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Unleashing Startup Potential in Brazil with an Employer of Record

CXC Global10 min read
CXC GlobalJanuary 17, 2024
CXC Global

The Brazilian Startup Ecosystem and the Role of an Employer of Record

Brazil is a thriving Latin American startup environment and has secured its place as a successful startup economy for many successful unicorns. Thanks to its massive size and market potential, Brazil has enjoyed favourable conditions with large organisations providing accelerator programs, incubators and funding opportunities.

Brazil is enjoying the growth of public policy initiatives and new legal frameworks supporting startups and promoting expansion of the startup environment. These include InovAtiva Brasil, StartOut Brasil, and Capital Empreendedor. Also, multiple government bodies are now involved in promoting and supporting the startup ecosystem, helping to attract investment to the region. These include as Invest.RioInvest São Paulo, and Agência Curitiba de Desenvolvimento e Inovação.

Today, foreigners can obtain a Permanent Visa (VIPER) for working in Brazil; a clear indicator that the country is supporting entrepreneurs and startups from abroad.

So…. the potential for startup growth in Brazil, is very real.

Crucially, for offshore startups and entrepreneurs looking to expand to Brazil, operations can be undertaken without setting up a business. Thanks to the concept of the Employer of Record, Brazilian companies can take on the HR and related activities of a new company wanting to settle there.

This is a game-changer for startups looking to navigate the Brazilian market, in the early days of operations; risks are low, and the opportunity to acquire significant learnings and insights about doing business in Brazil, are a hugely valuable ROI from an Employer of Record partnership.

Today, we’re looking at the top 10 advantages of partnering with an Employer of Record in Brazil. If you’re a startup looking for massive market and growth potential, read on!

The Top 10 Advantages of Partnering with an Employer of Record in Brazil

An Employer of Record is the legal employer of a worker in Brazil. The Employer of Record has extensive local knowledge and expertise and manages all compliance aspects of employment, including payroll management, taxes, statutory employee benefits, employment contracts, severance pay and much more.

An Employer of Record is an employment solution that allows startups to quickly and compliantly hire Brazilian-based talent – without opening a local legal business entity.

1. Navigating Legal and Regulatory Compliance

Brazil has strict labour laws and regulations that govern employment contracts, benefits, and taxes.

By partnering with an Employer of Record, startups are guaranteed that staff in Brazil are compliant with local laws. Brazil also has strict regulations regarding worker misclassification. The Employer of Record will ensure the startup doesn’t misclassify workers, therefore avoiding statutory fines, back taxes, legal costs, and other penalties. The Employer of Record’s experts will ensure that Brazilian labour laws including payroll tax, social security, onboarding, probation, leave entitlements, and termination timeframes are all adhered to.

An Employer of Record partner allows the startup’s time to be freed up so they can channel their focus and energy on core business activities, while undertaking global expansion. The Employer of Record allows for market expansion to accelerate much faster than if the startup were to set up a business entity on their own, in Brazil. Just like how HR software helps a business simplify tasks, the Employer of Record makes a startup operation compliant, lean and efficient.

From the perspective of Brazil-based employees, they have the assurance and peace of mind, that they’ll be taken care of by a local business entity: they’ll be paid, they’ll have access to all statutory benefits, and they’ll be paying the correct taxes.

2. Streamlining Payroll and Tax Administration

Managing payroll and taxes in a foreign country can be incredibly challenging given the varying nature of tax laws and regulations. An Employer of Record partner in Brazil will efficiently handle these facets, ensuring accurate payroll processing and tax deductions. Thankfully, the Employer of Record’s expertise is there to navigate the complicated and unfamiliar tax and labour laws – leaving the startup to focus on core business activities.

In establishing a startup in Brazil, maintaining employee satisfaction and avoiding legal complications is critical to startup growth and the smooth running of new operations: something the Employer of Record will handle.

The other advantage is this: hiring an international employee via an Employer of Record means the startup’s technology system need not house workforce data, run payroll or manage worker benefits. All of this is managed by the Employer of Record. The startup won’t have to waste time learning tax and HR laws or ensuring they’re running a compliant payroll system.

In streamlining payroll and tax administration in Brazil, the Employer of Record will:

  • Hold in-country registration with the relevant statutory bodies.
  • Onboard new Brazilian workers for the startup.
  • Set-up these workers with the correct employee benefits.
  • Manage accruals and staffing allowances.
  • Manage day-to-day payroll management.
  • Distribute worker payslips.
  • Submit taxes.
  • Provide real-time data back to the startup about their Brazilian team in relation to pay, leave, and tax withholdings.
  • Maintain statutory compliance of all Brazil based workers in the startup.
  • Keep financial operations running smoothly, in compliance with local tax laws, giving the startup confidence and peace of mind.

