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Brazil: Federal Supreme Court recognises Constitutionality of Social Security Contributions on top of Vacation Bonus

The vacation bonus is an additional amount set forth by article 7, XVII of the Federal Constitution that is paid to employees as part of their vacation remuneration. During the vacation period, employees are entitled to receive the monthly salary plus the vacation bonus, which corresponds to 1/3 of the employee’s monthly salary.

In this recent decision, the STF decided that the 1/3 vacation bonus has a salary nature, because it is linked to the work performed by the employee and is paid on a habitual basis. In addition, the STF understood that when the employee takes vacation, the payment of the 1/3 vacation bonus is not considered an indemnification, but a complement to the employee’s salary. Hence, it should be subject to social security contributions. On the other hand, if the vacation period is not taken (i.e., it is indemnified in the situations allowed by law) there is a clear indemnification nature and such amount is, by law, exempted from social security contributions (article 28, §9, “d” of Law 8212/1991).

This decision changes the consolidated understanding of the Superior Court of Justice (“STJ”) about this matter. Up to this decision, the STJ understood that the 1/3 vacation bonus had an indemnification nature and, therefore, it should not be considered for purposes of payment of social security contributions. In the past, the STF applied this same understanding related to the 1/3 vacation bonus paid to public servants.

The STF recognised the general repercussions of this decision. Thus, Lower Courts, including the STJ, must adopt the same position when ruling in future cases about the same matter.

This decision is extremely relevant for companies that stopped paying social security contributions on top of the 1/3 vacation bonus based on the consolidated understanding of the STJ on this matter, because they may be questioned by the social security authorities about the back payment of such amounts.


For more information on these articles or any other issues involving labour and employment matters in Brazil, please contact Mihoko Sirley Kimura (Partner) of TozziniFreire Advogados at mkimura@tozzinifreire.com.br or visit www.tozzinifreire.com.br.