Brazil faces higher costs for PJ hiring amid tax reform and judicial review

Hiring workers as independent legal entities (PJ) remains common in Brazil, but improper use—known as “pejotização”—can expose companies to labor liabilities when courts recognize an employment relationship. Recent tax reform rules are set to reduce or eliminate tax credits for firms that contract PJs, increasing the financial risk of the practice.

The Supreme Federal Court (STF) is expected to rule on the legality of pejotização, which could compel companies to pay social security contributions and lose tax credits. Analysts estimate the shift could affect millions of PJ workers, with projected losses of about R$ 61.4 billion in INSS contributions and R$ 24.2 billion in FGTS. The rise of PJ contracts—from 3.3% of the workforce in 2012 to 6.5% in 2024—means the reforms may impact a large segment of Brazil’s labor market.