Brazil: Relevant changes to Profit or Result Sharing Programs

As of 6 November 2020, Law 10,101/2000, which regulates the conditions for the implementation of the employees’ participation in profits or results of companies, usually known as Profit and Results Sharing Program or simply PLR, is effective with important changes, as indicated below:

• For the PLR implementation, the parties may simultaneously adopt the negotiation modalities of (i) through a joint commission composed by employees chosen by the parties (employees and company) and a representative indicated by the employees’ union and (ii) through a collective bargaining agreement.
• When negotiating through a joint commission, the commission must notify the employees’ union to appoint its representative within a maximum term of 10 calendar days. If the union representative is not appointed within such term, the commission may start and conclude the negotiation of the PLR without the union representative participation.
• The parties may establish multiple PLR programs.
• The parties may freely establish the terms and conditions of the PLR. It is possible to determine that the payment of the PLR amount will be linked only to the achievement of individual goals, not being necessary to include company’s goals in the PLR program. The autonomy of will of the parties related to the terms and conditions of the PLR should be respected and will prevail over third parties’ interest.
• PLR programs must be implemented within at least 90 days prior to the payment date of the single installment of the PLR or of the final installment of the PLR (if the PLR program establishes a payment in advance – i.e., payment of PLR amounts in two installments), and the PLR programs must be implemented before the payment in advance, if any.
• PLR can be paid in up to two times in the same calendar year and the payments cannot occur less than 3 months apart. According to the new rule, failure to observe these frequency rules only invalidates: (a) payments performed after the second payment to the same employee in the same calendar year; and (b) payments to the same employee that occur less than 3 months from the previous payment, in which case the other payments performed will remain valid.

The changes described above had been subject to the veto of the President on the enactment of Law 14,010/2020 (which regulates the adoption of measures for proportional reduction of working hours and salary and for temporary suspension of the employment agreement during the state of calamity resulting from the COVID-19 pandemic), but they are back in force after the Congress override the veto. The changes bring clarity in relation to the applicable rules and more certainty for companies and employees in the implementation of the PLR programs, since these matters have been constantly subject to inspections and lawsuits.

PLR programs have been one of the most important instruments for attracting and retaining talents, as they allow payments based on performance to be exempt from labor and social security charges and subject to a lower income tax rate, provided that the legal requirements for its implementation are duly observed.

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.