An Employer of Record (EOR) in Costa Rica is a company that takes on the responsibility of being the legal employer for a worker. This includes managing payroll, benefits, and other employment-related tasks on behalf of the worker's actual employer.
An employer of record in Costa Rica assist you with the following
- Draft local employment contracts
- Register employees with the social security agencies
- Withholding taxes
- Provide Benefits
- Comply with the local labor laws in Costa Rica
- End to End Payroll
- Work Permit
- Hiring and Payments
Discover the key considerations and essential details you should be aware of before opting for an Employer of Record (EOR) in Costa Rica to help you with your global staffing needs.
On this page: Employment Contracts | Employment Laws | Social Security | Personal Income Tax | Severance Pay | Employee vs. Independent Contractor Classification | Employee Benefits | Work Permit
Costa Rica Overview
| Overview | |
| Continent | Americas |
| Country | Costa Rica |
| Capital | San José |
| Time zone | UTC−06:00 |
| Total Time zones | 1 |
| Working hours per week | 48 |
| Working week | Monday–Friday |
| Typical hours worked | 8 |
| Personal Tax filing deadline | Employees do not file PIT returns. However, independent professionals or those who are self-employed are subject to regular CIT with distinct tax rates. |
| Financial Year | 1st January to 31st December |
| Date format | dd/mm/yyyy |
| Currency | Costa Rican Colón (CRC) |
| VAT | the standard rate is 12% |
Employment Contracts in Costa Rica
In Costa Rica, employment contracts are governed by the country's labor laws, specifically detailed in articles 18 to 42 of the work code. Key aspects of these regulations are:
- Default Application: Costa Rican labor laws are inherently applicable to all employment contracts, regardless of whether specific clauses mention them or not.
- Scope of Work: If not explicitly mentioned in the contract, employees are expected to offer services commensurate with their abilities and related to the employer’s sector.
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Contract Types:
- Fixed-Term Contracts: These are permissible when the nature of work necessitates them. Should the reasons for such a contract persist post its expiration, it becomes indefinite. Instances include employee illnesses, spikes in demand, or projects with predetermined durations. Such contracts cannot disadvantage workers for more than a year. However, technical service contracts can span up to five years and are renewable based on continuous service.
- Indefinite Contracts: Either party can terminate these contracts with a notice period tied to the duration of service. Unjustified terminations entitle the employee to severance pay, capped at eight months' salary, even if reemployed elsewhere.
- Termination and Severance: For fixed-term contracts, premature terminations incur damages and additional compensation, adjudicated by Labor Courts. Upon contract conclusion, employers must furnish a certificate detailing tenure, role, performance, and reasons for conclusion.
- Foreign Employment: Employing Costa Ricans abroad mandates approval from the Ministry of Labor and Social Security. Detailed employment terms, compensation, and work hours should be submitted via a local representative. A deposit of 100 colonies per worker is required for potential compensations. Additionally, companies must provide financial guarantees for workers' repatriation.
- Documentation: Article 23 necessitates written contracts in triplicate: one for the employer, one for the employee, and the third for the Ministry of Labor and Social Security's Employment Office. This tripartite documentation ensures clarity and protection for both parties and should be executed within fifteen days of the contract's initiation, modification, or amendment.
Employment Laws in Costa Rica
Navigating the employment landscape in Costa Rica requires a comprehensive understanding of the country's labor laws, which are designed to safeguard the rights and interests of both employers and employees. In this context, several key aspects govern the employer-employee relationship, encompassing minimum wages, payroll procedures, probationary and notice periods, standard working hours, overtime regulations, and the obligatory 13th-month salary. Familiarizing oneself with these regulations ensures compliance, fosters a fair working environment, and contributes to a harmonious and mutually beneficial professional relationship. Below, we delve into the essential facets of employment laws in Costa Rica.
- Minimum Wages: Costa Rica enforces a monthly minimum wage of 320016.02 Costa Rican Colón (CRC), approximately equivalent to 603 USD, based on the USD to CRC conversion rate as of 23rd October 2023.
- Payroll Cycle: Employers in Costa Rica follow a monthly payroll cycle, with salaries disbursed on the final day of each month.
- Probation and Notice Periods:
- Probation: Employees undergo a standard probationary period of 3 months. During this phase, either party can terminate the contract without prior notice.
- Post-Probation Notice Periods:
- For employment durations ranging from 3 to 6 months: A notice period of 1 week is required.
