Brazil's eSocial: Transforming Employee-Related Compliance

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With the rollout of the eSocial electronic reporting platform, big changes are coming to employee-related compliance in Brazil. If your organization is conducting business in Brazil, this electronic reporting platform will be the new way you report data such as social security contributions and payroll information to the government of Brazil. Here's what you need to know in order to prepare.

What exactly is eSocial?

It is a part of the Brazilian government's digital initiative seeking to improve the enforcement of Brazilian labor laws by creating a government-built digital reporting platform through which organizations are required to submit employee-related data. The goal of Brazil's digital initiative is to promote transparency, integrate data collection via a single platform (thus reducing bureaucracy), reduce fraud and make regulatory enforcement actions and audits much easier for the government to conduct.

All organizations operating in Brazil will be required to submit employee-related data via eSocial as soon as September 2016 (companies with more than US$ 20 million in total revenue in 2014) and January 2017 (all other companies). Multinational organizations conducting business in Brazil with employees working under the famously complex pro-worker labor laws will need to adapt to the electronic reporting platform as the new way of interfacing with the Brazilian government on employee-related matters, according to Corporate Compliance Insights.

What will the impact of eSocial be on company compliance and reporting efforts?

In a word, huge. The new platform completely changes the way organizations send and present employee-related data to the government. Whereas previously organizations submitted employee-related data on paper, and transmitted said data to a litany of ministries inside the Brazilian government, organizations are now required to submit all data through a single electronic platform. This means organizations must integrate their data collection and data reporting to adapt to eSocial's streamlined approach to collecting employee-related data. Organizations must rethink and standardize the way they manage data in order to fit the needs of the government's new electronic reporting platform.

How can organizations conducting business in Brazil effectively adapt their employee-related reporting?

Your best bet in adapting to eSocial is to put together a working committee made up of all the areas and departments of your Brazilian-based business that collects and reports employee-related data, from HR to Finance to Payroll and beyond. Integrating, and fully coordinating, your employee-related data systems will be essential moving forward, and may require a high initial investment. That said, you'll likely reduce compliance-related costs in the long term because you'll use less paper, do much less manual reporting and save time by eliminating data overlaps and redundancies.

How does eSocial change business risks related to employee-related compliance?

It's no accident that eSocial is a regulator's dream and potentially a nightmare for organizations that don't have their "compliance act" in order. The new platform will give the government of Brazil almost real-time access to employee-related data, allowing them to cross-reference data and quickly find discrepancies and compliance-related red flags. Enforcement investigations and government audits can be done electronically, almost with the push of a button. If you don't have your employee-related compliance efforts in good working condition, the government's electronic platform can easily find out and target you with fines and penalties for regulatory violations.

Is eSocial and eGovernment becoming a global trend?

Yes. The concept of eGovernment is growing around the world, with governments looking to leverage technology to deliver public services faster and cheaper, according to the United Nations Public Administration Country Studies. As digital devices like smartphones and laptops proliferate among people around the world, individuals and companies increasingly seek to interact digitally with their governments. On the other hand, governments around the world are viewing technology as a cost-effective tool to deliver services and conduct regulatory activities. The Brazilian electronic reporting platform is a perfect example of a growing trend.