Understanding the Employer of Record System in Costa Rica
Costa Rica is a small country located in Central America known for being a stable democracy. In the past, the economy was agriculture-centric. Today, Costa Rica has diversified into multinational corporations (MNCs) because of the growth of the finance, pharma, and ecotourism sectors, especially with the development of the Free Trade Zone. The country is ranked fifth in Latin America in the Human Development Index (HDI).
Expanding into Costa Rica could boost your business significantly. However, the expansion process could be complicated due to entry barriers such as language. The regulatory framework of Costa Rica is unique and you could also encounter cultural differences.
Partnering with a company that provinces Employer of Record (EOR) solutions in Costa Rica could expedite your expansion efforts. Skuad is a leading EOR solutions provider that can help provide all-round recruitment and hiring support, ensuring compliance with the local labor laws, including work permits, payroll, and taxation.
Speak to Skuad experts for more information about EOR solutions for Costa Rica and how we can add value to your expansion plans.
Employer of Record in Costa Rica
The employment process in Costa Rica starts with the employer issuing a written employment contract. As per the employment law of Costa Rica, it is mandatory to include all employment terms and conditions such as the salary, wage, benefits, entitlements, leaves, and overtime policies. The HR landscape of Costa Rica is intricate and demands attention.
Skuad’s EOR solutions for Costa Rica are optimized to source and hire local and foreign talent, handle payroll and salary, taxation, benefits, and other contributions. Additionally, you save time and money for a cost-effective, labor-saving expansion process.
Costa Rica at a Glance
Estimated population: 5,094,118 (2020)
Currency: Costa Rican colón (CRC)
Capital: San Jose
Officially recognized living indigenous languages: Maléku, Cabécar, Bribri, Guaymí, Guna, and Buglere
Official language: Spanish
GDP: USD 61.8 billion (2019)
Employment in Costa Rica
The labor market and the income distribution have been favorable in Costa Rica in the last 25 years. Costa Rican Labor Code was formed on August 27, 1943. There are various aspects and elements of the Costa Rica employment laws that you need to understand thoroughly before proceeding with your expansion plans.
Costa Rica Labor Laws
| Main statutes and regulations of employment in Costa Rica |
The fundamental employment legislation includes the following.
- Labor Code, Law No. 2
- Constitutive Law of the Costa Rican Social Security Fund
- Law of payment of bonuses to private sector employees
- Law Against Sexual Harassment in Employment and Teaching
- Code of Childhood and Adolescence Law
- Personal Protection Law against the processing of personal data (reference not available)
- Regulation of the Disability, Old-Age, and Death Insurance
- General Migration and Immigration Act
- Regulation of the Health Insurance
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Other key details regarding employment in Costa Rica are given below.
Costa Rica’s leave legislation is as follows.
| Public holidays |
- New Years Day: January 1
- Maundy Thursday: The Thursday preceding Easter Sunday
- Good Friday: The Friday preceding Easter Sunday
- Juan Santamaria Day: April 11
- Labor Day: May 1
- Annexation of the Party of Nicoya to Costa Rica: July 25
- Feast of Our Lady of the Angels: August 2
- Mother's Day: August 15
- Army Abolition Day: December 1
- Christmas: December 25
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| Vacation leave |
The following rules apply to statutory and contractual overtime.
- As a rule, employees in Costa Rica get 15 days of paid leave for 50 consecutive weeks of work.
- The Costa Rica labor laws do not permit employees to accrue vacation time. This practice also encourages employees to take the leaves in one go and not break the same.
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| Sick leave
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As per the labor laws in Costa Rica, employees are entitled to sick leaves.
- The employer pays the first three days of leave at 50% of the standard pay.
- After three days, Social Security pays for sick leaves at 60% of the standard pay.
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| Maternity leave |
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New and expectant mothers can take up to four months of paid maternity leaves. The breakup allows one month of leave before the birth and three months after the baby’s birth.
- According to the law, 50% of the normal pay is paid by the Employer, and the remaining 50% by Social Security.
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| Paternity leave |
New fathers have the option of paternity leave. Employees working in government organizations or public sector undertakings get up to eight days of paid leave.
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The mandatory obligations of employees under the Costa Rica employment laws are as follows.
| Mandatory registration of employees with the Social Security Administration |
- Employers must have their employees registered with Social Security for benefits such as disabilities, medical care, and retirement.
- Employers located outside San Jose can register with a local branch.
- For registration, employers need to submit the application form, identification proof, electricity bill copy, identification of the workers, certificate of corporate standing, and Articles of Incorporation
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| Mandatory registration of employees with the Worker’s Compensation Insurance Policy |
- The Workers Compensation Insurance Policy is managed by the National Insurance Institute (Instituto Nacional de Seguros; INS) in Costa Rica.
