Continuing the series of articles on the changes implemented by Executive Order No. 905, published last Tuesday, we review below the changes regarding the payment of premiums by companies to their employees.

As already discussed in this article, the Brazilian Federal Revenue Service, upon publishing Cosit Response to Public Inquiry No. 151/2019, created difficulties for companies in paying premiums and went against the provisions of article 28, paragraph 9, "z", of Law No. 8,212/1991, which expressly excludes premiums from salary for the purposes of contributions. Instead of clarifying the issue and establishing guidelines on the use of premiums, the body maintained the confusion and lack of legal certainty, because, although it does not have the force of law, Cosit’s resolution of public inquiry binds the Public Administration and guides the actions of tax inspectors.

In summary, according to the restrictions imposed by Cosit Response to Public Inquiry No. 151/2019, only payments made spontaneously and unexpectedly that (i) were not due to contractual agreements (contracts, policies, job postings, etc.) could be considered premiums and (ii) derive from performance above what is ordinarily expected, objectively proven by the employer.

Aiming to restore legal certainty on the subject and remove the obstacles created by the Federal Revenue Service, MP 905 established the validity of the premiums dealt with in paragraphs 2 and 4 of article 457 of the Consolidated Labor Laws (CLT) and item “z”, paragraph 9, of article 28 of Law No. 8,212/1991, regardless of the respective form of payment and means used to fix it. Even unilateral acts of the employer, agreements between the employer and the employee or group of employees, and collective bargaining rules, including when premiums are paid by foundations and associations, are valid, provided that:

the payment is made exclusively to employees, individually or collectively;

the payment of any advance or distribution of funds is limited to four times in the same calendar year and once in the same calendar quarter;

the premiums result from performance higher than what is ordinarily expected, evaluated at the discretion of the employer, provided that ordinary performance has been previously defined; and

the rules for the premium are established prior to the payment.

From an analysis of MP 905, it is evident that the intent of the changes is to make it clear that the parties may fix the terms and conditions for payment of premiums through a written document, via a bilateral act (contract, agreement, or collective bargaining agreement) or unilateral act (internal or communicated policy).

The rules regarding payment of premiums must be filed by any means for a period of six years from the date of payment.

In our view, this point resolves the controversy over the requirement of "liberality." Based on MP 905, the understanding that we defended in a prior article prevails, to the effect that liberality is all that is granted by the company beyond what is required by law. Therefore, premiums cover any and all forms of variable remuneration, even if contractually agreed upon, provided that the other requirements set forth in article 457 of the CLT are observed.

Another important issue addressed by MP 905 is the requirement of “payment due to performance higher than that which is ordinarily expected.” According to the changes implemented, this assessment may be done at the discretion of the employer, provided that the ordinary performance has been previously defined by it, unilaterally or by agreement.

MP 905, however, brought in restrictions on frequency of the payment, which directly impacts on companies that have been making monthly premium payments.

We will continue to monitor the evolution of the subject and its potential developments.