Brazil has gained an international reputation for its young, diverse, and highly-skilled workforce. It's no wonder so many global companies are choosing to hire contractors in Brazil. But when it comes time to pay them, you have another consideration—staying compliant with Brazil's complex labor, employment, and tax laws.
Before you issue your first payment to a contractor in Brazil, read this step-by-step guide to learn how to properly classify workers, onboard them, and pay them—all while staying compliant with Brazilian labor laws.
Step #1: Classify your workers
Classifying Brazilian workers correctly is crucial. Misclassifying employees as contractors (or self-employed workers) can result in fines, back taxes, and other harsh penalties from the Brazilian government. Penalties can include:
- Missing wages
- Unpaid employment taxes
- Statutory employment benefits the employee didn't receive
- Governmental fines and fees
Below are some of the characteristics of contractors and employees in Brazil, which can help you determine which classification is correct for your workers. Keep in mind that in a dispute, Brazilian courts look at the entire work relationship. The factors below may all be taken into consideration, and any one factor alone is unlikely to be enough information to determine an employer-employee relationship.
High level of control. Contractors should be able to choose when and how they work.
Less control. Employers can give directions to their employees on when and how to work.
Provide their own equipment and tools.
Employer provides equipment and tools.
Receive payments after submitting invoices for work.
Receive pay on a regular schedule.
Not entitled to statutory benefits.
Entitled to statutory benefits including minimum wage, paid time off, parental leave, etc.
Not subject to disciplinary action for misconduct. Instead, the work agreement can be freely terminated.
Can be subject to disciplinary action for misconduct.
Cannot be exclusive. Non-competes are often unenforceable for contractors.
Can be engaged by one employer exclusively.
Cannot be engaged indefinitely. Indefinite contracts are presumed to be employee contracts under Brazilian law. Instead, contractors should have per-project engagements.
Can be engaged indefinitely.
Step #2: Determine the best way to pay your contractors
Before you can pay your contractors in Brazil, you need to agree with them on how they'll get paid—and outline it in their employment contract. As global workforces and remote work have become more common, easy methods for making international payments have emerged, giving employers a lot more choices. Here are some options for paying contractors in Brazil:
- Local bank wires. You can open a Brazilian bank account and use it to deposit funds into Brazilian contractors' accounts. This is often the most straightforward way for contractors to receive payments, but it can be complicated to open a local bank account as a foreign entity.
- International bank transfers. SWIFT (Society for Worldwide Interbank Financial Telecommunications) allows you to transfer funds from your bank account in your home country to a contractor's account in Brazil. SWIFT transfers are highly secure, but they can be slow and come with hefty fees.
- Digital wallets or payment platforms. Note that not all digital payment platforms are available for contractors in Brazil (for example, Wise (formerly Transferwise) is only available for personal transactions, not business payments). Still, some employers use digital platforms to transfer money across borders. Remember that exchange rates can change from day to day, making it difficult to predict your outgoings.
- Local exchange brokers. Local exchange brokers in Brazil can facilitate international money transfers for you and your contractors. This is a simple solution since it outsources the hard work of navigating international payments. However, exchange brokers charge exchange fees and large spreads, which can make payments unpredictable.
- Cryptocurrencies. Some international companies avoid exchange rates altogether by paying their contractors in cryptocurrencies. This option requires you to be set up to pay in crypto, and for your contractor to be able to receive crypto as payment. It can also create an extremely complex tax situation both for you and your contractor.
- Global payroll services. Typically, contractors aren't included in payroll, since they aren't subject to the same withholdings as employees—instead, they invoice for their services, which goes through accounts payable for many companies.
Step #3: Use global payroll software to process payments
As you saw in Step #2, there are multiple ways to pay contractors in Brazil. But the fastest and simplest way is paying contractors through global payroll software.
With Rippling, you can pay contractors across the world.. Here’s a preview of how Rippling’s global payroll system works:
Step #4: Calculate and file your tax forms
Staying compliant with tax regulations when you hire an independent contractor in Brazil is complex, and can vary depending on where your business is based.
For example, Brazil has tax treaties with several other countries—including the US, UK, and Germany—to help Brazilian workers avoid double taxation. That means, if you're a US-based company hiring contractors in Brazil, you'll need to collect a form W-8BEN from each contractor to submit to the IRS. If the contractor is its own legal entity rather than an individual, you'll need form W-8BEN-E.
FAQs about paying contractors in Brazil
Do you need to withhold taxes when paying contractors in Brazil?
If the independent contractor is a separate legal entity in Brazil, you never need to withhold taxes on their behalf.
However, if the independent contractor is an individual, they're generally responsible for paying their own income taxes, but employers may be required to withhold social security contributions (and remit them to the INSS) for them in some cases.
Does Brazilian minimum wage apply to independent contractors in Brazil?
No, minimum wage laws don't apply to independent contractors in Brazil.
Do Brazilian contractors get benefits?
Employees in Brazil are entitled to certain benefits, such as social security, pensions, Fundo de Garantia do Tempo de Serviço (FGTS) fund contributions, severance pay, overtime pay, paid holidays, maternity leave, paternity leave, and more.
But independent contractors in Brazil are not entitled to benefits in the same way as employees.
Can you pay contractors in Brazil in your home currency?
No. While employees are covered by Brazil's employment laws, contractors in Brazil are covered under the Civil Code, and courts have interpreted it to require payments be made in the local currency, Brazilian Real (BRL).
Can you manually pay contractors in Brazil?
Small business owners often look to manual payroll processing as a cost-cutting measure. And while you can manually pay contractors in Brazil, doing so can be extremely time-consuming, especially as you scale your business—or if you work with multiple contractors in Brazil or other countries.
Manually paying contractors also opens your business up to some risks:
- Compliance. Manually paying contractors means assuming the risk of human error and omission. Protect yourself and your business with Rippling, which automatically enforces compliance with any applicable local laws—no matter where your contractors live.
- Security. Managing manual payments can also pose security risks, especially if you use spreadsheets or paper records. Sensitive employee information can be lost, stolen, or misused.
How do you turn a contractor into an employee in Brazil?
While hiring independent contractors over full-time employees can come with financial benefits, sometimes you do need a full-time employee. The challenge is making sure all the legal requirements are in order: Brazil's labor laws require payroll deductions, benefits, entitlements, and more for employees that you don't have to worry about for contractors.
Effortlessly manage your global contractors
You can pay international contractors directly through Rippling, meaning you need just one system to pay all types of employees—wherever they are.
Rippling and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any related activities or transactions.