The real cost of an employee in Brazil: a guide for foreign employers

When a foreign company budgets its first hires in Brazil, the monthly salary is only the starting point. Brazilian law adds a 13th salary, a vacation bonus, employer social security contributions, a monthly deposit into a severance fund and, depending on the collective bargaining agreement, benefits that are mandatory in practice. The result is that a CLT employee usually costs the company much more than the agreed monthly salary times twelve. This guide breaks down each component, shows a worked example and explains what changes the number for your company.

What “CLT employee” means

Most employees in Brazil are hired under the CLT (Consolidation of Labor Laws), the main labor statute, together with the rights listed in article 7 of the Constitution. A CLT employment relationship comes with a set of rights that cannot be waived by contract, and with payroll obligations reported monthly through eSocial, the federal electronic system for payroll and labor reporting.

The salary-related costs

13th salary

Every employee receives a 13th salary each year, equal to one month’s pay, proportional to the months worked (Law 4,090/1962). It is mandatory, not a discretionary bonus, and is paid in two installments: half between February and November, and the balance by December 20 (Law 4,749/1965).

Vacation and the one-third vacation bonus

After each 12 months of work, the employee is entitled to 30 days of paid vacation (CLT, article 130). On top of the vacation pay, the Constitution guarantees a vacation bonus of one-third of the normal salary (article 7, item XVII). Vacation that is not granted within the legal period must be paid in double.

Overtime and premiums

The standard working week is up to 44 hours (Constitution, article 7, item XIII), and overtime is paid at least 50% above the normal hourly rate (item XVI). Collective agreements often set higher rates. Night work, unhealthy work and hazardous work carry additional premiums set by law.

Employer payroll taxes

Under Law 8,212/1991, article 22, the employer pays social security contributions on the total remuneration of employees, including the 13th salary and the vacation bonus, with no ceiling (unlike the employee’s own contribution, which is capped). FGTS is also due on the 13th salary and on vacation pay:

For a company under the general rules, the combined employer contributions on payroll are therefore typically between about 26% and 29% before the FAP adjustment (20% plus RAT of 1% to 3% plus third-party contributions that depend on the FPAS code), plus 8% of FGTS. The FAP can move the RAT component down to half or up to double, so the company’s actual rate should be confirmed on its own payroll.

The employee also has social security and income tax withheld from the salary. Those amounts come out of the employee’s pay, not on top of the company’s cost, but the employer is responsible for withholding and remitting them.

The payroll tax relief that is being phased out

Some sectors, including certain IT, communications, transportation and construction activities, were allowed to replace the 20% employer contribution with a contribution on gross revenue (CPRB). Law 14,973/2024 is phasing out this relief: in 2026, these companies pay 60% of the CPRB rate on revenue plus 50% of the 20% contribution on payroll. In 2027 the mix becomes 40% of the CPRB rate plus 75% of the payroll contribution, and from 2028 the full 20% applies to payroll. During the transition, the payroll portion is not charged on the 13th salary. If your Brazilian company is in one of these sectors, its payroll cost is rising every year until 2028. Our guide to the payroll tax relief (CPRB) phase-out shows the rates by sector and how to decide the 2027 option.

Does the tax regime change the cost?

Less than many groups expect. The employer contributions and FGTS above are the same whether the subsidiary calculates corporate income tax under Lucro Real or Lucro Presumido. What changes is the indirect effect: under Lucro Real, payroll costs reduce taxable profit, while under Lucro Presumido the tax is based on revenue and payroll has no effect on it (see Lucro Real or Lucro Presumido for a foreign-owned subsidiary). The regime that really changes payroll charges is the Simples Nacional, where most contributions are included in a single monthly payment, but a company with a foreign or corporate quotaholder cannot opt for it (Complementary Law 123/2006, article 3, paragraph 4). The other exception is the sector payroll relief described above.

