Components of severance pay

 

Severance pay encompasses the financial rights owed to an employee upon the termination of the employment contract. For foreign investors, understanding these components is essential to ensure legal compliance and avoid potential disputes. The primary elements include:

• Salary Balance: Payment for the days actually worked in the month of termination.
• Notice Period: This can be worked or indemnified, depending on the circumstances of the dismissal. In Brazil, the notice period is at least 30 days, with an additional 3 days for each year of service, up to a maximum of 90 days.
• Accrued and Proportional Vacation: Includes the constitutional additional one-third over the vacation pay.
• Proportional 13th Salary: Calculated based on the months worked in the current year.
• 40% FGTS Fine: Applicable in cases of dismissal without just cause, as per Brazilian legislation.

Accurate calculation and payment of these amounts are fundamental to maintaining compliance with local labor laws and preserving the company’s reputation in the Brazilian market.

 

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Legal deadlines for payment of severance

 

According to Article 477 of the Consolidation of Labor Laws (CLT), the employer must pay the severance amounts within 10 calendar days after the termination of the contract or the notice of dismissal. This deadline applies regardless of the reason for termination, whether initiated by the employer or the employee. It’s important to note that if the last day of the deadline falls on a Saturday, Sunday, or holiday, the payment can be made on the next business day without incurring penalties.

 

 

Consequences of missing deadlines

 

Failure to comply with the established deadlines for severance payments can result in significant penalties for the company. As per § 8º of Article 477 of the CLT, the employer is subject to a fine equivalent to the employee’s salary, in addition to possible additional sanctions. For foreign investors, such penalties can negatively impact the company’s operations and image in Brazil.

 

Recommended procedures for foreign investors

 

To ensure compliance with labor obligations and avoid legal complications, foreign investors should consider the following steps:

1. Proper Formalization of Contract Termination: Ensure the correct signing of the Termination of Employment Contract Term (TRCT) and the updating of the employee’s Work and Social Security Card.
2. Accurate Calculation of Severance Amounts: Utilize reliable payroll systems or hire specialized services to ensure precision in calculations.
3. Strict Adherence to Legal Deadlines: Monitor deadlines closely to avoid delays and potential fines.
4. Complete and Organized Documentation: Maintain detailed records of all procedures related to termination for audit and compliance purposes.

 

Importance of specialized consultancy

 

Navigating the complex Brazilian labor system can be challenging for foreign companies. In this context, partnering with specialized consultancy firms is highly advisable. With over 40 years of market experience, CLM Controller offers accounting, tax, labor, financial, and paralegal advisory services. Their expertise ensures that foreign companies meet all legal obligations, avoiding penalties and ensuring smooth operations in Brazil.

 

Final considerations

 

For foreign investors, understanding and adhering to the legal deadlines for severance payments in Brazil is essential to maintain legal compliance and protect the company’s interests. Adopting recommended practices and partnering with specialized consultancies, such as CLM Controller, are strategic steps to ensure successful operations and avoid labor complications in the Brazilian market.