Costa Rica

Employer Of Record in Costa Rica

Costa Rica is a small country 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).

In addition to this, Costa Rica features a great startup ecosystem. There are currently as many as 400+ technology startups in this country. 

One of the main reasons for this can be attributed to the many initiatives launched by the Costa Rican government, such as the ‘Women and Business 2020’. 

It is a national program for women entrepreneurs, and the development of ‘Buy SME’ platforms, specifically for businesses without an online presence.

Expanding into Costa Rica could boost your business significantly. 

However, the expansion process could be complicated due to entry barriers such as language. 

Costa Rica's regulatory framework is unique, and you run the risk of facing potential legal challenges. 

To deal with all these difficulties, a robust hiring solution is essential. 

This is exactly what Skuad’s Employer of Record Costa Rica solution is all about.

Skuad is a leading EOR solutions provider that can provide all-around recruitment and hiring support and ensure compliance with local labor laws, including work permits, payroll, built-in IP protection, and taxation. 

Skuad’s Costa Rica EOR solution provides a cost advantage over others, try our employee cost calculator for an in-depth understanding of hiring expenses in Costa Rica.

Speak to Skuad experts for more information about EOR solutions for Costa Rica and how we can add value to your expansion plans.

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)
  

Hire Employees

There are multiple ways by which you can hire employees in Costa Rica:

• Hiring directly without an employer of record in Costa Rica.
• Hiring via Professional Employer Organizations (PEOs)
• Seeking employer of record services in Costa Rica. 

Direct Hiring: Setting up a Subsidiary

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 out all relevant details for approval, which typically takes a month or more.

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

You can start to hire employees in Costa Rica once you have incorporated your business entity into the company. 

Suppose you want to incorporate a legal entity in Costa Rica or get help from local hiring companies in Costa Rica. 

In that case, 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.

Hiring via 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 compliance, 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.

Differences between PEO vs EOR

An EOR company is not a co-employment entity. It behaves like a legal employer while handling all HR functionalities like 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. 

However, the business has to register with the local authorities to use PEO services. 

Using Costa Rica employer of record services helps businesses stay committed to their global expansion strategies without 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.

Seeking the Services of an Employer of Record in Costa Rica

An EOR solution company is a legal entity that actively hires and onboards employees for another firm or business establishment. 

The EOR company completes all the formal tasks involved in employing local and foreign workers. 

In the process, an effective EOR solution can help foreign companies incorporate a business entity in Costa Rica and eliminate the legal hassles of violating local labor laws.

Skuad is one of the leading Costa Rica Employer of Record companies. 

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 draw employment contracts outlining 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.

Onboarding and Agreements

Employee onboarding refers to a series of procedures specifically designed to integrate new hires into an organization. 

This includes various tasks such as scheduling an introductory orientation, familiarizing the new employee with the company's hierarchy and work culture, and making them feel valued and comfortable in their new role.

The onboarding process in Costa Rica starts with the employer issuing a written employment contract. 

According to Costa Rican employment law, this contract must include all employment terms and conditions, such as salary, wage, benefits, entitlements, leaves, and overtime policies.  

Furthermore, the written employment contract should include three copies—one for the employer and one for the employee. 

The last copy must be sent to the Ministry of Labor and Social Security. 

Employers are also legally obliged to submit the written employment contract to the government of Costa Rica within 15 days.

Employment agreements in Costa Rica can also be verbal in the following instances.

• The work is related to crops and livestock and does not involve any industrial operations done in the field.
• Domestic services
• Temporary or sudden demand for work that should not exceed 90 days.

In the case of verbal agreements, the employer is legally required to issue a written document outlining the work done and the payment made every 30 days on request by the employee. 

Apart from these, there are two other types of employment agreements that can be issued in Costa Rica. They include,

• Defined or determined time contract
  • An employment agreement can also be stipulated for a specific duration in Costa Rica. 
  • Under this country's labor laws, such types of contracts cannot exceed one year of employment. 
  • However, for services that require special technical preparation, a fixed-term contract can last for five years. 
  • Additionally, all fixed-term agreements in Costa Rica can be extended.

• Indefinite-term contracts
  • These are the types of agreements intended to provide paid work for an indefinite period of time, meaning that they do not have a predetermined end date.

However, this is just one step of the onboarding process. Following the drafting of the contract, you need to fulfill other crucial tasks, which include,

Skuad’s EOR solutions for Costa Rica are optimized to source and hire local and foreign talent and handle payroll, salary, taxation, benefits, and other contributions. 

Additionally, you save time and money for a cost-effective, labor-saving expansion process.

Taxes in Costa Rica

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 outsource payroll in Costa Rica. 

