FGTS stands for Fundo de Garantia do Tempo de Serviço, meaning "Guarantee Fund for Length of Service." It is one of Brazil's most important employment benefits, functioning as a mandatory savings program that protects workers financially when they lose their jobs. Every employer with registered employees in Brazil must contribute to FGTS.
How FGTS Works
Employers deposit 8% of each employee's gross monthly salary into an individual FGTS account managed by Caixa Econômica Federal (Brazil's federal savings bank). These deposits are made by the 7th of each month. The funds accumulate over the employee's career and earn interest (currently the TR rate plus 3% per year).
Withdrawal Conditions
Employees can withdraw FGTS funds when terminated without cause (plus a 40% penalty paid by the employer on the total balance), when purchasing a first home, upon retirement, for serious illness treatment, or when the account has been inactive for 3+ years. The 40% penalty on wrongful dismissal makes FGTS a significant cost factor in Brazilian terminations.
EOR Relevance
An EOR in Brazil handles monthly FGTS deposits, calculates the 40% penalty upon wrongful termination, and manages reporting through the SEFIP/eSocial system. Non-compliance with FGTS carries heavy fines and can prevent the company from obtaining government certifications required for business operations.