On November 12, 2019, Provisional Measure No. 905 was published (“MP”), which establishes the “Green and Yellow Employment Contract” and changes several provisions of labor and tax legislation.
Through this contract, companies will be able to benefit from exemption from payment of social security contributions, education salary and social contributions destined to entities of the so-called “S” System (SESI, SENAI, SEBRAE, etc.) levied on the payroll of those contracted in this modality.
These benefits can only be enjoyed when hiring people (i) aged between eighteen and twenty-nine years old, (ii) who have no previous employment record, (iii) with a monthly salary of up to one and a half minimum wage, ( iv) with a contract that has a fixed term of, at most, twenty-four months, and (v) for new work positions.
Hiring workers in the “green and yellow” is limited to 20% of the company's total employees, considering its monthly payroll.
PLR
The MP relaxed the rules for the institution of Profit Sharing programs (“PLR”), as a way of encouraging productivity.
Firstly, the provisional measure attempts to “resolve” the discussion between the National Treasury and taxpayers regarding the collection of social security contributions on amounts paid as PLR.
Until the publication of the MP, the exemption from social security contributions was conditioned on the signing of a prior agreement – in the year prior to the granting of the benefit – and indication of clear and objective rules of the program. The position of the Administrative Council for Tax Appeals (“CARF”) – the body responsible for the administrative judgment of tax claims – is, until now, largely opposed to taxpayers.
However, the provisional measure now allows the payment of the PLR in the same year as the signing of the institution's agreement and, in the same sense, considers the participation of unions in the process of preparing the program unnecessary. Furthermore, the will of the contracting parties also prevails to the detriment of the interests of third parties, making the criterion of “clear and objective rules".
The standard was also responsible for expanding the use of the PLR, making it possible to establish the program in immune entities (such as education and social assistance institutions).
Award
Regarding the payment of premiums, the MP promoted changes to enable the parties to establish payment through a bilateral act – such as contracts and conventions – or a unilateral act by the employer – such as a company statement.
This provision resolves a controversy generated with the publication of COSIT Consultation Solution No. 151/19 by the Federal Revenue Service, which states that the express provision for payment (of the premium) removes the character of liberality – essential so that these payments are not subject to the contribution pension.
The consultation solution also establishes that the award must result from performance exceeding that normally expected, as long as the “amount” of expected and exceeded performance is proven. With the MP in force, the evaluation of employee performance may be carried out at the discretion of the employer, as long as ordinary performance has been previously defined.
Unemployment insurance
As the MP's predictions described above result in a payroll tax relief, the rule established a mechanism for “compensation” for the loss of revenue, stipulating the incidence of social security contributions on the amounts paid as unemployment insurance.
Therefore, companies must start deducting the contribution from the amounts paid to unemployment insurance beneficiaries.
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There is still some expectation or controversy regarding the beginning of the MP's validity, as the rule determines that hiring under the Green and Yellow Employment Contract depends on an act from the Ministry of Economy - which will certify its compatibility with the Law of Budgetary Guidelines.
Tax Team