Brazil profit sharing plans can mean big savings: Part 2 of 2

19 August 2015

The following is part two of a two-part series on the subject of Brazil profit sharing plans. Read part one.

In my last post, I outlined the basics of Brazil profit-sharing plans — known as “PLRs” — including how they can benefit both employers and employees. I also provided a high-level list of steps that must be completed when implementing a PLR plan. In this post, I’ll provide information on some other important — and often overlooked or misunderstood — facts about PLRs.

To begin with, employers should know that some unions offer template PLR plans in Portuguese. Be aware that these templates are designed to benefit the employees, do not focus on the company’s interests, and can be very general. Most companies will greatly benefit from using the advice of a qualified third-party expert to draft a PLR. This will ensure that your particular Brazil company’s interests are captured in the plan. For example, you may find it beneficial to include certain employee-performance targets or other relevant metrics to dictate PLR payments.

PLR plans are not required by every union in Brazil; however, PLRs are required in certain situations. For example, in January of this year, a collective bargaining agreement (CBA) related to IT companies and workers in the state of São Paulo was signed. The CBA made profit sharing mandatory for IT companies in this region, and those companies were required to open PLR negotiations by the end April 2015. This situation speaks to the targeted nature of many Brazilian employment regulations (e.g., by industry and region), and also to the increasing number of employers who are implementing PLR plans, either because of regulations or for the advantages the plans offer.

In cases where a PLR plan is mandatory, employers will face penalties for noncompliance. These penalties will vary by the union involved. For example, in the case of the São Paulo IT union mentioned above, noncompliant employers faced paying 7% of the CBA’s minimum wage per employee (depending on the employee role).

Employers should also be aware that any bonus not included in the PLR plan may be subject to taxation. In addition, any payments related to profit sharing must be made as an annual payment, which may be made in two installments at least three months apart. This limitation may have ramifications for employees who typically receive bonuses on a more frequent schedule, such as quarterly. Therefore, be sure to review the specifics of your local business, the employee level and their view on variable pay in your industry, as these factors may influence how to structure your PLR.

In summary, employers in Brazil should keep in mind that profit sharing plans represent real opportunities to save money on taxes and increase employee morale. In other words, there are serious advantages involved, not just obligations to fulfill. Based on my conversations with clients and prospects, these advantages can be underappreciated by employers until understood. So if you’re operating in Brazil without a PLR plan in place, now is a great time to reconsider your strategy and get a leg up on the competition.

Read part one of this series.