- For durations spanning 6 months to 1 year: A 2-week notice period is mandated.
- For tenures exceeding 1 year: A 1-month notice period is necessary.
- Standard Working Hours: Employees in Costa Rica typically work 48 hours weekly, equating to 8 hours daily.
- Overtime: Beyond the standard working hours, employees are eligible for overtime compensation set at 1.5 times their regular pay. However, overtime should not surpass 4 hours daily or 12 hours weekly.
- 13th Month Salary: In adherence to Costa Rican labor regulations, employers are obligated to provide a 13th-month salary, locally termed "aguinaldo." This additional salary must be disbursed to employees prior to the 20th of December each year.
Personal Income Tax in Costa Rica
Costa Rica's personal income tax system operates on a progressive scale. As individuals earn higher incomes, they are subject to increasing tax rates. Here's a breakdown of the tax brackets and their respective rates:
| Over (CRC) | Not over (CRC) | Tax on excess (%) |
|---|---|---|
| 0 | 941,000 | 0 |
| 941,000 | 1,381,000 | 10 |
| 1,381,000 | 2,423,000 | 15 |
| 2,423,000 | 4,845,000 | 20 |
| 4,845,000 | 25 |
Severance Pay
Employees are entitled to severance pay if they are dismissed without just cause, and the amount they receive depends on how long they have been employed by the company.
| Length of Employment | Severance Pay (in days of pay) |
|---|---|
| Three to six months | 7 |
| Six months to one year | 14 |
| One year | 19.5 |
| Two years | 20 |
| Three years | 20.5 |
| Four years | 21 |
| Five years | 21.24 |
| Six years | 21.5 |
| Seven to nine years | 22 |
| 10 years | 21.5 |
| 11 years | 21 |
| 12 years | 20.5 |
| 13 years and over | 20 |
Employee vs. Independent Contractor Classification in Costa Rica
Background and Importance
Misclassification can lead to substantial legal repercussions, as exemplified by the 2023 Uber case. Companies must understand and adhere to the local labor laws to ensure they classify workers appropriately.
1. Employee Classification
- Definition: As outlined by Costa Rican labor regulations, an employee is characterized by an employment contract that signifies subordination, with the employer exerting direction and control over the worker.
- Benefits & Entitlements: Employees are entitled to a range of benefits, including:
- Social security through CCSS
- Worker’s compensation
- Maternity and paternity leave
- Vacation and sick leave
- 13th-month salary (Aguinaldo)
- Overtime pay
- Employer Responsibilities: Employers must provide these benefits and adhere to labor regulations regarding employee rights, wages, and working conditions.
2. Independent Contractor Classification
- Definition: Independent contractors, or freelancers, provide services to a company but operate outside the realm of full-time employment. They maintain autonomy over their work and are not subject to employer control beyond the agreed scope.
- Characteristics:
- No entitlement to benefits
- Operate on project-based or time-bound engagements
- Use their tools and equipment
- Offer services to multiple clients
- Contractual Obligations: Contractors work under the framework of the Código Civil (Civil Code), with detailed contract agreements stipulating project specifics, payment terms, and other pertinent details.
3. Key Distinctions
| Criteria | Contractors | Employees |
|---|---|---|
| Benefits | Not entitled | Entitled to various benefits and protections |
| Onboarding | Typically shorter due to project-specific engagements | More integrated into the company with comprehensive onboarding |
| Autonomy | Higher; dictates work schedule and methods | Lower; follows employer directives |
| Engagement Duration | Project-specific or defined period | Indefinite, with notice and severance obligations |
| Ownership of Tools | Owns and uses personal equipment/tools | Uses company-provided tools/equipment |
| Exclusivity | Non-exclusive; serves multiple clients | Exclusive to the employer, bound by company policies |
4. Risks of Misclassification
- Incorrectly classifying workers can result in:
- Retroactive payments to social security and benefits
- Severance payments upon termination
- Back payments for unpaid taxes
- Legal penalties and reputational damage
The landmark Uber case underscores the significance of proper classification. By ensuring clarity in worker categorization, businesses in Costa Rica can foster compliant and harmonious work environments.
Employee Benefits in Costa Rica
Costa Rica stands as a beacon of worker welfare, with a comprehensive system of employee benefits designed to ensure both mandatory rights and additional perks. From essential health and accident coverage to progressive family and holiday leaves, the nation's framework is a blend of tradition and modernity. Dive into the following sections to explore the intricacies of Costa Rica's employee benefits landscape.
