Minimum Salary As Currency: Contract Innovation From Brazil (Soon To Be Found Elsewhere?)

It is hard to imagine this working in Europe or North America - until one thinks about the assault being mounted on the compensation of middle and lower income workers in those regions. In fact, the intent in Brazil is to provide for the workers' basic needs while providing some stability for the business. In the US and Europe, the basic needs piece is being subverted by part-time employment (the worker does not meet minimum standards for compensation protection) and outsourcing. This model could be closer to reality than some might like to think.

The Brazil Biz blog explains how this works:

"When dealing with services providers in Brazil you might get a price quote in the currency. It is called "Salário Mínimo". This article will help you explain the motivation and why this has become a common practice.

First time you receive a price quote stating that price in minimum salaries you might find it strange. Most Brazilians know what the minimum salary is worth in Brazilian Reais, but for a foreign business professional it is not that easy to relate to.

What is Minimum Salary
Salário mínimo is the lowest salary an employer can legally pay to his employees for a full time job. It is also the lowest price a person can legally sell his workforce.

It was instituted by then-president Getúlio Vargas in 1940. It is defined as capable of supplying the worker's basic needs, such as housing, feeding, education, healthcare, leisure, apparel, hygiene, transportation and social security.

There are different opinions about Salário Mínimo and its benefits. Those who defend it say that it effectively increases worker's life standards and reduces poverty.

On the other hand, it is hardly criticized by neoclassic economists, who claim that it is a barrier for the hiring of workers and generates structural unemployment, once the salaries determined by the government reduces the demand for labor force.

The current minimum salary are BRL 545 per month. In addition to this you as an employer have to cover transportation and lunch expenses.

Rise in Minimum Salary
When your price is based on minimum salary it's built in an understanding that the price will raise every couple of year or so. This is how often the Brazilian government index regulate their minimum salary rate.

The downside of this is that the Brazilian government often use rise in minimum salary as a way to demonstrate their socialistic profile resulting in that the the minimum salary is rising more than the general growth in the economy.

Typically adjustments to the minimum salary rate will happen prior to elections when the socialistic parties are controlling the parliament.

When is "Minimum Salary" used as a currency?
Minimum salary are often used as a currency in commodity service industries like courier services, cleaning services, accounting services and other service providers that have a longer relationship with their client and a substantial part of their staff is hired at minimum salary.

It is not recommended for foreign companies to price their services with minimum salary as a currency as Brazilian clients will find this very confusing.

The good news about prices in "Minimum Salary"
There is one good news for a foreigner that is receiving a price quote in minimum salaries. You are almost guaranteed that you are getting the same rate as the locals.

Service companies that are used to deal with foreigners and charge premium for foreign businesses will not provide you with a quote in minimum salaries since they know you are not familiar or comfortable with this "currency".