Employment Contract Checklist: What Your Lawyer Should Cover

Answer capsule: Hiring your first employee in Brazil is nothing like hiring in the US, UK, or most of Europe. The CLT (Consolidação das Leis do Trabalho) mandates 13th salary, FGTS deposits, paid vacation with a bonus, and termination costs that can reach 5 months’ salary. Your lawyer should cover all of this before you sign anything — and warn you about the PJ contractor trap that catches most foreign employers.

Why Brazilian Employment Law Surprises Foreign Employers

Brazil’s labor code — the CLT (Consolidacao das Leis do Trabalho), enacted in 1943 and updated continuously since — is one of the most employee-protective in the world. Coming from the US (at-will employment) or the UK (notice periods but manageable termination), foreign entrepreneurs are consistently shocked by:

• Mandatory costs adding 70–100% on top of base salary — FGTS, INSS employer contribution, 13th salary, vacation bonus, and other charges mean a R$10,000/month employee actually costs R$17,000–R$20,000/month
• Termination costs that can exceed 5 months’ salary — and you can’t avoid them through contract language
• The PJ misclassification risk — using independent contractors (PJ — pessoa jurídica) when the relationship is actually employment, exposing you to back-pay claims going back 5 years

This checklist covers what your employment lawyer should address before you hire your first person in Brazil.

The Checklist: 15 Items Your Lawyer Must Cover

“The PJ misclassification risk is the single biggest legal exposure for foreign employers in Brazil. Brazilian labor courts apply the primacy of reality principle — they look at how the relationship actually works, not what the contract says.” — Zachariah Zagol, Founding Partner, OAB/SP 351.356

1. Contract Type: CLT vs. PJ — and the Legal Reality

CLT (formal employment): The worker is your employee. Full labor protections apply. This is the default assumption under Brazilian law.

PJ (contractor/service provider): The worker provides services through their own company (usually an MEI or Simples Nacional entity). No labor protections.

The critical rule: Brazilian labor courts look at the substance of the relationship, not the contract label. If a PJ worker:

• Works fixed hours at your office
• Reports to a supervisor
• Can’t refuse work or send a substitute
• Depends on you for most of their income

…then a labor court will reclassify them as CLT, and you’ll owe all back benefits — 13th salary, FGTS, vacation pay — for the entire period, plus penalties. I’ve seen reclassification claims exceeding R$200,000 for a single worker.

Your lawyer should: Clearly explain when PJ is legally safe (project-based, autonomous, multiple clients) and when it’s not. If they say “everyone uses PJ, it’s fine” — find another lawyer.

2. Mandatory Salary Components

Your lawyer should itemize every mandatory component:

Total employer cost: For a R$10,000/month base salary employee in São Paulo, expect total monthly cost of R$17,000–R$20,000.

3. Working Hours and Overtime

Standard: 44 hours/week, 8 hours/day (Monday–Friday) + 4 hours Saturday, or 8h48 Monday–Friday with no Saturday.

Overtime pay: Minimum 50% premium on weekday overtime, 100% on Sundays and holidays. Your contract must specify the overtime regime.

Banco de horas (time bank): An alternative where overtime hours are compensated with time off rather than extra pay. Must be established by collective bargaining agreement or individual written agreement (for 6-month compensation periods).

Your lawyer should: Draft clear working-hour provisions that comply with both CLT and the applicable collective bargaining agreement (convenção coletiva) for your industry and region.

4. The Applicable Collective Bargaining Agreement (CCT)

This catches most foreign employers off guard. In Brazil, collective bargaining agreements are mandatory — they apply to all companies in a sector/region, whether or not you’re a union member. The CCT may require:

• Minimum salary floors above the national minimum wage
• Specific benefit requirements (health insurance, dental, life insurance)
• Annual salary adjustment percentages
• Profit-sharing (PLR) obligations

Your lawyer should: Identify which CCT applies to your company based on your CNAE code (economic activity classification) and location, then incorporate its requirements into your employment contracts.

5. Probation Period (Período de Experiência)

Maximum: 90 days (can be split into two periods, e.g., 45 + 45 days).

During probation: Employee has full CLT rights, but termination is simpler and cheaper — no 40% FGTS penalty, no advance notice requirement.

After probation: Full termination costs apply.

Your lawyer should: Always include a probation period clause. Not including one means full termination costs apply from day one.

