In view of the pandemic scenario, the Government launched some programs in which one of the goals was to keep jobs and wages, including actions involving wage reduction through the reduction of working hours, as well as the possibility of a temporary suspension of the employment contract, thus allowing a cutback in the company’s cost in relation to payroll.
Some companies were forced to lay off their employees, as a way to resume activities when all of this is over and now, more than ever, it is necessary to make precise calculations, with one of them being the cost of the employee.
The cost of the employee has a fundamental role for business owners, since it directly impacts the company’s profit. In addition, considering the complexity of the labor legislation, correctly paying one’s employees will make total difference in the future relationship between the company and its employees.
In view of the economic and business recovery scenario, we provide a spreadsheet that allows the simulation of the cost of an employee, considering both options of presumed, real, or simple national profit. In order to access it, just send your information to the chatbot of our website, located on the right side of the screen, to automatically download it.
Unlike many countries around the world, in Brazil it is quite common to hear that employees cost the company twice their salaries, but is that true? The percentage varies according to some obligations that the company must comply with, especially in relation to the benefits and payments set forth in the collective agreements of the unions.
Costs of hiring
In order to demonstrate these hidden values, we list below the costs involved in hiring an employee:
This is the gross amount paid to the employee which is the amount agreed upon in the admission phase.
FGTS [Government Severance Indemnity Fund/Unemployment Guarantee Fund]
The company is required to collect 8% of the employee’s gross income on a monthly basis for the purposes of the Government Severance Indemnity Fund/Unemployment Guarantee Fund – FGTS]
INSS [National Social Security Institute]
This monthly contribution takes into account that the company’s costs are 20% relative to the employer’s contribution, 5.8% for the “S” System – third party categories and, usually, 1.5% of RAT/FAP, which is the Environmental Working Risks/Accident Prevention Factor.
It refers to the additional monthly installment that the employee is entitled to annually receive.
After one year [working] in the company, the employee is entitled to a vacation leave, which must be taken before completing two years [of work in the company] and, generally, the additional cost is 1/3 of the vacation; however, for those companies that need to replace this employee who went on vacation by hiring a temporary one, the additional cost would yet increase because of the salary of this additional person.
Paid amounts related to employee costs must be taken into account. Some of them are mandatory and established by CLT [Consolidation of Labor Laws], such as the transportation voucher. Others are set forth by the collective union conventions, and an example of this are the F & B vouchers, health insurance and life insurance plans, profit sharing, which also exist. There are also those, which must be taken into account, established by the company’s, such as gym programs and expense allowances.
There are still values that we believe that need to be considered in the cost estimation process, such as the FGTS for termination fines in the event of an employee’s dismissal, amounts related to the annual, five-year period of wave adjustment, etc., compensation paid and other expenses related to the termination of the employment agreement.
The issue involving allowances is very controversial, since there are understandings that, according to the usual practice, should be integrated into the salary and offered to taxation as if it were remuneration, but this is the subject of a new post.
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