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Employment reform moves forward in Brazil

Written by
Veirano Advogados, one of the leading and most renowned Brazilian business and employment law firms.
New employment reforms enacted in Brazil include enhanced conditions for first jobs, changes to the tax and social insurance status of insurance premiums and a range of smaller changes to the Labour Code.

On 11 November 2019, President Bolsonaro enacted the Provisional Measure 905/19 (‘MP 905/19’) bringing relevant changes to the employment legal framework.

MP905/19 is a presidential decree with immediate effect but needs ratification by the Congress to become a new law, or it will automatically cease to have effect in 120 days. It consists of two parts. First, there is a new format of employment agreement intended to foster the first employment of young workers. Then there are amendments to the Labor Code, further to the 2017 Reform. Below is a summary of the items of main practical interest to multinational organisations.

The ‘Green & Yellow Employment Agreement’

What’s new

An alternative transitional form of employment, described in the media as the ‘Green & Yellow’ employment agreement, is being made available for new positions between Jan 2020 and Dec 2022, for up to 20% of workforce. It is not available to former employees.

It is available for positions whose salary is 1.5 the national minimum wage, that is, BRL 2,245.50 (USD 535.92 in November 2019). Traditional employment rights apply, including working hours and compensation, but this alternative form of employment will have the following special terms and conditions:

  • Employment for a term of up to 24 months. The employment will automatically be subject to the standard rules if duration exceeds 24 months.
  • Employee will receive a prorated 13th salary and paid vacations along with monthly salary.
  • Monthly FGTS (severance fund) payments by the employer at the special rate of 2% of total compensation (instead of 8%).
  • The parties may agree to anticipate the FGTS penalty for involuntary termination, which will be of 20% of the FGTS deposits (instead of 40%), provided that anticipated payments will not be refundable irrespective of the form of termination.
  • Lifting of social charges on payroll, including social security.
  • If the employer stipulates an accident insurance policy, there will be new conditions for premiums for hazardous work, consisting of 5% of salary (instead of 30%) for workers who spend at least 50% of work hours exposed to the risky element (instead of exposure for any time). This may be a matter of controversy in constitutional court.


Social contribution on top of the FGTS severance fund


The termination of an employment agreement for convenience by the company (without just cause), required it to pay a contribution to the social security system equal to 10% of the total deposits made into the employees FGTS account (FGTS being a severance fund consisting of monthly deposits of 8% of total compensation).

What’s new

This contribution has now been revoked.



Only spontaneous premiums, meaning those not stipulated by contract, were considered to be exempt from social security tax and other payroll costs.

What’s new

New rules make premiums exempt from payroll costs (employment benefits and social security). These include preset rules of eligibility; a payment plan with a maximum of four installments per calendar year and one per quarter and a reward for extraordinary performance as described in the premium eligibility rules.

Main changes to the Labour Code (the ‘CLT’)

A number of changes have been made to the Labour Code including the following key points:

  • Work on Sundays and bank holidays no longer requires prior authorisation by the government. Work hours, overtime and the mandatory day of rest remain in effect.
  • Profit sharing agreements stipulated between a company and a commission of workers no longer require union participation.
  • New rules on the terms and conditions of eligibility for profit sharing agreements have been implemented.
  • There are new rules on bank employees’ working hours, in particular, the traditional six-hour day now only applies to cashiers, whereas all other bank employees will follow a standard eight-hour day.
  • Electronic filing of all relevant employment documentation.
  • Increase in administrative fines (applicable to pre-existing infractions).
  • New rules on public inspection have been introduced, in particular, one that stipulates that a fine will be imposed only if the company persists in an infraction after a notice to mend its conduct.
  • Commuting accidents are no longer treated in the same way as work accidents.


Interest and inflation rates accrued on judicial debts


Interest has always been at 1% per month, more than the bank would pay if the company deposited the disputed amount with the court. Also, there has been recent controversy on the official inflation rate, causing uncertainty about organisations’ reserves.

What’s new

The applicable interest rates will be those determined by the Central Bank for savings accounts (around 6% to 7% per year) and IPCA-E will be the official rate to recoup inflation. While the new inflation rate is higher than the traditional one, interest will decrease substantially.

José Carlos Wahle
Partner - Brazil
Veirano Advogados