6. Termination Costs — The Number That Shocks Everyone

When you terminate an employee without cause (demissão sem justa causa) after the probation period:

Example: An employee earning R$10,000/month, terminated after 2 years:

• Advance notice: R$10,000 (30 days) + R$2,000 (6 extra days) = ~R$12,000
• FGTS penalty: ~R$7,680 (40% of 24 months × R$800/month deposits)
• Proportional 13th: varies by month of termination
• Proportional vacation: varies
• Total termination cost: R$30,000–R$50,000 depending on timing

Your lawyer should: Model termination costs for you before you hire, so there are no surprises.

7. Termination for Cause (Justa Causa)

Termination for cause eliminates most termination costs — but the bar is extremely high. Valid reasons under CLT Art. 482:

• Dishonesty (ato de improbidade)
• Insubordination
• Habitual drunkenness or drug use at work
• Abandonment of employment (30+ consecutive days absent)
• Criminal conviction

Reality check: Brazilian labor courts are protective of employees. “Poor performance” is NOT just cause. “Cultural fit” is NOT just cause. “Restructuring” is NOT just cause. If you terminate for cause and the employee challenges it in court — which happens frequently — the burden of proof is on you, and courts reverse justa causa in roughly 70% of contested cases.

Your lawyer should: Explain that justa causa is a last resort, not a cost-saving strategy, and help you document progressive discipline if you’re heading in that direction.

8. Non-Compete Clauses

Brazilian courts enforce non-compete clauses, but with strict requirements:

• Duration: Maximum 2 years (courts often reduce longer periods)
• Geographic scope: Must be reasonable and defined
• Compensation: The employer MUST pay the employee during the non-compete period. An unpaid non-compete is unenforceable
• Scope: Must be limited to activities that genuinely compete — overly broad clauses are struck down

Typical cost: 50–100% of the employee’s last salary, paid monthly during the restriction period.

Your lawyer should: Draft non-compete clauses that will actually hold up in court, not US-style broad restrictions that Brazilian judges will ignore.

9. Intellectual Property and Work Product

Under Brazilian copyright law (Lei 9.610/1998), works created by employees within the scope of employment belong to the employer — but only if the contract explicitly addresses this. For software specifically, Lei 9.609/1998 applies.

Your lawyer should: Include clear IP assignment clauses covering software, inventions, trade secrets, and creative works. Without these clauses, ownership disputes are common and expensive.

10. Remote Work (Teletrabalho)

Post-pandemic reforms (Lei 14.442/2022) formalized remote work rules:

• Must be expressly stated in the employment contract
• Employer is responsible for providing equipment and infrastructure (or reimbursing costs)
• Home office expenses (internet, electricity) should be addressed
• Workplace safety obligations extend to the home office

Your lawyer should: Draft a remote work addendum if applicable, specifying equipment provision, expense reimbursement, and communication expectations.

11. Health and Safety Plan (PCMSO/PGR)

All employers must maintain:

• PGR (Programa de Gerenciamento de Riscos) — risk management program
• PCMSO (Programa de Controle Médico de Saúde Ocupacional) — occupational health program
• Admission and periodic medical exams for all employees

Cost: R$2,000–R$8,000/year for a small company (outsourced to a specialized occupational health firm).

12. Data Protection (LGPD) in Employment

Your employment contracts must address:

• Employee consent for data processing (or legitimate interest basis)
• What employee data you collect and why
• Data retention periods after termination
• Employee rights regarding their personal data

13. Benefits Beyond Legal Minimums

While not legally required, market-standard benefits in Brazil’s major cities include:

• Health insurance (plano de saúde): R$500–R$2,000/month per employee depending on plan and city
• Dental plan: R$50–R$150/month
• Life insurance: R$30–R$80/month
• Meal/food vouchers: R$600–R$1,200/month

Not offering competitive benefits makes hiring significantly harder, especially in São Paulo and tech sectors.

14. Profit-Sharing (PLR)

Profit-sharing (Participação nos Lucros e Resultados) is negotiated via the CCT or a separate PLR agreement. Key rules:

• Must be based on objective performance criteria
• Cannot be paid more frequently than semi-annually
• Has favorable tax treatment for the employee (separate tax table)
• Is NOT considered salary for FGTS/INSS purposes — making it a tax-efficient compensation tool

15. Union Contributions and Relations

Since the 2017 labor reform, union contributions are no longer mandatory. However:

• The CCT still applies regardless
• Union representatives have special job protection (estabilidade)
• Some sectors still have strong union presence (metalworkers, bank employees, teachers)

The PJ Trap: A Deeper Look

Because this is the single biggest risk for foreign employers, it deserves extra attention.