The Employer of Record lets startups focus on strategic tasks, on growing their local Brazilian operations and on building up local knowledge: not on admin.  The streamlining and automating of a startup’s Brazil-based HR function will save hours of admin time, and significantly reduce human error.

3. Facilitating Quick Market Entry

Along with mitigating the risk of legal requirements, payroll, tax and immigration issues for startups, probably the biggest benefit of partnering with an Employer of Record is the speed with which startups can commence operations in Brazil. This convenient and cost-effective process is particularly handy for smaller companies – like startups – who lack corporate infrastructure to manage local staff obligations.

Employer of Records can significantly speed up a company’s startup expansion into the Brazil market. As a quick way to employ staff in Brazil without the need for a legal entity, the go-to-market timeframe is vastly accelerated, facilitating swift growth in the region.

Establishing a legal entity in Brazil is a cumbersome and expensive process. An Employer of Record helps startups to quickly expand and build a local Brazilian team. This enables the startup to concentrate on business plans and strategies without the distractions of setting up an entity, directly growing a team and the endless headaches associated with navigating a new market.

4. Reducing Operational Costs

An Employer of Record helps startups expanding in Brazil to reduce costs associated with establishing and maintaining a legal presence in the country. These include:

  • Minimising workforce compliance errors and the associated penalties.
  • Saving startups operational and entity registration and setup costs.
  • Providing startups with transparent costs in hiring and compensating employees.
  • Reducing the HR costs associated with managing locally based workers.
  • Enabling startups to hire expediently.
  • Reduced need for additional HR and payroll staff.
  • Reduced need for additional legal staff.
  • Savings on infrastructure costs.
  • The Employer of Record lets the startup test the Brazil market first, to see if it’s a good fit, before making significant operational investments.

Importantly, when the startup’s HR workload is reduced, and processes streamlined, this gives employees the time to complete their workload that drives profits — for example, providing services, creating products or liaising with clients. This saves the startup significant overhead costs, while helping to accelerate growth.

If the startup management is spending time managing payroll, researching and learning compliance regulations or undertaking other internal, operational tasks, this is an overhead cost — that is, management will be spending time invested in performing tasks that spend money instead of spending time on performing tasks that make money.

5. Offering HR and Administrative Support

Employer of Record providers in Brazil will hire workers on behalf of the startup while also taking on the legal responsibility for them. This includes compliance with payroll processing regulations and statutory employment laws. They will also manage the employment process, including:

  • Issuing employment contracts
  • Onboarding of local employees
  • Eliminating the need for work visas
  • Payment of wages, taxes and benefits
  • Background checks
  • All other human resource functions

The Employer of Record takes care of the human resources function, including payroll processing, for employees of the startup in Brazil. Separately, the startup’s management will be responsible for managing the day-to-day activity of their workers, their operations, and growing their business.

6. Mitigating Employment Risks

Partnering with an Employer of Record allows the startup to shift the responsibility of legal and compliance employment risks to them. They possess a wealth of knowledge on Brazilian labour laws and can help the startup reduce the risk of employment disputes, lawsuits, and penalties.

Therefore, startups entering the Brazil market will avoid the risks involved in international workforce hiring. As the Employer of Record is responsible for the hiring and employee related liabilities of the startup, their risk profile is minimised especially in relation to international labour taxation laws and other compliance laws.

Should any employment-related legal issues arise, the Employer of Record company would share the liabilities with the startup and protect them from imminent risk. 

7. Providing Flexibility in Workforce Management

Creating flexibility in how the startup manages their workforce is important in growth phase. With potential uncertainty of how the market will respond to the organisation’s offer, there’s a critical need to be able to scale up or down, based on market response.

Partnering with an Employer of Record in Brazil allows startups to scale their operations based on market conditions, without the cost and complexities associated with in-country incorporation. Startups in growth phase, will look to avoid establishing internal systems and structures in Brazil from day one. Their Employer of Record partner agreement will take care of the HR, people and compliance issues, and will grow and expand in line with the startup.

Startups keen to accelerate growth may want to expand their workforce quickly. This will be challenging without a dedicated internal HR operation already in place, in Brazil. The Employer of Record can provide startups with the flexibility to scale their workforce as needed, without the burden of managing additional HR-related activities.

8. Access to Local Expertise and Insights

For startups seeking to grow and expand operations in Brazil, finding employees with the right experience and market knowledge can be a difficult but necessary exercise. Having a local Employer of Record partner, is helpful for startups looking to expand their operations. The Employer of Record has the knowledge of local Brazilian market, local benchmarks, currencies and language as well as an understanding of best practices in the Brazil business landscape, that the startup needs to succeed.