- The policy covers employee illness and accidents.
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Navigating the ecosystem of the Costa Rican labor laws is complicated. If you wish to hire the services of an EOR, talk to Skuad experts and book a demo.
Contractors vs. Full-time Employees
There is a clear difference between an independent contractor and a full-time employee, per the employment contract law in Costa Rica. For the latter, the employer has control over the employee and is responsible for directing the employee. It means that the employer sets down the hours and timings of work. In this case, the employer has control, direction, and authority over the employee.
The independent contractor, on the other hand, executes their work independently and autonomously. In case an employer tries to label a contractor as an employee, there could be legal implications. Such cases go to the Labor Court and the Court's decision is final. The Court interprets the employment contracts in Costa Rica and the labor laws to deliver the decision.
The other difference between full-time employees and contractors is in taxation. Employees are covered by the pay-as-you-earn (PAYE) system by the employer and taxed on the salary per the employment agreement in Costa Rica. Contractors need to bear the taxes on their own and are responsible for filing their tax returns.
Centering your organizational requirements, Skuad can assist you with hiring both full-time and contractual employees. You can avail of tailor-made EOR solutions by consulting a Skuad expert and ensure your expansion efforts comply with the Costa Rica employment law.
Hiring in Costa Rica
You can start to hire employees in Costa Rica once you have incorporated your business entity into the company.
If you wish to go ahead on your own by incorporating a legal entity in Costa Rica or take help from local hiring companies in Costa Rica, you need to start by looking out for suitable talent on online job portals. Some of the popular portals in Costa Rica are Buscojobs, Indeed, Global Medical Careers, Aquaculture, Impactpool, MyExpatJob, Tecoloco, Un Mejor Empleo, Jobbatical, and Opcionempleo.
It is important to mention here that the hiring process can be time-consuming and cumbersome. If you enter a partnership with an EOR company, you can find made-to-order solutions for your HR tasks, including payroll, taxes, regulatory compliances, and employee health benefits in Costa Rica. By letting an EOR company handle your HR needs, you can channel your time and energy toward growing your firm.
Under the Costa Rican Labor Code, domestic workers are covered under a special category. There is a 30-day probation period for domestic workers, or the employer can terminate the agreement. Once the 30-day period is over, the termination depends on the clauses discussed below. The benefits that the domestic worker is entitled to include salaries, room, and board. Further, the domestic worker cannot work for more than 12 hours daily with a one-hour break. They are also entitled to half a day off twice a month.
To understand the labor laws of Costa Rica and to seamlessly start your business here, you can book a demo with Skuad.
Probation & Termination
Termination of Employment in Costa Rica
| Termination clause |
- In Costa Rica, employees are entitled to a 30-day notice period in case of termination when the employee has worked with the employer for one year or more. If the employee has worked for between three to six months, the notice period is one week, and if the employee has worked for between six months to a year, the notice period is two weeks.
- If employers do not wish to give notice to employees, they need to pay for the pre-notice period for the employment to discontinue immediately.
- Employers also need to give their employees one paid day every week for job hunting.
- If employees are not offered a proper explanation or cause for termination, they are entitled to severance pay, which typically varies between seven to 22 days’ pay, known as
- Prestaciones Laborales. The duration of their employment with the employer determines the severance pay.
- The termination of an employee needs to be on one of the grounds mentioned in the Labor Code, Article 81.
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Probation in Costa Rica
| Standard probation period |
- As per the Costa Rican Labor Code, there is no mandatory trial period for employees. In most cases, the trial period overlaps with the initial period of the three-month term of the contract. In such cases, the employer can end the contract without giving any reason or compensating the employee for dismissal.
- If the employer and employee agree to a probationary period, it must be reasonable with clear-cut objectives that employees need to meet. Employers can assess the performance of employees during the trial period.
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It can be challenging to keep track of the probationary and termination protocols under Costa Rican law. The process requires close attention since a misstep can pose significant risks to the employer. Skuad’s EOR solutions can take care of HR-related processes for you and ensure your operations fall under the ambit of the law.
EoR Solution
An EOR solution company is a legal entity that actively hires and onboards employees for another firm or business establishment. The EOR company takes the onus of completing all the formal tasks involved in employing local and foreign workers. In the process, an effective EOR solution can help foreign companies to incorporate a business entity in Costa Rica and eliminate the legal hassles of violation of local labor laws.
Skuad is one of the leading EOR companies in the world. Our EOR service entails numerous kinds of assistance, including arranging for visas and work permits, offering a legal entity in Costa Rica for hiring, onboarding, and running payroll compliant with the local labor laws, and ensuring that the native employees are protected and get benefits as entitled by the law. We also help to draw employment contracts that outline the employment and termination details, probation, severance pay, and notice periods. Skuad acts as a centralized one-stop self-service platform with intelligent tools for fulfilling hire-to-retire services. We are one of the best EOR companies in Costa Rica.