Mandatory Employee Benefits
Costa Rica enforces five crucial employee benefits, underscoring the nation's commitment to worker welfare:
- Health Insurance: Managed through the national social security system, it grants access to 29 public hospitals.
- Accident Insurance: Designed to cover any workplace-related accidents that occur during official working hours.
- Pension Insurance: Supported by employer contributions to the State Pension Fund (I Pillar).
- Statutory Leaves: Encompassing annual, sick, maternity, and parental leaves, ensuring workers have necessary breaks and supports.
- Additional Days Off: Employees working during weekends or public holidays either receive extra days off or double pay.
Supplementary Employee Benefits
Beyond the mandated benefits, employers often offer additional perks to attract and retain top talent:
- Group Life Assurance / Death-in-Service Schemes: A protective measure, particularly valuable for financial dependents, ensuring they're not left with significant debts or loss of income.
- Group Medical Coverage: Highly sought after, this insurance provides access to private medical facilities, covering a gamut of medical needs including outpatient treatments, dental care, and more.
- Group Dental Insurance: Offered to enhance employee benefit packages, this covers dental treatments and is becoming increasingly popular among domestic firms.
Public Holidays & Time Off
Costa Rica recognizes nine public holidays, guaranteeing employees full pay. Additionally, three other official public holidays exist, though not mandated. Moreover, non-Catholic employees can avail days off for religious observances.
Vacation entitlement stands at 12 days annually for those employed for over 50 weeks. Employees employed less than 50 weeks receive one paid vacation day monthly. The option for accumulating or carrying over paid leave is at the discretion of the employer and employee agreement.
Health & Family Leaves
Costa Rica provides for paid sick leave, with employers covering 50% of the salary initially, which increases to 60% from the fourth day onward, courtesy of the CCSS. For expecting mothers, four months of maternity leave are mandated, with costs shared equally between employers and the CCSS. Fathers now enjoy two days of paid leave weekly for four weeks post-childbirth, and adoption leave provisions further cater to families.
Conclusion
Costa Rica's employee benefits ecosystem underscores the nation's commitment to worker welfare. Whether mandatory or supplemental, these benefits reflect a blend of traditional values and modern necessities, making it an attractive destination for both local and foreign talent.
Statutory Leaves in Costa Rica
Costa Rica is renowned for its lush landscapes, rich biodiversity, and progressive approach to labor rights. One of the cornerstones of this approach is the robust framework of statutory leaves designed to support employees during various life events. From paid vacations to parental leaves, the statutory leave system in Costa Rica is designed to strike a balance between work and personal life, ensuring job security and income continuity for employees. In this guide, we'll explore the primary statutory leaves in Costa Rica, shedding light on their entitlements, regulations, and implications for both employers and employees.
Paid Leaves: Ensuring Well-Deserved Breaks
Vacation Leave: A Respite from Work
Employees in Costa Rica are entitled to 12 days of paid vacation leave per year, with an additional day granted for every month worked after the first year. This leave can be accumulated over time, offering flexibility for employees to plan extended breaks or enjoy shorter respites throughout the year.
Christmas Bonus (Aguinaldo): A Festive Perk
One of the unique features of the Costa Rican employment landscape is the Christmas Bonus, known as Aguinaldo. Equivalent to one month's salary, this bonus is paid in December, providing employees with a much-needed financial boost during the holiday season.
Maternity/Paternity Leave: Welcoming New Beginnings
Mothers in Costa Rica are entitled to 12 weeks of paid leave before and after childbirth, allowing them to focus on their health and bonding with their newborn. Fathers, on the other hand, receive 2 weeks of paid leave following the birth of a child, fostering a supportive environment for new parents.
Medical Leave: Prioritizing Health and Well-being
In cases of illness or injury, employees in Costa Rica are entitled to paid medical leave, with the duration determined by a medical certificate. This provision ensures that employees can prioritize their health without worrying about income loss.
Vacation Due to Death and Voting Leave: Compassionate and Civic Leaves
Costa Rica also recognizes the importance of personal and civic responsibilities. Employees are granted two days of paid leave in the event of the death of a close family member and have the right to take paid leave on election days to exercise their democratic rights.