An Employer of Record will provide startups with access to expertise that may not be available in-house. As they specialise in employment-related activities, they can provide startups with guidance and support on compliance, benefits administration, and other HR-related activities. This can be particularly valuable for startups that may not have HR staff, or HR staff with extensive experience.

9. Enhancing Employee Benefits and Satisfaction

The Employer of Record in Brazil will manage both the mandatory and non-mandatory benefits distribution for the locally based workers of new startups.

Employers of Record in Brazil hold local relationships with a host of benefits providers, from pension funds to health insurance providers, from training companies to wellness suppliers. The Employer of Record supports the startups’ employees under their responsibility, through the provision of benefits from locally based relationships.

The mandatory benefits managed by the startup’s Employer of Record partner in Brazil, include:

  • Health Insurance.
  • Workers’ compensation.
  • Leave entitlements: annual leave, sick leave parental leave.
  • Overtime.
  • Public holidays.
  • 13th month salary distribution (in Brazil, it’s mandatory to pay employees an additional month’s salary at the end of the calendar year. This is called the ‘13th month salary’. Employers must provide this benefit to all employees who have worked all 12 months of the year).
  • Vacation bonus.
  • Transportation voucher for workers commuting on public transport (for non-remote workers).
  • Daycare assistance (mandatory for organisation’s with more than 30 female workers, otherwise optional).

Customary non-mandatory benefits in Brazil include:

  • Life insurance.
  • Extended maternity and paternity leave.
  • Flexible working arrangements.
  • Education and training opportunities.
  • Home office allowances.
  • The matching of employee’s charitable donations.
  • Fuel allowances.
  • Wellness perks.
  • Stock options.
  • Private pensions.

By offering competitive non-mandatory employee benefits, the Employer of Record helps to boost worker engagement levels, retention and satisfaction.

10. Focusing on Core Business Activities

With the local expertise of Employers of Record in Brazil, startups are free to focus on the core business functions without worrying about compliance, administration, tax or other obligations. It’s the Employer of Record’s job to navigate the complex and unfamiliar tax and labour landscapes – not the startup’s.

A key benefit of an employer of record is that it helps startups to expand their workforce efficiently, and to reclaim lost operational time, giving employees more time to focus on commercial initiatives and output, not admin. When the employer of record streamlines admin and HR processes, startup employees and management can use their newfound time to:

  • Brainstorm new product developments and markets.
  • Prioritise customer requirements and related process efficiencies.
  • Brainstorm operational efficiencies to decrease overhead costs.
  • Develop internal policies to evolve their business culture and workplace.
  • Attend professional development training in support of growing their technical expertise.
  • Contribute positively to the development of the startup’s new growth markets outside of Brazil.

By leveraging the services of the Employer of Record to automate and streamline HR, compliance, and tax-related responsibilities, the key stakeholders in startups can significantly reduce their admin workload and free up valuable time to focus on their primary roles, and the primary or diversified offerings of the business.

And of course, the advantages of Employers of Record go beyond the startup founders or senior-level executives. When operational efficiencies are realised and the time of key stakeholders is freed up, this directly translates into benefits for employees. With fewer administrative tasks to complete, employees can fully embrace the advantages offered by the Employer of Record and dedicate their time to innovation, brainstorming, and project work, ultimately fostering a more productive and dynamic work environment.

Leveraging an Employer of Record for Strategic Growth in Brazil

Expanding a startup into the Brazilian market presents enormous opportunity. And an Employer of Record partnership in this market will provide valuable benefits to accelerate the startup’s growth.

The key benefits of a startup engaging an Employer of Record partner in Brazil are:

  1. Allowing the startup to successfully navigate the legal, regulatory and compliance laws of Brazil
  2. The streamlining of the startup’s payroll and tax administration function
  3. Facilitating a quick entry into the Brazilian market
  4. Reducing the operational costs of expanding into the Brazilian market
  5. Offering local HR and administrative support
  6. Mitigating the startup’s employment risks in Brazil
  7. Providing flexibility in workforce scaling and management
  8. Providing access to local expertise and insights
  9. Having access to an enhanced employee benefits scheme
  10. Providing the ability of the startup to focus on core business activities

For startups that are looking to grow and succeed in Brazil an Employer of Record can be a critical part of their strategy.

So, if you’re looking to expand your global startup’s footprint, get in touch with CXC. We have the local resources, knowledge and professional insights to make Brazil a hugely successful venture for your startup.

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About CXC

At CXC, we want to help you grow your business with flexible, contingent talent. But we also understand that managing a contingent workforce can be complicated, costly and time-consuming. Through our MSP solution, we can help you to fulfil all of your contingent hiring needs, including temp employees, independent contractors and SOW workers. And if your needs change? No problem. Our flexible solution is designed to scale up and down to match our clients’ requirements.

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