The System of Digital Bookkeeping of Fiscal/Tax, Social Security and Labor Obligations (“eSocial”) is a Brazilian federal government project to unify an employer's transmission of employment- and work-related data to various federal government institutions.1 The eSocial reporting system went live in January 2018 for companies with gross revenues exceeding R$78,000,000 (approx. $34,800,000 USD) in 2016. According to government officials,2 this group included more than 13,000 companies and 12 million workers. Notably, all other companies must start using this system as of July 16, 2018.
The eSocial reporting system's implementation was divided into four phases. Ninety-seven percent of the companies that have met the revenue threshold have reportedly completed phases 1 and 2 of eSocial's implementation, and are working on final adjustments to complete phase 3, which will require issuing payroll through the new platform. The last phase, which will require reporting of health and safety matters though the platform, will go live in January 2019.
July 16, 2018 Implementation Date
Following the apparent successful implementation of the eSocial system for large companies, authorities have decided to maintain the implementation schedule for small- and medium-size companies. Starting July 16, small- and medium-size companies will need to transmit company and employee registration information, which includes all the framework forms S-1000 to S-1080, as applicable. Companies will have until August 31, 2018 to submit the following forms, as part of Phase 1:
S-1000 – Employer Information
S-1005 – Schedule of Premises
S-1010 – Schedule of Payroll Items
S-1020 – Schedule of Tax
S-1040 – Schedule of Job Positions
S-1050 – Schedule of Working Hours/Shifts
S-1070 – Schedule of Judicial and Administrative Procedures
S-1080 – Schedule of Port Operators (if applicable)
Phase 2 will begin on September 1, 2018; Phase 3 on November 1, 2018; and Phase 4 in January 2019.3
The challenge for mid-to-small companies is that many might not have the internal structure to deal with the magnitude of this project and, therefore, most companies are either completely unaware of where to start or are heavily (and sometimes blindly) relying on their accountants and payroll providers. Either way, it is advisable for employers in Brazil to pay attention to eSocial requirements, as non-compliance or improper compliance can lead to fines and disruption to operations.
Government officials issued a notice on July 5, 20184 explaining that for now, companies will not be fined for non-compliance or delays in complying with the requirements of each phase, provided that, if audited, the companies can show they are attempting in good faith to comply with the eSocial requirements and the reason for delays or non-compliance relate to technical issues.
To help the smaller companies, the government has created a portal for micro companies and sole proprietorships (known as “MEI”) with a simplified access to the eSocial platform, similar to the existing platform used by individuals that employ domestic workers. This portal should become accessible on July 16, 2018.
On July 6, 2018, the government issued a newly revised manual for the implementation and usage of the system, which can be accessed at http://portal.esocial.gov.br/manuais/mos-v.2.4.02-publicado.pdf.
Because the government is having difficulties handling the high volume of company requests to electronically verify employees’ full names, dates of birth and corresponding tax/social security numbers, companies with a limited number of employees can upload information for up to 10 employees at a time directly to the eSocial portal and get instant confirmation.5 The e-verification, like the U.S. E-Verify system, is not mandatory but it is a crucial step, as companies are unable to enroll employees into the eSocial system if their personal information is not up-to-date. Common personal information mismatches include taxpayer numbers that have been suspended or voided, married or divorced women who changed last names, and wrong dates of birth. All such issues must be resolved by the individuals before the employer can legally continue their employment and/or hire them, as all employees must be registered into the eSocial reporting system for the employer to issue payroll, withhold and pay taxes and social contributions.