Unpaid Leaves: Balancing Responsibilities and Aspirations
Marriage Leave and Adoption Leave: Celebrating Life Events
Employees can take up to 8 days of unpaid leave for marriage celebrations and up to 6 months of unpaid leave for adopting a child, reflecting the country's commitment to supporting diverse family structures and life choices.
Educational Leave and Family Responsibility Leave: Nurturing Growth and Care
Employees in Costa Rica can request unpaid leave for educational pursuits, subject to employer approval, and up to 3 months of unpaid leave to care for a sick family member or child, underscoring the importance of continuous learning and family well-being.
Conclusion
The statutory leave system in Costa Rica is a testament to the country's progressive approach to labor rights, ensuring that employees can maintain a healthy work-life balance while addressing personal and family needs. For employers, understanding and complying with these statutory leaves is crucial not only for legal compliance but also for fostering a supportive and inclusive workplace culture. As Costa Rica continues to thrive on the global stage, its comprehensive statutory leave system serves as a cornerstone of its commitment to employee well-being, job security, and social responsibility.
Work Permit in Costa Rica
Understanding the Work Permit
A work permit, issued by the Dirección General de Migración y Extranjería (Department of Immigration), grants foreign nationals the legal right to work within Costa Rica under specific conditions. This permit is essential for any non-Costa Rican individual wishing to engage in employment within the country's borders.
Who Needs a Work Permit?
While Costa Rican citizens and permanent residents enjoy unrestricted work rights, all other foreign nationals must obtain both a temporary residence permit and a work permit. The latter particularly caters to individuals with unique skills or specific roles.
Duration and Types of Work Permits
- Duration: Costa Rica's work permit application can be a prolonged process, often spanning up to eight months. This duration is influenced by the applicant's country of origin and visa type.
- Types: Costa Rica predominantly offers a "special category" work permit. This encompasses various roles, from international company transfers to freelance engagements. While the country does provide other temporary residence permits, these don't permit employment.
Application Procedure
- Initial Steps: Employees must first register with the Costa Rican consulate in their home country and obtain a provisional visa.
- Documentation: Employers shoulder the responsibility of demonstrating the unavailability of local talent and must provide comprehensive documentation to support the work permit application.
- Submission and Review: Upon the employee's arrival in Costa Rica, both the employer and the employee submit the work permit application. This involves multiple steps, including the submission of notarized documents translated into Spanish.
- Fees: The work permit process incurs various fees, with the "special category" residence visa application fee being a notable one.
In summary, while Costa Rica offers avenues for foreign employment, adherence to its regulatory framework is paramount. By understanding and navigating these guidelines, global businesses can foster compliant and productive work environments within the country.
Role of an Employer of Record (EOR) in Work Permits
Engaging with an Employer of Record (EOR) in Costa Rica can streamline the work permit process for international hires. An EOR acts as the official employer for tax and insurance purposes, making it easier for foreign employees to navigate the complexities of Costa Rican immigration laws.
The EOR handles the administrative tasks related to work permits, ensuring that all documentation is in order, translations are accurate, and submissions are timely. This not only speeds up the application process but also reduces the risk of errors or omissions that could lead to delays or rejections.
Moreover, an EOR remains updated with any changes in local regulations, ensuring that international hires remain compliant throughout their employment tenure in Costa Rica. Their expertise in local labor laws and immigration procedures offers both employers and employees peace of mind, ensuring a smoother transition and integration into the Costa Rican workforce.
Conclusion
In conclusion, Employer of Record (EOR) services in Costa Rica offer a robust solution for businesses seeking to expand their global workforce in a legally compliant and efficient manner. By partnering with an EOR, companies can navigate the complexities of employment regulations, tax compliance, and other HR-related aspects, allowing them to focus on their core operations. The flexibility and legal protection provided by EOR services make them a valuable asset for both international and local enterprises looking to thrive in Costa Rica's dynamic business environment.
Social Security in Costa Rica
Costa Rica's social security system, overseen by the Caja Costarricense de Seguro Social (CCSS), ensures that residents have access to essential healthcare and social insurance. This framework encompasses various programs, each designed to provide specific benefits and protections to the workforce.
Key Social Security Contributions:
In sum, the collective employer contribution towards social security in Costa Rica amounts to 36.34%. These contributions underscore the nation's commitment to ensuring the welfare and security of its workforce, aligning with the overarching goal of fostering a balanced and supportive work environment for all.