For any help with payroll and taxation solutions, you can contact Skuad to ensure a smooth business flow in Costa Rica.

Compliance

The labor market and income distribution in Costa Rica have been favorable in the last 25 years. 

The Costa Rican Labor Code was formed on August 27, 1943. You need to understand various aspects and elements of the Costa Rica employment laws thoroughly before proceeding with your expansion plans.

Costa Rica Labor Laws‍

The mandatory obligations of employees under the Costa Rica employment laws are as follows.

Under the Costa Rican Labor Code, domestic workers are covered under a particular category. 

Domestic workers have a 30-day probation period, or the employer can terminate the agreement. 

Once the 30-day period is over, the termination depends on the clauses discussed below—the benefits the domestic worker is entitled to include salaries, room, and board. 

Further, the domestic worker cannot work more than 12 hours daily with a one-hour break. 

They are also entitled to half a day off twice a month.

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.

Independent Contractor vs Full-Time Employee

According to the employment contract law in Costa Rica, there is a clear difference between an independent contractor and a full-time employee. 

For the latter, the employer has control over the employee and is responsible for directing the employee. 

This 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.

On the other hand, independent contractors execute their work independently and autonomously. 

If 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 are taxed on their salaries 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. 

By consulting a Skuad expert, you can avail yourself of tailor-made EOR solutions and ensure your expansion efforts comply with Costa Rica employment law.

Tests to Determine Worker’s Status in Costa Rica

The labor laws of Costa Rica currently do not define ‘independent contractors.’ 

Therefore, the difference between independent contractors and employees is determined by analyzing the labor relationship.

There are three main elements in this aspect. They are namely,

• The service must be rendered personally.
• Such service must be paid for, and
• The service must be rendered under subordination concerning the employer.

Personally Rendered Service

Under the employment laws of Costa Rica, a contractual relationship cannot be considered a labor relationship if the service is not provided personally by the individual hired. 

Typically, in a labor relationship, the party receiving the services is interested not only in the provisions of the service per se but also in the personal capacities of the specific individual. 

Additionally, an independent contractor relationship is said to have been established when the individual hired has the right to determine which individual will provide the services.

Payment

In order for a work relationship to be considered labor-type, the service provider must be compensated for their work. 

The amount payable is determined by unit of time, by task, or by piece of work. Payment may be made in currency and kind. 

Furthermore, participation in earning or profits, sales, or collections from the employer is also possible.

Subordination

Lastly, in a labor relationship, the employee’s autonomy is limited regarding the provision of services. 

Such limitation comes from the employer's capacity to guide the employee’s activities, give orders to the employee, or unilaterally change certain terms and conditions of the employment agreement.

Additionally, subordination also includes the ability of the employer to discipline the employee in the event of bad performance or misbehavior. 

This means that the employer is capable of imposing direct orders or penalties on the employee when orders are not followed.

Fines/Penalties for Misclassifying Workers

There are four main consequences employers have to face in the event of misclassification of employees in Costa Rica. They include,

• Employers will be legally required to retroactively pay the CCSS (Costa Rican Social Security Agency) all the payments that were not made during the contractual relationship between the service provider and the service recipient.
• Employers will be mandated to pay the income taxes that were supposed to be withheld from employees' salaries.
• Employers will be responsible for paying all unpaid labor-related benefits to the worker, including vacations and Christmas bonuses.
• In the event of termination, employers are legally obligated to pay severance and give notice if the termination was without cause.

Types of Visas in Costa Rica

Technically, 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. 

The government imposes a high level of restrictions to protect the interests of the local workforce.

Only local citizens and permanent residence holders are permitted to work in Costa Rica without prior authorization. A temporary residence permit is offered to foreigners who wish to live and work in Costa Rica for three months or more.

You can speak to a Skuad expert to learn more about Costa Rica’s work visa requirements and kick-start your expansion efforts.

Work Permits

The following details regarding Costa Rica’s work permit requirements and policies must be kept in mind. 

A Costa Rica work permit is not possible without a job offer. To expedite your expansion efforts in Costa Rica, contact Skuad and book a demo. 

Payroll

The traditional way to pay employees in Costa Rica is through cash, direct transfers, paycheques, mobile wallets, or pay cards. 

While this may seem easy, especially when you are hiring one or two employees for your organization, managing the payroll mechanism gradually becomes even more difficult as the number of employees gradually increases. 

In addition to understanding this country's tax requirements, you also need to keep a close eye on the conversion rates and other similar labor laws related to payroll. 

For example, all employers must process payments to their employees in the country's official currency, which is Costa Rican Colón. The pay date is usually the last working day of the month.