A worked example

Take a hypothetical employee with a monthly salary of R$10,000, at a company under the general rules, with RAT at 2% and third-party contributions at 5.8%. Benefits are left out for now.

In this example, the annual cost is about 1.51 times the 12 monthly salaries, or roughly R$15,089 per month, before any benefits. The ratio changes with the RAT rate, the FAP, the third-party rate, overtime and premiums, and the payroll tax relief, where it applies.

Monthly accruals in the accounts

The 13th salary and vacation are earned month by month, so the subsidiary’s books should accrue them every month rather than recording them only when paid: about 8.33% of salary for the 13th salary (one-twelfth) and about 11.11% for vacation with the one-third bonus (one-twelfth times four-thirds), plus employer contributions and FGTS on both. In the example above, that means accruing roughly R$1,944 a month of entitlements, plus the charges on them. Monthly accruals keep the cost reported to headquarters stable and avoid surprises in December and in vacation months.

Benefits: mandatory by law and mandatory in practice

• Transportation voucher. The employer must provide it for commuting. It can deduct up to 6% of the employee’s base salary, and pays the rest.
• Meal or food vouchers. Not required by federal law, but frequently required by the collective bargaining agreement (CBA) and expected in the market.
• Health plan. Not required by law, but it is one of the most valued benefits in Brazil and a standard part of professional packages. It is often the largest benefit cost.
• Others set by the CBA, such as life insurance, childcare allowance or profit sharing (PLR), depending on the union and category.

The CBA deserves special attention. Each professional category has a union, and the CBA negotiated each year sets an annual collective wage adjustment (the dissídio) and minimum benefits that the employer must follow. Budgets should include that adjustment on the category’s base date, not only merit increases.

The cost of ending the employment relationship

Termination costs should be part of the budget, even if no one plans to use them:

• Notice period: 30 days for employees with up to one year at the company, plus 3 days per additional year, up to 90 days (Law 12,506/2011). It can be worked or paid in lieu.
• 40% FGTS penalty: in a termination without cause, the employer pays 40% of all FGTS deposits made during the employment, with interest and inflation adjustment (Law 8,036/1990, article 18, paragraph 1).
• Proportional entitlements: the proportional 13th salary and vacation, with the one-third bonus, are paid on termination.
• Termination by mutual agreement: since 2017, the parties may agree to end the contract; the employer then pays half of the notice in lieu and a 20% FGTS penalty instead of 40% (CLT, article 484-A).
• Deadline: termination payments are due within 10 days of the end of the contract (CLT, article 477).

See terminating an employee in Brazil for each type of termination.

What about directors and contractors?

Administrators who are not employees receive owners’ compensation (pró-labore), on which the company pays a 20% social security contribution (Law 8,212/1991, article 22, item III), without FGTS or the CLT entitlements. Hiring professionals as independent contractors or through their own companies is common in Brazil, but labor courts look at the substance of the relationship. If there is subordination and regular work like an employee’s, the contract can be reclassified as employment, with all the costs above added retroactively.

Budget checklist for headquarters

1. Budget each role at the full annual cost, not monthly salary times 12. A first estimate is 1.5 times before benefits.
2. Confirm the company’s RAT, FAP and FPAS code with the local payroll provider.
3. Check whether the activity was under the payroll tax relief, and plan for the step-up to 2028.
4. Read the CBA for the category: wage adjustment date, mandatory benefits and overtime rates.
5. Add the market-standard benefits (health plan and meal vouchers) to stay competitive.
6. Keep a provision for termination costs.
7. Make sure payroll, eSocial and FGTS filings are reconciled monthly with accounting, so the cost headquarters sees matches what is paid.

How Solidy can help

Solidy already serves subsidiaries of multinational companies in Brazil. Our Payroll and HR Administration team runs payroll and eSocial, keeps CBAs and benefits in compliance, models headcount costs for budgets, and reports payroll to headquarters reconciled with accounting. Talk to our consultants.