Why foreign employers use PJ: It’s cheaper. A PJ contractor at R$15,000/month costs exactly R$15,000/month (plus their own taxes). A CLT employee at equivalent take-home pay costs R$25,000–R$30,000/month all-in.

Why it fails: Brazilian labor courts apply the primacy of reality principle (princípio da primazia da realidade). They look at how the relationship actually works, not what the contract says.

The 5-year lookback: Claims can go back 5 years from the filing date. A contractor who worked as PJ for 4 years can file a claim demanding 4 years of back-benefits: 13th salary, FGTS + 40% penalty, vacation pay + 1/3, overtime if applicable.

Estimated exposure for one reclassified PJ worker (4 years, R$15,000/month):

• Back 13th salary: ~R$60,000
• Back FGTS + 40% penalty: ~R$100,800
• Back vacation + 1/3: ~R$80,000
• INSS employer portion: ~R$144,000
• Total: R$350,000–R$450,000 plus penalties and interest

Your lawyer’s responsibility: If they advise you to use PJ for roles that look like employment, they’re giving you bad advice that could cost hundreds of thousands of reais.

FAQ

Can I hire an employee in Brazil without a Brazilian entity?

Not legally through CLT. You need a CNPJ (Brazilian corporate tax ID) to register employees. Some foreign companies use EOR (Employer of Record) services — a Brazilian company that formally hires the employee on your behalf. Costs: R$1,500–R$5,000/month per employee on top of salary and benefits. This is a legitimate option for 1–3 employees before you incorporate.

What’s the minimum wage in Brazil?

R$1,518/month as of January 2025 (adjusted annually). But most CCTs set higher floors — in São Paulo’s technology sector, the practical minimum for a junior developer is R$3,000–R$5,000/month.

Can I fire an employee at any time?

Yes — Brazil doesn’t have “unfair dismissal” protection like the UK. You can terminate without cause at any time, but you pay the termination costs listed above. Certain employees have special protection: pregnant women (from confirmation until 5 months after birth), employees who suffered workplace accidents (12 months after recovery), and union representatives.

Do I need to pay benefits during probation?

Yes. Probation employees have full CLT rights — FGTS, 13th salary, vacation accrual, everything. The only difference is that termination during probation is cheaper (no advance notice, no 40% FGTS penalty).

How do I handle employees who work from abroad?

This is legally complex. If the employee is physically in another country, Brazilian labor law may not apply — but if they were hired under CLT and simply relocated, the employment relationship continues. Your lawyer should address this specifically based on your situation.

What about interns (estagiários)?

Interns are governed by Lei 11.788/2008, not the CLT. They’re cheaper (no FGTS, no 13th salary, limited hours) but must be enrolled students. Maximum internship: 2 years. Stipend: market rate, not legally mandated. Many companies use interns as a pipeline to CLT hiring.

Can I include an arbitration clause in employment contracts?

Yes, but only for employees earning more than twice the INSS ceiling (currently above ~R$16,000/month). For lower-earning employees, labor court jurisdiction is mandatory and cannot be waived.

“Hiring in Brazil is a commitment. The CLT does not leave much room for creative interpretation, and the labor courts overwhelmingly side with employees. Your employment lawyer should give you the full picture — before you sign your first contract.” — Zachariah Zagol, Founding Partner, OAB/SP 351.356

The Bottom Line

Hiring in Brazil is a commitment — financially, legally, and operationally. The CLT doesn’t leave much room for creative interpretation, and the labor courts overwhelmingly side with employees in disputes. Your employment lawyer should give you the full picture — mandatory costs, realistic termination modeling, PJ risk assessment, and applicable CCT requirements — before you sign your first employment contract. If they can do that with specific numbers for your industry and region, they’re the right person for the job.

Need a review of your planned hiring structure or existing employment contracts? Contact us for a consultation. We help foreign entrepreneurs build compliant, cost-effective teams in Brazil.

Related guides:

• 6 Questions About Your Brazilian Business Structure — entity formation before you hire
• Cross-Border Contracts in Brazil — contractor and vendor agreements with foreign parties
• Foreign Investment Compliance — regulatory framework for your Brazilian operation