A win-win situation benefits all parties involved. Typically used to describe financial gains in business or consumer relations, this concept can also apply to an employment relationship where both parties benefit from a shared goal.
In Brazilian law, there is an institutional policy that makes it possible to reduce taxation and prolong parental leave duration and might be seen as an opportunity to extend a social right and profit from it.
First, let us look at some brief information about parental leave schemes.
Parental Leave Schemes
Parental leave schemes are designed to support family well-being by providing employees with time off to care for a newborn or newly adopted child.
According to the “Care at work” report from the International Labour Organisation (ILO), parental leave scheme aims to provide “a comprehensive framework of principles, rights and guidance for defining and advancing transformative care policies and promote good-quality care work”[1].
Parental leave includes types such as maternity leave and paternity leave that vary in terms of duration, compensation and associated job protections under International Directives, State’s Legislation and Companies’ Policies.
International Regulation
Maternity leave was established by ILO’s Maternity Protection Convention, 1919 (No. 3), which was the first to recognize the right to paid leave for women, irrespective of age, nationality or marital status. Currently, the Maternity Protection Convention (No. 183), from the year 2000, is the most up-to-date international law concerning the fundamental right under analysis.
The Convention recommends a minimum leave period of 14 weeks for employed women and cash benefits in an amount sufficient to ensure the maintenance of mother and child in decent conditions (at least two-thirds of the woman’s previous earnings). It also recommends that the cash benefits for maternity leave be paid through social insurance, not individually by employers.
ILO also provided the Maternity Protection Recommendation, 2000 (No. 191), which suggests an extension of the leave for 18 weeks and cash benefits equivalent to the full amount of women’s previous earnings.
Paternity leave, on the other hand, currently does not have explicit legal regulation under International Law and depends solely on national statutory provisions and companies’ policies. In accordance with ILO’s same report, data from year 2021 showed that from a total of 185 studied countries, 102 offered paternity leave, and only in 41 of those the full cost of it was attributed to social insurance while in the others the law requires the employer to pay for it[2].
A Comparative View of Statutory Provisions
Maternity and paternity leave are social rights expressly stated in Brazil’s Federal Constitution, granted for urban and rural workers.
Maternity leave lasts for one hundred and twenty days, with cash benefits paid in the equivalent of one hundred percent of previous earning and there is protection against dismissal[3]. Cash benefits are funded by the social insurance indirectly because even though the employer is responsible for payment[4], there is a compensation of cash benefits with social security contributions[5].
Meanwhile, paternity leave[6] lasts for a period of five days, is funded by the employer and the employee does not have protection against dismissal.
In comparative terms, in the European Union (EU) parental leave and cash benefits are governed by a combination of EU directives and national laws.
The Pregnant Workers Directive (2006/54/EC) provides for at least 14 weeks of maternity leave in some EU countries during which employees are entitled to receive cash benefits funded by social security systems or employers.
The Parental Leave Directive (2019/1158/EU) provides for a minimum of four months of parental leave per parent, but this leave is unpaid. Under the same directive, the employee has the right to return to the same or an equivalent position after maternity leave. And as an advance from Directive 2010/18/EU, this directive stipulates that EU member states should provide paternity leave of ten working days.
Since each EU member state may have additional provisions or benefits beyond the minimum requirements set by EU directives, let us look at some comparative data about the different national shapes of parental leave schemes in the following table[7]:
| Country | Duration of leave in national legislation | Amount of leave cash benefits (% of previous earnings) | Source of funding | |
|---|---|---|---|---|
| Brazil | Maternity leave | 17 weeks (120 days) | 100 | Social insurance only |
| Paternity leave | 5 days | 100 | Employer liability | |
| Denmark | Maternity | 18 weeks | 100 up to a ceiling | Non-contributory scheme only |
| Paternity | 14 calendar days | 100 up to a ceiling | Mixed (state-funded flat-rate benefit; employer tops up the remaining gap) | |
| France | Maternity | 16 weeks | 100 up to a ceiling | Social insurance only |
| Paternity | 25 calendar days | 100 up to a ceiling | Social insurance | |
| Germany | Maternity | 14 weeks | 100 | Social insurance only |
| Paternity | – | – | – | |
| Netherlands | Maternity | 16 weeks | 100 up to a ceiling | Social insurance only |
| Paternity | 42 days (6 weeks) | 100 for first week, 70 for 5 weeks | Mixed: 100% employer liability for first week, 70% social insurance for additional 5 weeks | |
| Norway | Maternity | 18 weeks (or 22 weeks) | 100 up to a ceiling | Social insurance only |
| Paternity | 14 consecutive days | 0 | n/a | |
| Spain | Maternity | 16 weeks | 100 up to a ceiling | Social insurance only |
| Paternity | 112 days (16 weeks) | 100 up to a ceiling | Social insurance | |
| Sweden | Maternity | 14 weeks | 77.6 up to a ceiling | Social insurance and non-contributory scheme |
| Paternity | 10 days | 77.6 up to a ceiling | Social insurance only |
This comparison provides insights into how different countries structure their parental leave policies, with variations in duration, compensation, and funding mechanisms. The following conclusions may be highlighted:
- Duration: Maternity leave ranges from 14 to 18 weeks, as per ILO Convention No. 183. Paternity leave varies from a few days to 6 weeks, with Spain offering the longest duration of 16 weeks.
