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ANALYSIS-New labor law prompts Brazil small firms to hire workers legally

SAO PAULO, Nov 22 (Reuters) - New labor laws that took effect this month in Brazil are prompting small firms to bring workers onto their books, potentially taking the edge off a recent surge in under-the-table employment and providing a boost for tax revenues.

The regulations, the first of President Michel Temer's economic changes to directly impact Brazilians' lives, have reshaped union negotiations and worker benefits in the biggest overhaul to labor laws in three decades.

Critics have decried a loss of workers' rights and a wave of lawsuits have created legal uncertainty about the law's implementation, delaying possible economic effects.

Temer's allies promised the more flexible rules would quickly reduce the unemployment rate from double digits, after it reached an all-time high this year.

Employment gains in the last six months have been overwhelmingly concentrated in off-the-books jobs. Small business groups welcomed the prospect of formalizing such work under more flexible contracts to avoid potential fines.

The new regulations introduce new contracts covering seasonal hiring, work from a home office and so-called autonomous workers, such as doctors or lawyers, while also increasing the penalties for off-the-books hiring.

For Luiz Alberto Pereira, who owns World Sports, a sporting goods store in downtown Sao Paulo, the new laws provide a chance to formally hire extra workers during peak retail season. The store employs five full-time workers but staffing doubles at times with informal hires due to seasonal demand.

"I used to do that a lot but always saw it as a risk," he said. "If the auditor drops by, you're stuck with a fat fine."

Pereira's case is representative of a wide swath of Latin America's largest economy.

Small businesses, defined as those with annual gross revenue of less than 3.6 million reais ($1.1 million), made up 99 percent of all Brazilian firms and about a fourth of gross domestic product growth in 2011, according to small business association Sebrae.

Prior to the new law, businesses were unable to hire workers on a seasonal basis. Strict legal requirements for part-time contracts drove many employments to take their chances with off-the-books hiring.

"Previous hiring rules, based on the relations between major corporations and their employees, don't represent Brazil's reality," said Guilherme Afif Domingos, the head of Sebrae and a former small business minister under President Dilma Rousseff.

PENT-UP DEMAND

Companies may be slow to adopt the new contracts, given legal uncertainty, making it harder for economists to estimate the impact of the rules on tax revenue or employment. Still, most agree the reform should help close a legal gap between part-time and full-time employees.

Around a fourth of Brazil's workforce works less than 40 hours a week, according to a report by official statistics agency IBGE, a period widely considered as part-time employment.

Three-quarters of those part-time workers were hired off the books, data showed, which means they paid no payroll taxes. In contrast, only one-third of those working at least 40 hours per a week were working informally.

"Clearly, a substantial number of workers are willing to offer labor under reduced hours," said Bruno Ottoni, an economist at think-tank FGV. "This suggests there is pent-up demand for part-time work not covered by the previous hiring laws."

Associations representing labor judges, lawyers, prosecutors and auditors, however, criticized the new laws in an open letter in June. They warned they could increase economic disparities and put workers in more precarious jobs as workers previously on full-time contracts were moved to cheaper contracts.

Pereira, the sporting goods retailer, said he planned to rehire his full-time employees using seasonal contracts in order to allow them to work other jobs in their off hours. Asked about the matter, two of his employees said they were aware of his intentions but were not sure what that would entail.

Marcel Daltro, a partner at the Nelson Wilians & Advogados Associados law firm, said workers under seasonal contracts would have access to paid holiday time, a year-end bonus required by law and retirement benefits if the contract extends for enough time.

But he was unable to comment on whether Pereira's plans would be legal, underscoring lingering uncertainty over the intricacies of the new rules. ($1 = 3.26 reais) (Reporting by Bruno Federowski; Editing by Andrew Hay)