Last updated: April 14, 2026
FGTS (Brazil)
GemmWork DefinitionFGTS (Fundo de Garantia do Tempo de Serviço) is Brazil's government-managed severance guarantee fund, mandated by the CLT (Consolidação das Leis do Trabalho). The 40% termination penalty is the primary reason Brazil scores 🔴 High on Compliance Stickiness.
How FGTS Works
- Employers deposit 8% of monthly gross salary into a government FGTS account throughout employment
- The account is employee-owned — the funds follow the worker, not the employer
- Upon without-cause termination, the employer owes an additional 40% penalty on the entire accumulated balance — not just the current month
Cost at Termination: Senior SWE Example
For a Senior Software Engineer earning $42,500/year, terminated after 2 years:
| Component | Calculation | Amount |
|---|---|---|
| FGTS balance | 8% × ($42,500 ÷ 12) × 24 months | ~$6,800 |
| 40% penalty on balance | $6,800 × 0.40 | ~$2,720 |
| Aviso prévio (notice in lieu) | 36 days × ($42,500 ÷ 365) | ~$3,950 |
| 13th salary (prorated) | $42,500 ÷ 12 × 6 months | ~$1,770 |
| Férias + 1/3 bonus (accrued) | Varies | ~$1,500 |
| Total FGTS-related exit costs | ~$16,740 | |
| + Legal/HR advisory | $1,000–$2,500 | |
| Total exit cost estimate | $19,140–$21,840 |
Critical Details
- The 40% penalty applies regardless of who manages the payroll — EOR or direct entity
- The penalty does NOT apply when an employee is terminated for cause or voluntarily resigns
- A clean entity-to-entity transfer (EOR → new entity), done correctly, also does not trigger the 40% penalty
FGTS and EOR
EOR providers deposit FGTS on behalf of US companies throughout the employment relationship. When employment ends, the US company is responsible for the 40% penalty. The EOR administers this obligation; it does not absorb it.
In the GEMM Framework
FGTS + the 40% penalty is the primary reason Brazil scores 🔴 High on Compliance Stickiness — the most restrictive rating in the GEMM Framework. A 10-engineer Brazil team represents an exit liability of $190,000–$220,000 before any entity setup costs.
Related Terms
- Compliance Stickiness— A GemmWork scoring variable measuring how difficult and expensive it is to termi...
- Hotel California (EOR)— The phenomenon where exiting an EOR arrangement triggers mandatory statutory sev...
- Cesantías (Colombia)— Colombia's mandatory severance fund: employers deposit 1 month's salary per year...
- CLT (Brazil)— Brazil's Consolidação das Leis do Trabalho — the comprehensive labor code that g...
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Country data based on: August 2025.