Costa Rica – Employer of Record

Globalization Partners provides employer of record services for clients that want to hire employees and run payroll without first establishing a branch office or subsidiary in Costa Rica. Your candidate is hired via Globalization Partners’ Costa Rica PEO in accordance with local labor laws and can be onboarded in days instead of the months it typically takes. The individual is assigned to work on your team, working on your company’s behalf exactly as if he or she were your employee to fulfill your in-country requirements.

Our Global Employer of Record Platform™ and Global PEO service enables clients to run payroll in Costa Rica while HR services, tax, and compliance management matters are lifted from their shoulders onto ours. As a Global PEO expert, we manage employment contract best practices, statutory and market norm benefits, and employee expenses, as well as severance and termination if required. We also keep you apprised of changes to local employment laws in Costa Rica.

Your new employee is productive sooner, has a better hiring experience and is 100% dedicated to your team. You’ll have peace of mind knowing you have a team of dedicated employment experts assisting with every hire. Globalization Partners allows you to harness the talent of the brightest people in 150 countries around the world, quickly and painlessly.

Costa Ricans are an outgoing people and they love to stop and chat. Take the cue and don’t start talking business until your business associate begins the conversation. Costa Ricans tend to not be big risk takers, they like to deliberate and they often avoid direct confrontation. Patience is important, and be sure to check assumptions as Costa Ricans may agree with you at times only out of politeness. Keep in mind that Costa Rica is a small country–there are tight networks and news travels fast.

When negotiating terms of an employment contract and offer letter with an employee in Costa Rica, it may be useful to keep the following standard benefits in Costa Rica in mind:

Basic Facts About Hiring in Costa Rica

On January 25, 2016 the Labor Procedure Reform (RPL) was signed into law. It becomes effective on July 25, 2017 and overhauls close to half of the country’s labor and employment laws. Some of the new requirements include:

  • When terminating an employee, employers must personally deliver to the employee a dismissal letter which clearly outlines the facts behind the dismissal.
  • The threshold to initiate a strike has been lowered to a vote of 35% of the employees and ratification by 50% of the workforce plus one employee.
  • Employment disputes can now be litigated orally, in two hearings, rather than in written form as was required.

When negotiating terms of an employment contract and offer letter with an employee in Costa Rica, it may be useful to keep the following standard benefits in Costa Rica in mind:

Public Holidays in Costa Rica

Costa Rica celebrates 9 public holidays for which employees are given paid days off, including:

  • New Year’s Day
  • Maundy Thursday
  • Good Friday
  • Juan Santamaria Day
  • Labour Day/May Day
  • Annexation of Guanacaste Day
  • Mother’s Day
  • Independence Day
  • Christmas Day

Salaried employees are also paid for Virgin of Los Angeles Day, and Cultural Day, whether or not they work on these days.

Bonus in Costa Rica

Employees in Costa Rica are entitled to a 13 month salary called ‘Aguinaldo’, which is based on one month of an employee’s salary and must be paid within the first 20 days of December each year.

Working Hours in Costa Rica

The maximum daily number of working hours in Costa Rica depends on the kind of working day. In Costa Rica, there are Normal Working Days (Jornadas Ordinarias Normales) and Special Working Days (Jornadas Especiales o de Excepcion).

Both types of work days can be subdivided into day and nightshifts.  The maximum hours one may work per week is 48. 

  • Normal daytime working hours are between 5 a.m. and 7 p.m. 
  • Night time jobs are those that take place between 7 p.m. and 5 a.m. 
  • Night time employees may not work more than 36 hours per week. 
  • The maximum number of hours allowed for mixed shifts of day and night time work is 42 hours per week.

Working on a Saturday is considered a Special Working Day.  Special Working Days apply to several fields of employment among which domestic servants can work up to 12 hours per day.

  • Overtime is paid at time and a half, or the hourly wage plus an additional 50%. Employers may require no more than 4 hours of overtime, for a total of 12 working hours per day.

Vacation in Costa Rica

The Costa Rica Labor code provides vacation benefits that generally entitle employees to one day of vacation for every month of employment, and two weeks of vacation after 50 weeks of work.

However, there are certain requirements for vacation benefits, including that vacations may not include paid holidays or weekends, and paid vacations must be given to employees during the 15 weeks following the completion of the 50 weeks of work.  

Employers can choose the time the vacations are taken and require that half be taken at two different times, but they must be granted within 15 weeks of the time when they were due.

