Member Article

At this moment, according to the Brazilian Constitution, employees may not work more than 44 hours per week. Also, whenever employees work overtime, the hourly rates are increased by at least 50%. Yet, a Constitutional Amendment Bill is being discussed in Brazilian House of Representatives in order to change such provisions.

Bill no. 231/95 reduces the maximum weekly hours limit to 40 hours and increases overtime hourly rates to 75% more than regular working hours. It has already been approved by the House of Representative’s Special Commission and is currently awaiting the Plenary Session’s approval.

If Bill no. 231/95 is enacted, the monthly working hours limit will be reduced from 220 to 200 hours, meaning an immediate increase in the costs of the companies of approximately 10% in the payroll. This is so for current employees will have to work 4 hours less per week but will continue to receive the same monthly salary, given that the Brazilian Constitution does not allow salaries to be reduced, except in very restricted cases.

Protectors of the aforementioned Bill of Law have affirmed that its implementation shall create new job spots and will not generate a significant increase in companies’ costs. Nevertheless, not only such increase in companies’ costs may have a significant impact on their income – for an additional cost of approximately 10% of the payroll may represent a considerable amount –, but it may cause employees to be worse off, either by receiving lower salaries or by being fired from their current positions.

Once a company’s costs increase, (i) the prices charged for products or services may be increased so that the additional costs are transferred to the consumers, or (ii) if the market to which a certain company belongs does not bear prices to be raised, the company may become unprofitable.

Under this second scenario, in order to maintain companies’ activities and desirable profits, it is possible for employers to decide upon negotiating with the employees’ representative Union and entering into a Collective Bargaining Agreement in order to reduce employees’ salaries. This is the only exception foreseen in the Brazilian Constitution which allows salary reduction. Yet, such cutback on salaries will only be accepted by the Union if salaries are reduced to the same extent and proportion of the hours worked reduction. Another solution that may be adopted, in a more extreme situation, is terminating all employees and hiring new ones with lower salaries.

These two hypothetical settings allow a better understanding of the effects of establishing a limit of 40 working hours per week by enacting Bill no. 231/95. It is possible to conclude that such new conditions will not necessarily create new job spots, but stimulate successive hiring and terminating employees given the companies’ need to maintain competitive prices.

 

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