Brazil: Important Updates Concerning eSocial

On May 22, 2014, Brazil’s eSocial Steering Committee announced that the System of Digital Bookkeeping of Fiscal/Tax, Social Security and Labor Obligations (“eSocial”) will be implemented as of the date of the publication of the final version of the eSocial Orientation Manual.  To date, the Committee has published the interim version 1.1 of the Manual (available here in Portuguese) and a new version is expected to be released soon.  The publication date of the final version is still uncertain.

eSocial is a Brazilian federal government project to unify the transmission of employment-  and work-related data to various federal government institutions, including 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”).  Once implemented, eSocial will impact all individuals and entities that engage workers, regardless of their size, including rural producers, professionals, employers of domestic workers, and service receivers.  These individuals and entities will be required to report on the eSocial system specific data related to the work/employment relationship, including payments and contributions, dates of hire, wages, working hours, leaves, prior notice of termination of employment, termination, and compensation.

According to the Committee, eSocial first will be tested during two six-month periods.  The first six-month period will start as of the date of the publication of the final version of the Manual, and will allow companies to feed data into the system under a test mode.  The system will continue to be tested during the second six-month period, after which eSocial will become mandatory for employers from medium and large employers (i.e., those with revenues of over R$3.6 million in 2014).  The implementation plan for small and micro companies is being discussed with various chambers of commerce that represent these groups.

The authorities have said that eSocial is being designed to simplify and expedite the processing of information by eliminating duplicated information and forms, such as the GFIP, RAIS, CAGED, among others.  However, it will also allow the authorities (from the labor, social security, FGTS and internal revenue agencies) to monitor and audit employers.  Accordingly, employers should improve the quality and accuracy of the information provided to avoid penalties.

To that end, employers should develop a project plan for the implementation and maintenance of eSocial, starting with a review of their employment files and labor practices, and correction of any mistakes or discrepancies. Employers should also determine internally how separate departments will coordinate the collection and transmission of information, and which department head will lead the efforts.  Likewise, small employers may delegate their recording/reporting obligations under the eSocial system to their payroll providers and accountants, but should implement mechanisms to review and assess the service to reduce the risk of mistakes that may lead to unwarranted audits and potential fines.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.