To handle the complexities of payroll in Costa Rica, most businesses utilize the services of an employer of record in Costa Rica, such as Skuad. 

As a unified platform, Skuad makes international payment seem easy and hassle-free. It boasts several amazing features, such as the following:

• Multi-currency payroll
• Automated invoicing
• Built-in compliance
• Payslip generation
• Expense management, real-time reporting, and more.

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 and payroll domain, speak to Skuad experts today.

Benefits and Compensation

The Caja Costrarricense de Seguro Social (Costa Rican Department of Social Security, CCSS) is the primary body that governs the country's social security system. 

It provides universal healthcare coverage and old-age benefits, such as health insurance and pensions, for all residents. 

While all employees are mandatorily required to contribute, the social security system also takes care of those who are unable to do so.

Worker’s Rights

As mentioned below, we have some of the many statutory entitlements for every employee in Costa Rica. 

Working Hours

A typical workday in Costa Rica is categorized into three shifts,

• Day Shift: It takes place between 5:00 am and 7:00 pm and consists of eight hours on a daily basis. Furthermore, it can also be extended up to 10 hours only if the designated tasks are not unhealthy or dangerous.
• Night Shift: It begins at 19:00 and lasts till 05:00, totaling six hours.
• Mixed Shift: This includes periods comprising both day and night shifts. The maximum working hours permissible during a mixed shift is seven hours.

Overtime

Overtime is allowed in Costa Rica; however, it should not exceed 48 hours in a week and four hours in a day. 

Employees who work overtime need to be compensated at 150% of their regular wages. Additionally, the pay for overtime work on holidays is 200%.

Minimum Wage

The current minimum wage in Costa Rica is CRC 15,333.31 for specialized employees and CRC 11,738.83 for unskilled employees.

Probation Period

According to the Costa Rican Labor Code, employees do not have a mandatory trial period. 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 and have clear-cut objectives that employees must meet. 

Employers can assess employees' performance during the trial period.

Anti-Discrimination Laws/Acts

Article 33 of the Political Constitution of Costa Rica outlines the general principles related to equality and non-discrimination. 

To be more specific, Article 57 regulates equal pay, whereas, Article 68 prohibits any form of discrimination at the workplace. 

Health and Safety

Article 66 of the Constitution of Costa Rica enshrines a series of duties for employers to take all the required hygiene and security measures at the workplace. 

You can book a demo with Skuad to understand the labor laws of Costa Rica and seamlessly start your business there.

Remote & Hybrid Work in Costa Rica

With the rise of remote work, almost every organization worldwide has tried to hire international employees to expand globally. Unfortunately, very few companies have been able to achieve this feat.

One of the primary reasons for this failure can be attributed to a business's lack of remote readiness. 

By remote readiness, we do not just mean understanding and complying with country-specific laws and regulations. 

We also refer to how well an organization's employees and employers can engage in remote & hybrid work. 

There are various factors that come into play when determining this remote readiness. They include: 

• Technology and infrastructure

Make sure that your business infrastructure has the necessary technology and infrastructure to facilitate remote work. 

This includes proper communication and collaboration tools to disburse crucial information safely and efficiently, suitable hardware, such as laptops and mobile devices, and a reliable internet connection.

• Work policies and guidelines

Your company needs proper policies and guidelines that facilitate remote readiness in order to effectively engage in remote work. 

These policies and guidelines should ensure clarity, relevance, and effectiveness and focus on key areas such as performance evaluation, communication expectations, and work hours.

• Data security and privacy

Last but not least, ensure that data security and privacy are maintained correctly in your organization. 

This can be achieved by implementing robust security measures that safeguard your sensitive business information and are in sync with all data protection laws.

Salary

The salary of employees in Costa Rica may differ depending on multiple factors, such as,

• The industry: Employee salaries can vary greatly depending on the industry. For example, the average salary of an individual working in the health and medical domain is currently set at 3,520,000 CRC. On the other hand, the monthly average wage of an employee in the finance sector is 750,000 CRC.
• Experience level: Candidates who have many years of work experience and academic qualifications are likely to be compensated with much higher salaries than those who have just graduated or are freshers.
• Location: Salaries may also differ depending on the region or the organization itself.

However, every employer must comply with Costa Rica's minimum wage requirements. 

Additionally, employees in this country enjoy an annual Christmas bonus, which is mandatory and must be paid by December 20th. 

It equates to one-twelfth of the total salary earned during the year.

Take a look at Skuad’s salary insight tool. It allows you to explore the latest salary trends. 

Access robust compensation data, and offer fair and competitive packages to your potential employees.

