Vilma Toshie Kutomi Fábio José Marino Duarte Gabriel Alves de Lucena May 23 2018 How to avoid overtime costs: overview of compensatory time off agreements Mattos Filho Veiga Filho Marrey Jr e Quiroga Advogados | Employment & Immigration - Brazil Vilma Toshie Kutomi, Fábio José Marino Duarte, Gabriel Alves de Lucena Employment & Immigration IntroductionIndividual compensatory time off agreements for specific daysBank of hours agreementsCommentIntroductionIn Brazil, regular working hours are eight hours per day and 44 hours per week, as set out by the Constitution. Employees who work overtime are entitled to statutory premium pay at one-and-one-half times the regular rate. This rate can be higher if so provided by collective bargaining agreements.As a result, companies often demand overtime work and must provide not only the premium pay costs, but also costs relating to other statutory employee benefits, such as severance funds, Christmas bonuses (13th salary) and holiday, given that these benefits include overtime in their calculation. On top of that, employers must collect social security taxes (the average is 28.8%) for overtime payments.Historically, employers have relied on compensatory time off agreements in order to relieve their overtime costs burden. In the event of a bank of hours agreement (ie, hours that can be offset from overtime hours with days or hours off), it should be based only on the collective bargaining agreement, as per the courts' precedent. In the past, the courts often voided compensatory time off agreements and granted overtime payment claims to employees on the grounds that their employer had failed to comply with legal requirements, such as acknowledging the existence of a collective bargaining agreement.However, the labour reform (Law 13,467/17), which came into force on November 11 2017, revised the labour laws in Brazil. The changes introduced more flexible requirements, which should curb litigation on compensatory time off agreements and encourage their use.Individual compensatory time off agreements for specific daysBefore the labour reform, employees could use compensatory time off to offset overtime worked on specific days, provided that an agreement to do so was in writing and the offset took place within one week. This sort of agreement was more frequently used for employees who worked more hours during week days, so that they could offset the hours that they had to work on Saturdays, or employees who wanted to leave early on Fridays or other week days.The labour reform allowed for verbal compensatory time off agreements and extended the offset period from one week to one month. These changes will likely make it easier for management and human resources departments to manage offsetting of working hours and thus avoid litigation on working hours matters.Bank of hours agreementsBank of hours agreements comprise a pool of hours that can be offset by the employees within a larger timeframe.Before the labour reform, bank of hours agreements were effective only if the collective bargaining agreement contained a provision allowing for this type of compensatory time off.The labour reform allows the use of individual bank of hours agreements, provided that they are zeroed within six months. In the event that they are extended more than six months, an collective bargaining agreement must be created.The labour reform overtly provides that regular overtime does not render bank of hours or any other compensatory time off agreements ineffective.CommentThe labour reform brought more flexible laws that tend to reduce overtime costs both on payroll and during litigation. However, human resources departments and supervisors must comply with the legal requirements that may render the agreement ineffective.In light of the labour reform, employers should review past contingencies to identify vulnerabilities and determine what type of compensatory time off agreement would better suit business needs and mitigate risks.For further information of this topic please contact Vilma Toshie Kutomi, Dario Abrahão Rabay, Fábio José Marino Duarte or Gabriel Alves de Lucena at Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados by telephone (+55 11 3147 7600) or email ([email protected], [email protected], [email protected] or [email protected]). The Mattos Filho, Veiga Filho, Marrey Jr e Quiroga Advogados website can be accessed at www.mattosfilho.com.br.