Costa Rica Employer of record (EOR)
Costa Rica has a stable and transparent labor market, attracting companies that want to hire in the region. With a solid legal framework, the country offers a range of protections and benefits for workers, making it essential for companies, especially those using Costa Rica Employer of Record (EOR) services, to understand local employment laws.
Below, we outline the key aspects of employment laws in Costa Rica, covering everything from employment taxes to termination policies.
The Costa Rica Employer of Record (EOR) is responsible for:
✔️ Drafting local compliant contracts
✔️ Process payroll accurately and on time
✔️ Provide the best employee experience
✔️ Seamlessly handle global mobility
✔️ Pay your talent in local currency
Employment taxes in Costa Rica
When hiring in Costa Rica, employers are required to contribute to various social and employment-related taxes. The total employer cost is generally around 27.04% of the employee’s salary. These taxes are essential for ensuring that employees receive social benefits and protections as mandated by the government.
Social Security (CCSS) - 26.67%:
The Caja Costarricense de Seguro Social (CCSS) is the primary component of the employer’s contribution. This amount covers social security benefits, health insurance, disability, maternity leave, pensions, and other social welfare programs. The high percentage reflects Costa Rica’s strong emphasis on social welfare and healthcare access for its workforce.
Workman Compensation - 1%
This contribution covers work-related accidents and injuries, providing compensation and medical care in case of workplace incidents. It is a mandatory insurance required by Costa Rican labor law to protect employees in hazardous work environments.
Employee taxes in Costa Rica
Residents of Costa Rica are subject to tax on their worldwide income on a monthly basis.
Social security contribution
Employees contribute around 10.5% of their salary to social security programs, which cover healthcare and pensions.
Income tax
Employees in Costa Rica are subject to income tax, which is progressive and depends on the employee’s salary. The tax rates range from 10% to 15% for higher income brackets. The employer is responsible for withholding this tax from the employee’s salary and remitting it to the authorities.
Statutory Benefits in Costa Rica
Costa Rican labor law mandates several statutory benefits, including:
Aguinaldo (13th-month salary)
Employees are entitled to an additional month’s salary at the end of the year, typically paid in December.
Common Non-mandatory Benefits in Costa Rica
Many companies in Costa Rica provide additional benefits to attract and retain top talent. These benefits, while not legally required, are commonly offered:
Kindly note that depending on the company CBA, some non-mandatory benefits can actually be mandatory.
Meal & Food vouchers
Many employers provide meal vouchers or subsidize cafeteria services.
Private Health Insurance
While public healthcare is strong, many employers offer private insurance as an additional benefit.
Transportation Allowance
For employees who commute, companies often provide transportation vouchers.
Payments in Costa Rica
Minimum wage
Costa Rica has a robust legal framework that mandates minimum wage rates based on the job category or sector. The National Wages Council sets minimum wages, which vary depending on the employee’s occupation and qualifications.
As of 2024, the monthly minimum wage for an unskilled worker is ₡346,060.
Payroll frequency
In Costa Rica, employers typically pay their employees bi-weekly or monthly, depending on the nature of the employment agreement or company policy. Bi-weekly payments are common for manual laborers, while salaried employees are often paid once a month.
Employers are obligated by law to clearly state the payroll frequency in the employment contract to avoid any misunderstandings.
Payday
Paydays in Costa Rica must align with the agreed payroll frequency. Employees paid bi-weekly usually receive their wages on the 15th and last day of the month. For those on a monthly salary, payday typically falls on the last working day of the month.
Additionally, all salary payments must be made through direct deposit into a local bank account, unless otherwise agreed upon.
Working time and overtime in Costa Rica
Working hours
The standard working week in Costa Rica is 48 hours, distributed over six days. However, the country allows different shifts based on business needs:
- Day Shift: A maximum of 8 hours per day, totaling 48 hours per week.
- Night Shift: A maximum of 6 hours per night, totaling 36 hours per week.
- Mixed Shift: A combination of day and night shifts, allowing up to 7 hours per shift.
Overtime
Overtime is paid at a rate of 150% of the regular hourly wage, and any work performed on Sundays or public holidays is compensated at double the regular rate.
Probationary period
In Costa Rica, the labor law allows for a probationary period for new hires. This period, which can last up to three months.
It’s important for companies to clearly state the probationary period in the employment contract, as it must be agreed upon by both parties prior to starting employment. If no mention of a probationary period is made, the employee may be considered permanent from the start.
