In order to grow your business in Brazil, you may need to hire independent contractors to support various project needs. However, it is important to first understand the regulations surrounding this worker type to remain compliant.
Hiring independent contractors in Brazil
Before hiring this worker type, you should first understand the difference between an employee and an independent contractor.
Employees vs. independent contractors
According to the Brazilian Labor Code, an individual is considered an employee when:
- They render services for an employer on a permanent basis, through an employment contract, governed by the Labor Code.
- They operate under the direction of the employer.
- They receive a salary for their work.
The independent contractor relationship is governed by civil law, and a contracted individual should be free to determine how and when their service is performed. Additionally, these individuals typically do not provide essential services for a company, and the relationship isn’t permanent.
Penalties for misclassification
Filing labor claims is free for workers, so misclassification penalties in Brazil are common. If your company misclassifies an employee as a contractor, you may face:
- Hefty fines and fine doubling for repeat cases
- Backpay for statutory rights with interest
How to hire independent contractors in Brazil
The independent contractor hiring process should involve 3 key steps.
1. Carefully conduct interviews.
Generally, the interview process will be the same for your independent contractors, but there are 2 factors to consider. First, you should clarify that you’re looking for a contractor in the job description posting. This step will help you find the right worker for the job.
Second, you should focus the interview on specific project needs. While employee interviews may focus on character traits and goals, contractor interviews should focus on skills, experience, and the specific project to be performed.
2. Create a service agreement.
While there are not many required provisions for independent contractors, clarifying terms is essential and will benefit both parties. Independent contractors have the ability to negotiate provisions, so you’ll have to create a contract of service. This contract should:
- Confirm if the contractor has an active legal entity for rendering the services.
- Establish a schedule and method of payment.
- Describe the project and when it’s considered complete.
- Outline termination conditions and any negotiated provisions.
3. Introduce necessities.
An important step in engaging the services of independent contractors is understanding how to work with them. Independent contractors should not receive the level of control or supervision that employees do. Independent contractors are generally free to perform the work according to their own schedule and methods.
While training programs can take away performance freedom from a contractor, introductions can be a helpful way to familiarize them with your company without overstepping boundaries. Give contractors the chance to meet the people they’ll work with and answer any questions they may have about the workflow and tools for the project.
How to pay independent contractors in Brazil
It’s common for independent contractors to receive pay on a project basis. Taxation is one of the more complex aspects of contractor status.
Companies are never required to make social security contributions or tax payments when the independent contractor is registered as a legal entity. If the independent contractor operates as an individual, companies are still responsible for income tax withholding and social security payments.
Terminating independent contractors
Both parties are free to negotiate termination conditions and terms, such as notice requirements. Independent contractors typically work on a project basis or for a set duration, so termination and extension are usually straightforward. Even so, it’s best practice to set clear terms for ending or extending the contract.
Turn to G-P when hiring independent contractors in Brazil.
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