If your company operates in Brazil and you have not heard of eSocial or have not taken any steps yet to get ready to use it, time is running out. Starting January 8, 2018, all private employers in Brazil will have to report various employment- and tax-related information to the Brazilian authorities through the eSocial system.
The System of Digital Bookkeeping of Fiscal/Tax, Social Security and Labor Obligations (“eSocial”) is a Brazilian federal government project to unify the transmission of employment- and work-related data to the following federal government institutions: Caixa Economica Federal, the Brazil government bank that manages the Employee Savings Fund (“FGTS”) system; Social Security Institute (“INSS”); Social Security Ministry (“MPS”); Labor and Employment Ministry (“MTE”); and Internal Revenue Services (“RFB”).
The eSocial platform has 45 forms with 2,736 fields for data entry, most of which are the employer's responsibility. In many instances, an employer will have to fill out the same form for each worker, increasing considerably the number of forms that will be actually used and issued. Some of these forms need to be completed just once (except for updating) and will contain the framework of the company’s operating system, such as information regarding the employer, workplace, working hours and shifts, and job positions. Other forms will need to be filled out periodically, such as those relating to payroll, and others when non-periodic events take place, such as upon an employee's hiring or termination.
The implementation will take place gradually. Private companies are divided into two groups: Group 1, which includes private companies with a 2016 gross revenue of more than R$78,000,000 (approx. $34,800,000 in U.S. dollars), and Group 2, which includes all other companies, including small employers. Companies in each group must comply with the following timetable, except that companies from Group 2 may adopt the Group 1 timetable, if they so desire.
Click here to view table
The above table of forms can be overwhelming. Since August 1, 2017, the eSocial platform has been available to companies of all sizes to test their data and data transmission systems, but many companies in Brazil are still not prepared to comply with the rigorous program, and thus may be soon subject to significant fines.
To avoid fines and potential disruptions on a company’s ability to issue payroll, companies must create internal mechanisms to process the data and/or make sure that their service providers (i.e., HR, payroll, accounting, medical) are prepared to process and transfer the required data.
Companies cannot, however, entirely rely on third parties and should take a pro-active role. Companies that use external HR/payroll services must take some important steps: (i) review all their HR and payroll data for accuracy; (ii) discuss with the providers how they will collect, process and transfer the information to the eSocial system and create a plan; and (iii) renegotiate the service contracts with providers to include eSocial-related services, and provisions clearly defining both parties’ roles and liabilities in the collection, processing and transmission of the data, as well as indemnification clauses for a provider’s failure to submit timely reports or for reporting inaccurate information that can lead to penalties, administrative and judicial procedures.