Types of Visas in Costa Rica
Technically, the process of obtaining a Costa Rica work visa involves finding an employer, getting a work permit, and obtaining your work visa. However, the process is not as easy. There is a high level of restrictions imposed by the government to protect the interests of the local workforce.
| Types of work visas in Costa Rica |
- A temporary residence permit is for investors or for setting up a business in Costa Rica. However, the permit holder is not allowed to work, and they need to hire a local workforce to work in their business.
- A permanent residence is available only if you have a blood relative in Costa Rica, or alternately, have stayed for more than three years on a temporary residence permit in Costa Rica.
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Without prior authorization, only local citizens and permanent residence holders are permitted to work in Costa Rica. A temporary residence permit is offered to foreigners who wish to live and work in Costa Rica for three months and more.
You can speak to a Skuad expert to know more about Costa Rica’s work visa requirements and kick-start your expansion efforts.
Work Permits
The following details must be kept in mind regarding Costa Rica’s work permit requirements and policies.
| Work permits |
- Getting a work permit is not a simple process in Costa Rica, but it is one of the best ways to continue working here.
- Costa Rica’s work permit for foreigners falls under the “Special Category.”
- Permit holders are allowed to work and reside in the country as long as they meet the Ministry of Labor and Social Security conditions.
- The work permit applies to the following individuals.
- Artists, entertainers, and athletes
- Technical and professional guests
- Transferee staff
- Preventive Maintenance Service and Corrective Post Sales Management members
- People in specific occupations, including domestic workers
- Self-employed individuals engaged in the construction and agriculture sectors
- Temporary workers
- Transfrontier workers
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It is not possible to get a Costa Rica work permit without a job offer. To expedite your expansion efforts in Costa Rica, get in touch with Skuad and book a demo.
Payroll & Taxes in Costa Rica
| Employer payroll taxes: Social Security
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Both employers and employees need to contribute to social security or Caja.
The employer’s contribution is 34.5% of the employee’s salary, while the employee needs to contribute 9.5%.
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| Payroll tax rates: Personal income tax
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The personal income tax is 15% in Costa Rica. The personal income tax rate is imposed on the following.
- Pensions
- Labor
- Interests
- Dividends
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| Corporate tax rate
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The corporate tax is 30%.
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Making your way through the payroll and taxation rules in Costa Rica can be overwhelming due to intricacies such as return dates. One way to remain focused on your business is to opt for payroll outsourcing in Costa Rica. For any help with payroll and taxation solutions, you can contact Skuad and ensure a smooth flow of business in Costa Rica.
Incorporation: How to Set Up a Subsidiary in Costa Rica
To set up a business in Costa Rica, you would first need to apply to the National Social Security website, Caja Costarricense de Seguro Social. Your legal representative needs to sign up and log in to the site using an electronic signature. The representative also needs to fill up all relevant details for approval, which typically takes a month or more to come.
The documents required for incorporating a holding company in Costa Rica include the following.
- Official email address
- Company certificates duly stamped by the Public Notary or National Registry
- Company bylaws copies
- Legal ID copies
- Employee IDs copies
- Contact address for notifications
If you are interested in taking advantage of the growing business opportunities in Costa Rica without the stress of handling the nitty-gritty of the HR domain, speak to Skuad experts today.
Professional Employer Organization (PEO)
A professional employer organization (PEO) partners with foreign business entities to offer end-to-end HR services. Some of the services offered by a PEO in Costa Rica include recruitment, training, payroll processing, regulatory compliances, tax filing, and deploying employees. It is an extended arm of a legal business entity in Costa Rica that acts more like an outsourced HR department than an in-house HR department. The PEO pays employees their salaries and benefits, so its name appears on the cheques and other HR communication materials.
An EOR company is not a co-employment entity. It behaves like the legal employer while handling all HR functionalities in the manner of a PEO. The underlying difference is that when using an EOR service, the foreign business is not required to have a legal entity in Costa Rica. For using PEO services, however, the business has to register with the local authorities. Using both types of services helps businesses stay committed to their global expansion strategies without any hiring and payroll hassles.
Skuad is an expert EOR and PEO service provider in Costa Rica. If you wish to know how we can partner with you and provide HR-related assistance, speak to us today.
Conclusion: What Gives Skuad’s Costa Rica Solutions an Edge?
Thinking of starting your business in Costa Rica? Consider speaking to a Skuad expert. We can help you with hiring the local workforce and foreign employees. When you choose Skuad as your EOR in Costa Rica, you make cost-effective decisions and save money and crucial resources to invest in your business. Connect with Skuad for more details!
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