Following an extension to the original implementation timeline, Brazilian companies should now be preparing to use eSocial – the country’s digital reporting tool.

Following an extension to the original implementation timeline, Brazilian companies should now be preparing to use eSocial – the country’s digital reporting tool.

What is eSocial?

eSocial is the Brazilian government’s project to unify the sending of employer and employee data. It’s a digital bookkeeping tax, social security and labor obligations tool. This single system will replace the need to send separate reporting to Social Security, the Internal Revenue Service and Brazil’s Ministry of Labor and Employment.

eSocial is a joint project by federal government agencies and entities such as the Caixa Econômica Federal bank (responsible for FGTS – unemployment fund - maintenance), National Institute of Social Security (INSS), Ministry of Planning, Ministry of Labor and Employment (MTE) and the Internal Revenue Service of Brazil (RFB).

The expectation is that eSocial will reduce bureaucracy and increase corporate responsibility in providing information. The system is set to impact greatly on company management and governance, as eSocial will make labor regulation both clearer and more individualized.

History

eSocial has been in the works for several years. In January 2007, its first incarnation was announced through Decree 6022, and applied to tax reporting. Known as the Public Digital Bookkeeping System (Sped), companies were required to provide, in a digital and unified form, accounting and tax information that had previously been recorded in separate programs, books and forms.

Along with increasing government control over employer obligations, eSocial seeks to ensure social security and labor rights and improved labor, social security and tax regulations. In practice, eSocial is similar to the income tax declaration programs that have become part of business processes. Users input employment information including incomes and activities, and then transmit them electronically to the government.

Integration of companies’ computer systems with the eSocial national system will also enable automated communication with employers; with standardization and integration for registering individuals and legal entities under the participating agencies. The single delivery system is also intended to help various institutions find irregularities such as missed deadlines, miscalculations and inconsistent declarations.

Who needs to comply with eSocial and when?

Until recently, use of the eSocial portal was optional and it was used mostly by domestic employers. From January 2018, eSocial’s scope broadens and applies to all companies with revenues greater than R $78m in 2016. For all other companies, eSocial becomes mandatory from July 2018.

The latest timeline with mandatory dates for using the system was published in the Official Diary (DOU) on 2 September 2016, through Resolution no. 5/2016 of the eSocial Steering Committee.

  • Companies with revenues greater than R $78m in 2016 must use eSocial from January 2018 to report data such as registration, social security contributions and payroll, among others. From July 2018, these companies will also be required to use the platform to convey workplace information such as employee health, workplace safety, and workplace accident data.
  • All other employers, including small businesses, must use eSocial from July 2018. And workplace information will be required beginning January 2019. The current guidance manual for eSocial is version 2.2.

Obligations under eSocial

In practice, eSocial does not place additional obligations on companies. It is a change in the way information is delivered. The single file with standardized data and updated records facilitates monitoring, and accelerates clearance processes such as for the FGTS (unemployment fund) for example.

Preparation

Companies must adjust their systems now, in order to be ready to work with the eSocial test platform for company data, which goes live in July 2017 and subsequently be in a position to comply from January 2018.

Employer and employee information must be updated in order to meet the legislative requirements.