Leave in Costa Rica
Annual leave
Employees in Costa Rica are entitled to two weeks (10 working days) of paid annual leave after completing 50 (≃ 11,5 months) weeks of continuous employment.
The employee must take this leave within the next 50 weeks after it is earned, and any unused leave cannot be forfeited but may be carried over or paid out if not taken. Employers are required to schedule this leave in coordination with employees, ensuring it doesn’t interfere with business operations.
Public holidays
Costa Rica recognizes nine mandatory public holidays during which employees are entitled to paid time off if they fall on a working day. These holidays include:
- New Year’s Day (January 1)
- Holy Thursday (date varies)
- Good Friday (date varies)
- Juan Santamaria Day (April 11)
- Labor Day (May 1)
- Independence Day (September 15)
- Christmas Day (December 25)
If employees are required to work on a public holiday, they are typically entitled to double pay unless otherwise stipulated by a collective agreement.
Sickness and disability leave
Costa Rican employees who are unable to work due to illness or injury are entitled to sickness leave, provided they present a medical certificate.
During this period, employers are required to pay 50% of the employee’s salary for the first three days of absence. After the third day, the Costa Rican Social Security Fund (CCSS) covers 60% of the employee’s salary, ensuring continued income during the illness or disability leave.
Paternity and maternity leave
Mothers are entitled to four months of paid maternity leave in Costa Rica, divided into one month before and three months after childbirth. The employer and the Costa Rican Social Security Fund split the payment, with the fund covering 50% of the salary. Additionally, women cannot be terminated during pregnancy or within 12 months after the birth of the child.
While Costa Rican law does not yet mandate extensive paternity leave, public sector employees are entitled to eight days of paternity leave. In the private sector, paternity leave is usually negotiated at the company level or included in collective agreements, if applicable.
End of employment in Costa Rica
In Costa Rica, employment termination can occur under various circumstances, including resignation, mutual agreement, or dismissal (with or without cause). Understanding the types of terminations, the required notice period, and severance pay is essential for compliance with local labor laws.
Termination notice period
In Costa Rica, the notice period for termination of an employment contract is the same whether the employer or the employee initiates the termination. It depends on the length of service of the employee, not on who ends the contract. Here’s how it works:
- Less than 3 months of service: No notice period required.
- 3 to 6 months of service: 1 week of notice.
- 6 months to 1 year of service: 2 weeks of notice.
- More than 1 year of service: 1 month of notice.
If the employer fails to provide the required notice, they must compensate the employee with the salary equivalent to the notice period. Similarly, if the employee fails to provide notice, the employer can withhold the equivalent amount from any payments owed to the employee.
Severance pay
Severance pay is mandatory in Costa Rica for dismissals without cause. The amount is calculated based on the employee’s length of service:
Termination Without Just Cause
Employees are entitled to severance pay based on their length of service. The severance pay is calculated as follows:
- 3 to 6 months: 7 days’ salary.
- 6 months to 1 year: 14 days’ salary.
- 1 to 5 years: 19.5 days’ salary for each year of service.
- 5 to 10 years: 20 days’ salary for each year of service.
- More than 10 years: 21 days’ salary for each year of service.
Termination with Just Cause
No severance pay is owed if an employee is terminated for a just cause. Termination with cause typically occurs when an employee has violated employment rules, such as gross misconduct or consistent poor performance. In such cases, the employer must have documented proof.
Voluntary Resignation
Employees who resign voluntarily are not entitled to severance pay, unless there is mutual agreement with the employer. However, they still receive any accrued benefits, such as unused vacation or the proportional 13th-month bonus.
Mutual agreement
If both parties mutually agree to terminate the employment contract, the terms of severance pay can be negotiated between the employer and employee. Often, mutual agreements include the employee receiving partial or full severance depending on the circumstances.
Probation period
If employment is terminated during the probationary period (typically up to 3 months), no severance pay is owed. The employer or employee can end the contract without further financial obligations during this time.
How to hire in Costa Rica
Entity setup
Establish a legal entity in a specific country will allow your business to operate legally in the country, hire, pay and manage your talents there.
Independent contractor
This solution might seem a good fit to reduce the cost of setting up an entity or hiring a full-time employee. Engaging a contractor can be a winning strategy in some cases and will depend of your business strategy and goals. For instance, it is a great solution when you need a talent for a short-term project.
Use an Employer of record in Costa Rica
Partner with a Costa Rica employer of record (EOR) is quite a game changer and can help you hire globally. The EOR will be the legal employer, which means they will handle employment contracts, onboarding process, compliance, benefits, payroll and more.