The current collective bargaining agreement (CBA) applicable to IT Companies based in São Paulo, includes an obligation for employers to send a request to the workers' union to open negotiations to establish a profit sharing plan, via e-mail or letter, by 6 July 2016. The profit sharing arrangements do not need to be in place by 6 July, but the company must communicate with the union by then to indicate its openness to start negotiations.
Companies required to comply with the CBA are those based in the State of São Paulo (ie any company with an HQ, branch, office or employees working in São Paulo on a permanent basis) whose core activity encompasses information technology services or data processing, including software developing, software consultancy, computer sharing, web hosting, IT consultancy, among others. In principle, the profit sharing rule applies to all companies, regardless of the workforce size, although specific negotiation conditions may apply in individual cases, so that during negotiations it may be open to companies to argue, for example, that this CBA provision is new and the company already pays bonuses based on results (which will not remove the obligation to offer profit sharing arrangements, but may give the company some flexibility to negotiate more favorable conditions for the profit sharing scheme, to reduce its impact).
In addition, companies that have an existing profit sharing plan are required to maintain it for future years (re-negotiate it on an annual basis), and any IT company covered by the CBA which belongs to an economic group that includes other companies in Brazil that already have a profit sharing plan, must extend the same conditions of the existing profit sharing plan to its employees.
This requirement cannot be met by offering a (new or existing) bonus plan to employees, as bonus is considered part of salary and cannot replace a profit sharing plan, which is required to be established under separate profit sharing legislation (which is treated entirely differently in terms of tax, etc.). However, profit sharing in Brazil does not necessarily have to be based on the profits of the company; it can be linked to clear and objective targets to be achieved by the employees. In addition, the payments made under a profit sharing plan benefit from a significant labor charges burden reduction as they are not considered as salary for tax, social contributions and labor charges (such as Christmas bonus, vacation, etc.) and they are subject to special and lower income tax rates. As such, profit sharing payments incur approximately 60% less charges than salary payments.
In the event of non-compliance with the CBA, companies will face the risk of:
- payment of a penalty corresponding to 7% of the minimum wage set out in the CBA (approximately USD 21 per employee); and
- a lawsuit seeking to enforce the CBA provision.
These penalties can be applied once in each period during which the CBA is in force ie once a year.