News
31/05/2022

Three types of variable compensation practiced in Brazil to engage employees

It is common sense that the main asset companies have is their employees. Having employees engaged with the company’s values and objectives certainly impacts the company’s results – in a very positive way!

Although other aspects should be considered by employers to improve the individual’s development and increase his productivity, such as career ascension perspective, granting of benefits, and flexible working hours, the financial aspect is obviously one of the most  important items that, if not competitive within the market, may reduce employees’ engagement and present a decisive factor for leaving the company. Therefore, it is important to compensate and reward professionals in a way that will fully engage them with the business.

Here are the most common ways of rewarding employees in Brazil and a few comments on them:

Bonus

This is the amount received by the employee related to the achievement of certain goals/performance. It has the nature of salary, which means that the amount paid is subject to labor, tax and social security charges.

The main advantage of implementing abonus policyis that the company may define the rules and conditions that will apply to it. On the other hand, once the company applies the policy habitually, it will not be able to eliminate or reduce the potential bonus in the future without risk, since the change may be considered as a detrimental change to the employment agreement, which is not allowed by law.

If the company does not havea formal document regulatingthe rules and conditions for the payment of bonuses, employees may challenge the validity of the procedure (the amounts due, potential differences between employees, etc.), as well as request, depending on the situation, the payment of differences, regardless of the lack of performance in a certain year and salary equalization, for instance.

Premium

Defined by the Consolidation of The Labor Laws (CLT), premium is the amount and/or service and/or goods paid or granted by the employer as a mere liberality due to an outstanding performance of the employee during the employment relationship.

The individual should not expect this payment. It is usually a discretionary payment not linked to an ordinary performance from the employee.

The Brazilian legislation establishes that the amount is not subject to labor, tax and social security charges. However, in the event of a judicial dispute or administrative inspection, the company should be able to evidence that the payment was due to an outstanding performance.

Profit Sharing Plan (PLR)

Law No. 10,101/2000 establishes rules for implementing the PLR, which may include the achievement of the employee’s and/or company’s goals.

If the criteria established by law is met, the amounts paid under the PLR are not subject to labor and social security charges – tax charges are applicable at a lower rate.

There are two possibilities for the company to negotiate PLR terms: (i) negotiation with the union by executing a collective bargaining agreement solely for this purpose; or (ii) negotiation with an employee’s committee, composed by employees indicated by the company and participants elected by the remaining employees. This committee should be assisted by a union representative. In either alternative, it is necessary to execute a written agreement.

In addition, note that the Labor Courts are used to granting the payment of PLR to employees who did not work for the entire period (the amount is granted proportionally to the period worked), because they consider that the employee engaged himself/herself for the company’s results.

Below are the main criteria established by law:

  • The goals, deadlines and expected results must be defined before the start of the period (even though the signature of the plan occurs after), so the employee will have time enough to try to achieve them.
  • The plan should stipulate mechanisms for verification of the results in order to allow the employees to pursue the results (either the company’s results or their own).
  • The legislation allows the payment of the amounts in up to 2 installments during the calendar year (January – December) and the installments cannot be paid within only one trimester.

It is extremely important that the employer knows that in Brazil there are specific terminology and rules for the payment of variable remuneration. Many times, the form practiced abroad has important repercussions here, which if not observed, can expose companies to serious labor risks.