI, SESI), and development funds (SEBRAE)

These are collectively known as “third-party contributions” and typically add 5% to 6% to total payroll costs.

Income Tax (DIRF)

Brazilian employers are responsible for withholding Imposto de Renda Retido na Fonte (DIRF) or the employee’s income tax.⁹ Rates range from 0% to 27.5%, applied progressively and adjusted annually. Deductions for dependents and certain expenses are allowed, and it's essential to apply the current year's tax tables.

The 13th Salary in Brazil

One unique feature of payroll in Brazil is the 13th salary, a legally required annual bonus equal to one full month’s pay. This extra salary must be paid in two instalments: the first by 30 November and the second by 20 December. Employers are expected to plan for this in their annual payroll budgets, as it’s not optional. Any employee who has worked at least 15 days during the calendar year is entitled to receive it, with the amount calculated on a prorated basis if they haven’t been employed for the full year.

Employee Entitlements: Working Hours, Paid Leave and Legal Benefits

Employee protections in Brazil are among the most comprehensive in the world. Employers must comply with strict limits on working hours and provide a wide range of paid leave entitlements, many of which are defined by the CLT and supported by the country’s social security system.

Standard Working Hours and Overtime Rules

Under Brazilian labour law, the standard workweek is limited to 44 hours, usually split as eight hours per day from Monday to Friday, with an additional four hours on Saturday. Any time worked beyond this limit is considered overtime and must be compensated accordingly.

By law, employees can work up to two extra hours per day, but these hours come at a premium. Overtime must be paid at 150% of the regular hourly wage for work on weekdays and 200% for work done on Sundays or public holidays.

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Paid Vacation and Public Holidays

After completing one year of continuous employment, Brazilian workers are entitled to 30 days of paid vacation, which must be used within the following 12 months. Alongside this time off, employees receive a vacation bonus equal to one-third of their monthly salary, making vacation periods financially protected as well as restorative.

The 30-day vacation can be split into up to three separate periods, but this must be done with the employee’s consent. One of those segments must be at least 14 consecutive days, while the remaining days can be shorter blocks.

Employees also benefit from a generous calendar of public holidays, which vary slightly by region. All workers receive 11 national holidays and one or two local holidays, depending on the state or municipality.

These holidays are fully paid. If an employee is required to work on a public holiday, the employer must either provide double pay for the day or offer compensatory time off, a decision typically governed by union agreements or internal policies.

Sick Leave and Medical Absences

Sick leave is structured as follows:

• The first 15 days of any medically certified absence are fully paid by the employer
• From the 16th day onward, payment is handled by the INSS (social security system)¹⁰

Employees must present a doctor’s note to qualify for paid leave. Extended medical absences, including surgeries or chronic illness treatment, are common and well-protected under Brazilian law.

Maternity and Paternity Leave

Family-related leave is another key component of employee benefits in Brazil:

• Maternity leave is 120 days and can be extended to 180 days for companies enrolled in the federal Empresa Cidadã program.¹¹ During this period, employees are entitled to full salary and job security.
• Paternity leave is five days by default but can be extended to 20 days under Empresa Cidadã, depending on the employer’s participation.

These benefits are designed to support work-life balance and are typically funded either by the employer or by INSS, depending on the duration and programme eligibility.

How Payroll Processing Works in Brazil

Processing payroll in Brazil involves more than issuing salaries. Employers must handle calculations, make timely payments, and report all activity through eSocial, the government’s unified digital platform.

The process includes:

• Data collection: Gather hours worked, overtime, bonuses, leave, deductions and benefit changes. Accuracy at this stage is essential to avoid compliance issues.
• Payroll calculation: Determine gross salary, apply deductions for INSS, FGTS, RAT and income tax (IRRF). Monthly accruals for the 13th salary and vacation pay should also be included.
• Salary payment: Pay employees by the fifth business day of the following month via local bank transfer. Issue payslips (holerites) and transfer contributions like FGTS and union dues.
• Government reporting: Submit all payroll data through eSocial to meet tax, labour and social security requirements. Errors or delays can lead to penalties and audits.

Staying Compliant: Avoiding Payroll Mistakes and Penalties in Brazil

Brazil’s labour and tax enforcement system is strict, and payroll compliance is one of its primary areas of focus. Even small mistakes can carry serious consequences, especially with the eSocial platform enabling government agencies to track employer obligations in real time.

Common issues include late salary payments, which can lead to automatic fines and damage employee trust, and errors in tax calculations, particularly with INSS contributions or IRRF withholdings. Employers also face penalties for missing deadlines for eSocial filings or failing to deposit FGTS on time. Missing documentation, such as payslips or properly executed employment contracts, can also result in compliance breaches.

Another major risk area is non-compliance with union or collective bargaining agreements, which can lead to disputes, strikes or further legal action. In Brazil, labour lawsuits are frequent and the legal system often favours employees, which increases the importance of getting payroll right the first time.

Choosing the Right Payroll Model for Doing Business in Brazil

Businesses operating in Brazil have several payroll options to choose from, depending on whether they have a local entity, how much control they want to retain, and how much risk they’re prepared to manage.

The table below summarises the key differences between the three main payroll models:

Payroll Model	Who It's For	Pros	Cons	Legal Entity Needed?
In-House Payroll	Large, established companies with local HR/accounting teams	Full control; tailored to internal systems	High complexity and risk; requires deep legal knowledge	Yes
Outsourced Payroll Provider	Local entities needing admin relief	Reduces burden; keeps employer status and full visibility	Still requires managing contracts and labour compliance	Yes
Employer of Record (EOR)	Foreign companies or startups without a Brazil entity	Fast setup; full legal compliance handled externally	Less control over HR terms and internal processes	No

Several reputable platforms offer Brazil-specific payroll services with built-in compliance support, including Multiplier, Deel, Revelo, Lano and Velocity Global.

Final Thoughts

Payroll in Brazil is one of the most complex and regulated systems in the world. The framework combines multiple layers of income tax, social security contributions, and mandatory benefits that go far beyond basic salary payments. From the legally mandated 13th salary and paid vacation bonuses to FGTS deposits and union-negotiated obligations, every detail matters and errors can be costly.

What makes Brazil unique is the sheer number of rules that intertwine payroll with labour law, tax compliance, and collective bargaining agreements. Businesses must remain constantly updated on regulatory changes and ensure strict adherence to monthly reporting deadlines, employee entitlements, and proper classification of workers.

Frequently Asked Questions

What are the Main Brazil payroll taxes Employers Must Pay?

Employers pay social security (INSS), FGTS, RAT and third-party contributions that can total over 30% of gross salary.

How Does Income Tax Work for Employees in Brazil?

Income tax (DIRF) is withheld monthly at progressive rates from 0% to 27.5% based on salary and dependents.

Is the 13th Salary Mandatory in Brazil?

Yes, all formal employees are entitled to a 13th salary, paid in two installments in November and December.

Do foreign companies need to register a legal entity to hire in Brazil?

No. They can use an Employer of Record to legally employ staff and manage payroll in Brazil.

What is the Payroll Cycle in Brazil?

Salaries are typically paid monthly by the fifth business day of the following month, often with a mid-month advance.

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Sources:

1. Federal Revenue of Brazil – English Portal
2. CNPJ Registration – Receita Federal
3. Brazilian Social Security Institute (INSS)
4. Consolidation of Labour Laws (CLT) – Brazilian Senate
5. Best EOR Solutions – Tech.co Comparison
6. Social Security tax in Brazil (INSS) - Europortage