Sick Leave in Costa Rica

Employers must pay at least 50% of the employee’s salary for the first three days of the employee’s sick leave. The Social Security Administration pays the other 50%. From the fourth day of sick leave forward, Social Security pays 60% of the salary and the employer is not obligated to pay anything to the employee. The employee must submit a medical certificate to the Social Security Administration to receive payment.

Maternity Leave in Costa Rica

Pregnant employees are given 1 month of paid maternity leave before the birth of the child, and 3 months after birth. Employers are required to pay 50% of the salary for all four months of leave, and the Social Security Administration pays the remaining half.

Pregnant women’s jobs are protected and termination can result in the employer being required to pay regular wages from the date of the dismissal to the eighth month of pregnancy, at minimum. Courts may determine that higher compensation is owed.

Fathers holding public sector jobs are entitled to eight days of paid paternity leave.

Termination/Severance in Costa Rica

In Costa Rica, to terminate an employee for cause, the cause must be based on one of the grounds set forth in Article 81 of the Labor Code. The termination must be well substantiated as the employer carries the burden of proof that the termination was for cause.  The employer will only be liable for the payment of wages, proportional vacation time and Christmas Bonus.

Employees that are fired or laid off without cause are entitled to severance pay, which is paid on the last day of employment. If an employer terminates the employee without cause then the employee must be compensated with severance which is referred locally as “Prestaciones Laborales” as follows:

  • Preaviso (Advance Notice) – The law requires 30 days advance notice to be given of impending termination. If no advance notice is given, 30 days pay is due to the employee.  If the required number of days of advance notice is given regular pay continues for 30 days, but the employee has the right of one paid day per week to look for another job.
  • Severance Pay (Cesantia):  If an employee is terminated without cause by the employer or if the employee quits for cause, they are entitled to severance pay.
    • If the employee has worked with the employer for more than three months but less than six months then they are entitled to the equivalent of seven days wages.
    • If the employee has worked from six months to one year they are entitled to fourteen days of wages.
    • If the employee has worked for more than one year then the following schedule applies for each year worked:
Years Worked Days Paid
1 19.50
2 20.00
3 20.00
4 21.00
5 21.24
6 21.50
7 22.00

Accumulated Vacation Pay (Vacaciones):  When an employee is terminated, any unused vacation time must be paid.   The employee is entitled, as part of their severance, one day for each month worked.  As such if your employee worked for you for 8 months and did not take any vacation period, upon termination they are entitled to 8 days wages as vacation severance.

  • Pro-rated Christmas Bonus:  If the employee is terminated prior to December, the pro-rated Christmas Bonus must be paid.

Taxes in Costa Rica

The Social Security system, known as the Caja, provides employees with free health care, sick leave, disability pensions and retirement benefits.  It is mandatory for all employers to register employees with the Caja. Total contributions amount to roughly 34.5% of the salary by employers, and 9.5% by employees.

Health Insurance in Costa Rica

Some of the best healthcare in Latin America is provided in Costa Rica. The health system includes Medical Treatment (illness and maternity) and Obligatory Pension (disability, old age and death).

It is possible to take a private insurance or health plan in Costa Rica.  Private insurance plans are also available through the government-owned insurance company (INS). Private plans include dental work, optometry, well-visits and annual check-ups. 80% of the costs are covered for prescription drugs, certain medical exams, sick visits and hospitalization. Surgeon and aesthetician costs are covered at full cost. Currently, private medical insurance costs about $60–$130/month per person, depending on gender, age, other factor

Bottom Line on Benefits in Costa Rica

Generally, we recommend budgeting 26% as benefits cost on top of the gross salary to allocate the total employer’s cost including benefits in Costa Rica.

Employment Contracts in Costa Rica

It is legally required and best practice is to put a strong employment contract in place in Costa Rica, in the local language, which spells out the terms of the employee’s compensation, benefits, and termination requirements. An offer letter and employment contract in Costa Rica should always state the salary and any compensation amounts in colón rather than a foreign currency.

This information is provided as general accepted information and is not intended as advisory services.

Why Globalization Partners

Establishing a branch office or subsidiary in Costa Rica to engage a small team is time consuming, expensive and complex. Costa Rican labor law has strong worker protections, requiring great attention to detail and an understanding of local best practices. Globalization Partners makes it painless and easy to expand into Costa Rica. We can help you hire your candidate of choice, handle HR matters and payroll, and ensure that you’re in compliance with local laws, without the burden of setting up a foreign branch office or subsidiary. Our Costa Rica PEO and Global Employer of Record Platform provides you piece of mind so that you can focus on running your business.

If you would like to discuss how Globalization Partners can provide a seamless employee leasing or PEO solution for hiring employees in Costa Rica, please contact us.