- Cash Benefits: For maternity leave, most countries provide 100% of previous earnings or a percentage up to a ceiling, except Sweden which offers 77.6%. For paternity leave, benefits can vary significantly, from 0% in Norway to 100% in Spain.
- Funding Sources: for maternity leave, most countries use social insurance, while paternity leave often involves mixed contributions.
A Comparative View of Statutory Provisions
While the previous discussion focused on parental leave benefits for employees, let’s now explore how it can also benefit employers.
Most of the countries listed above rely on social insurance systems to fund maternity and paternity leave, alleviating the cost of these social rights for the employer. Still, employers do not typically receive direct tax benefits specifically tied to leave policies. But it happens that under Brazilian law there is a direct benefit that the employer can extract from parental leave programs.
Brazil’s Federal Law 11.770/2008 established the Citizen Business Program (Programa Empresa Cidadã), offering tax benefits to companies that extend maternity and paternity leave beyond the legal minimums.
As a counterpart for the extension of maternity leave from one hundred and twenty days to one hundred and eighty and of paternity leave from five to fifteen, the program grants a tax deduction for businesses that operates under the Actual Profit (Lucro Real) tax regime[8], equivalent to the total payment of the employee during the extension of the leave.Also, the extension of the leave period can be exchanged by a reduction of 50% of daily working time for one hundred and twenty days.
Although this legislation is not new in Brazil’s legal system, data from the Revenue Service of the Federal Government (Receita Federal do Brasil – RFB) tells that the number of businesses that operates under Actual Profit tax regime and benefits from the Program is far from representative: from a total of 331.693 businesses[9] up to July 2024, only 29.720 applied for the Program[10].
This can be attributed to the controversy over the incidence of employer social security contributions on the extension of the leave, although a recent decision from Brazil’s Supreme Court (Supremo Tribunal Federal) ruled that the incidence of social contributions on cash benefits from maternity leave is unconstitutional[11].
This means that if there was previously uncertainty about the usefulness of the parental leave extension due to potential taxation, this uncertainty no longer exists according to STF’s jurisprudence.
In conclusion, extending parental leave through the Citizen Business Program can optimize social rights and fiscal incentives, reducing tax liability and making extended leave more financially viable. Companies can also recover undue social contributions paid on cash benefits.
For a detailed consultation on how your company can benefit from these programs, please reach out to our Labor and Tax Teams.
Notes
[1] ILO. Care at work: Investing in care leave and services for a more gender equal world of work | International Labour Organization. Geneva: International Labour Office, 2022. P. 42.
[2] Ibidem, p. 96.
[3] Article 7, subsection XVIII.
[4] This provision applies only in employment relations since the Social Insurance System pays the benefit directly for other types of work arrangements.
[5] Article 72, § 1, of Federal Bill nº 8.212/1991.
[6] Article 10, § 1, of the Act of Transitional Constitutional Provisions (Ato das Disposições Constitucionais Transitórias)
[7] Data extracted from the same ILO report previously cited.
[8] The Actual Profit is one of the three tax regimes that exists in Brazil’s legal system, besides Estimated Profit and Simplified National Tax System. To understand which one is best for your business, contact our Tax/Fiscal Team.
[9] Information extracted from: https://dados.rfb.gov.br/CNPJ/regime_tributario/
[10] Information extracted from: https://www.gov.br/receitafederal/pt-br/acesso-a-informacao/dados-abertos/beneficios-e-renuncias-fiscais/empresas-habilitadas/empresa_cidada/viewiew
[11] Information extracted from: https://portal.stf.jus.br/jurisprudenciaRepercussao/verAndamentoProcesso.asp?incidente=2591930&numeroProcesso=576967&classeProcesso=RE&numeroTema=72
Luccas Miranda Machado de Melo Mendonça is associate at Pacheco Neto Sanden Teisseire Advogados.
Julia de Menezes Nogueira is a consultant at Pacheco Neto Sanden Teisseire Advogados.
