The covid-19 pandemic led various commercial, industrial, and service providers in Brazil to suspend their activities indefinitely. Thus far, there is no prospect of normalization of economic activity.
Although some activities can be carried out remotely, in other sectors it is common for employees to be dismissed from work while social distancing measures last. In such cases, employees do not work, but maintain their employment relationship and continue to receive the amounts usually paid by the employer. This may be the case, for example, with shop assistants or with workers of large industrial plants, activities that cannot be performed remotely.
Situations in which employers continue to make payments to employees, even when they are dismissed from work, may give rise to the non-imposition of the social security contributions due by the employer on these amounts. This is because section 22, subsection I, of Law No. 8,212/91 provides that the employer's social security contributions shall be levied on compensation paid, due, or credited to the workers and intended to compensate work.
The compensatory element thus assumes a central role in defining the scenarios for the imposition of social security contributions. These social contributions become due only if the payments serve as compensation for the service provided or for the availability of the service provider. In other words, if the employee is not being compensated for providing services or for being at the employer's disposal, then such payments should not be subject to the social security contributions due by the employer.
Accordingly, the Superior Court of Justice (STJ) ruled, under the repetitive appeals procedure (REsp 1.230.957/RS), that no social security contributions are levied on amounts related to indemnification for the lack of dismissal notice paid to employees, since there is no retributive element in the payment. We believe that this STJ decision reinforces the importance that there must in fact be compensation for these social security contributions to be levied.
More recently, the Federal Prosecutor's Office has expressed a similar view in Extraordinary Appeal 1.072.485/PR, defending the non-imposition of the social security contributions due by the employer on the additional vacation pay, precisely because such cases also do not involve compensation for the provision of services, among other reasons.
Although tax authorities may adopt a different position from that set forth above, in our opinion, it is possible to argue that employees in this situation are not at the employer's disposal if the employer is prevented from operating in a normal manner, whether due to health measures to preserve the health of employees or due to municipal and state regulations. Thus, when it is impossible for employees to perform the activity for which they were hired, we believe that it cannot be said that they are at the disposal of their employer.
In the case of employees who have been dismissed as a result of the pandemic, but maintaining the employment contract, there does not seem to be any payment for the time that the employee remains at the employer's disposal, since there is no prospect of a return to normality and regularization of the activities of these employees. In fact, employers do not seem to take advantage of this potential availability of employees, since economic activity cannot be resumed while the restrictions continue. That is why it is unlikely that this is the reason for maintaining jobs and making the payments discussed here.
The preservation of jobs at this time seems to be more related to the high costs for the formal dismissal and subsequent hiring of employees, or even the laudable feeling of social solidarity, than to the expectation that the provision of services by employees will be necessary again in the short term. In this context, amounts paid by employers to employees who are dismissed from work are similar to the arrangement for cost allowances, expressly dissociated from compensation by section 457, paragraph 2, of the Consolidated Labor Laws, and on which no social security contributions due by the employer are imposed.
In view of the above, we believe it is possible to question the imposition of the social security contributions due by the employer on the amounts paid to employees dismissed from work due to the covid-19 pandemic.