The Brazilian Government Plans to Relax government and Increase the Minimum Wage to Promote Employment and Attract Investors

The Brazilian government's plan to relax employment regulations provides that up to half of employees in private companies can be paid hourly instead of monthly. This type of employment must be based on the so-called “green and yellow work permit scheme”. The government said its objective is to stimulate job creation.

The proposal to be submitted to Congress will be implemented gradually: in the first year, the company may have 10% of its employees paid on an hourly basis, 20% in the second year and 30% in the third year. But the Sanitation Department (water supply and sewage) will be an exception, which will be allowed up to 50% of the employees to be paid by the hour in the first year. Experts say the move could create jobs, but will result in the dismissal of some existing workers because it would be cheaper to hire other workers who’ll accept lower pay.

The expectation of government analysts is that the sewage treatment area alone will attract investments of 600 billion reais. Given this, the government's economic team intends to make labor regulations more flexible to attract investors. The Ministry of the Economy did not comment on the matter, although its Minister, Paulo Guedes, hopes to establish a more flexible work regime in this way. The government must submit to Congress a proposal for such an hourly wage system.

The basic hourly wage will be determined based on the minimum wage. Although there is already hourly work, in the current system, the work contract cannot be on a temporary basis.

It is not clear whether there would be restrictions on working hours in the new plan or whether the overtime system in other employment contracts will remain unchanged. The government's original idea was that, under the hourly wage regime, the worker would not have to be granted the right to paid vacation, the customary 13th monthly salary or be able to receive unemployment benefits (FGTS).

However, the technical staff of Paulo Guedes' economic team warned that these benefits are stipulated in the Brazilian Constitution, so this proposal will be strongly debated by parliamentarians.

Experts say that these measures would be beneficial for companies, but it is still doubtful whether it is good for the work system overall, as it will intentionally reduce a company's spending on employees and cause financial harm to some employees.

Companies can reduce costs by paying for their employees on a part-time basis. Even as the unemployment rate continues to increase, the job opportunities offered are expected to increase with these measures. However, a company can replace its workers with others at a lower cost.

Dismissed employees cannot be rehired by the same employer under the modified employment system proposed. An employer cannot first fire an employee and then rehire him with a green and yellow employment contract. Without this stipulation, companies would be incentivized to fire and then rehire their entire workforce at lower rates and benefits. Obviously, this would be harmful to employees and so would constitute fraud. Thus, existing employees are at risk of being replaced by others.