Categories: Business, Finance, LegalTags: , , 2.3 min read

For US companies looking to tap into Brazil’s talent pool, hiring independent contractors can be attractive. However, Brazilian labor law is highly protective of workers, and if a contractor’s working arrangement resembles an employment relationship, there is a significant risk that authorities will reclassify the contractor as an employee.

What Is Reclassification Risk?

Reclassification risk is the legal and financial risk that a contractor will be redefined as an employee by Brazilian authorities if their working conditions meet certain criteria. If reclassified, your company becomes liable for a host of employment obligations under the Consolidation of Labor Laws (CLT), including mandatory contributions and benefits. This reclassification can lead to additional costs such as:
  • FGTS (Fundo de Garantia do Tempo de Serviço): An 8% monthly deposit on the employee’s salary.
  • 13th-Month Salary: An extra month’s salary is paid annually.
  • Other Benefits and Contributions: Including social security, paid vacations, severance, and more.

Collectively, these obligations can increase your labor costs by roughly 60–80% over the base contractor fee.

The Four Key Characteristics of an Employment Relationship

To avoid triggering reclassification risk, it’s essential to ensure that your contractor arrangements do not inadvertently display these four characteristics:

  1. Personal Service: The worker must deliver the service personally, without delegating to others.
  2. Habituality (Continuity): The work is performed on a regular and ongoing basis, rather than for a one-off project.
  3. Subordination: The worker is subject to the employer’s instructions regarding how, when, and where the work is done.
  4. Onerousness (Regular Remuneration): The worker receives a fixed, regular payment for services rendered.

Mitigating the Risk with an Intermediary Agency

The safest way to avoid these risks is by partnering with an intermediary agency in Brazil, such as EnzRossi. When you hire through an agency:

  • Compliance Is Managed: The agency becomes the legal employer, assuming all employment obligations and significantly reducing the risk that your relationship will be reclassified.
  • Cost Predictability: Instead of facing an unpredictable increase in costs (up to 60–80% above a contractor’s fee), you pay a fixed fee to the agency that covers all employment-related expenses.
  • Value-Added Services: In addition to handling payroll, taxes, and legal compliance, EnzRossi offers talent hunting, thorough screening, and ongoing training—ensuring you get top-quality professionals without the risk of misclassification.

Conclusion

Reclassification risk is a real and costly challenge when hiring in Brazil. If your contractor arrangement shows signs of personal service, habituality, subordination, or onerousness—even in part—you might inadvertently trigger a reclassification that brings a 60–80% cost increase due to obligations like FGTS, the 13th-month salary, and additional benefits.

If any of these characteristics are present with your Brazilian contractors, you should talk to us

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