Leave Policy

As mentioned below, we have highlighted some of the statutory leave entitlements of employees in Costa Rica.

Public Holidays

• New Year's 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 Day: December 25

Background Checks

Given the rising fraud and identity theft cases, conducting a thorough background check before onboarding any new employee has become imperative for businesses. 

It is essential to ensure the safety and reliability of individuals and companies.

Benefits of Background Checks in Costa Rica

Before we move forward with the various types of background checks in Costa Rica, let’s first take a look at some of its many benefits:

• It helps hiring executives make informed decisions.
• It helps protect organizations against potential liability claims from negligent hiring practices.
• It enables companies to stay compliant with various laws and regulations.
• It maintains your brand’s integrity by ensuring that only those individuals are hired whose values align with those of your organization.
• It helps to weed out job applicants who may be looking to commit fraud or create a data breach within the organization.

Types of Background Checks in Costa Rica

When conducting a background check in Costa Rica, obtaining written consent from the employee and prioritizing data privacy and confidentiality is extremely important. 

Some of the most common types of background checks that are permissible in this country include,

• Criminal Record Check

A criminal record check involves scrutinizing the criminal history or offenses (if any) committed by the individual. To obtain a police clearance certificate, you can contact the Judicial Investigation Agency (OIJ) and gather all the necessary information. 

However, please note that discriminating against individuals based on their criminal history is strictly prohibited in this country and can result in serious legal repercussions. 

• Education Verification

An education verification check is conducted to gauge the accuracy of the potential employee's claims related to academic qualifications. 

This includes any certifications, degrees, and diplomas. For this purpose, the employer may directly contact the educational institution to verify the employee's dates of attendance and other similar details.

• Employment History Check

An employment history check verifies a person’s past employment details, including job titles, dates of employment, and job responsibilities. 

The employer may contact the previous employer or the HR department of the organization to gather all necessary information related to this.

• Credit Reports

A credit check evaluates an individual’s credit history, including any outstanding debts and financial issues. 

Such checks are especially important if the job role requires handling money, finance data, and other sensitive information of the business organization.

In addition to these, several other types of background checks are conducted in Costa Rica. These include government ID checks, reference checks, and driving record checks.

Termination and Offboarding

The employer can offboard employees in Costa Rica for the following reasons,

• Employee resignation
• Mutual decision by the employer and employee
• Termination of employment during the probationary period
• Misconduct
• Performance issues
• Absence without leave

In the event of termination during the probation period, the total duration of the notice period is dependent on the employee's length of service.

Keeping track of the termination protocols under Costa Rican law can be challenging. 

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 law's ambit.

Cultural Considerations

When employing in Costa Rica, it is essential to be aware of the work culture of this country. Below, we have highlighted a few key characteristics of it.

• Communication and Confrontation

When communicating in a Costa Rican workplace, it is very important to maintain a polite and indirect approach. 

Residents of this country are usually conflict-averse, and confrontation is usually avoided. 

This means that, instead of saying a clear ‘no,’ Costa Rican employees use phrases such as ‘maybe,’ which hint at their reluctance without causing any offense.

• Timeliness and Professional Attire

Timeliness is not placed in great regard by working professionals in Costa Rica. Late arrivals are common in this country. 

Therefore, when hiring employees, you can expect a more relaxed approach to time management. 

However, when it comes to professional attire, Costa Rican employees place great emphasis on how they dress in business settings. Neat and conservative clothing are preferred, with men wearing suits and trousers and women wearing tailored pantsuits. 

The idea is to always make a good impression at the workplace.

• Business Relationships and Networking

Last but not least, strong business relationships and networking are highly valued in a Costa Rican workplace. 

Professionals in this country are known to take extra time to get acquainted with colleagues and clients before engaging in business discussions. 

One of the many ways to establish trust and rapport with clients and team members is to engage in small talk on non-work related topics, such as hobbies, families, or local attractions.

Conclusion 

Thinking of starting your business in Costa Rica? 

Consider speaking to a Skuad expert. We can help you hire local 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!

FAQs

1) What is an Employer of Record in Costa Rica?

‍An Employer of Record (EOR) in Costa Rica is a third-party organization that legally hires employees on behalf of foreign companies without a local entity. An EOR handles employment contracts, payroll, tax compliance, and adherence to Costa Rican labor laws.

2) What is an Employer of Record?

‍An Employer of Record (EOR) manages employment responsibilities for companies looking to hire employees in a country where they don’t have a legal entity. The EOR takes care of local compliance, payroll, tax withholding, and benefits, while the client company manages day-to-day activities and responsibilities related to the work itself.

3) Does Costa Rica check criminal records?

Yes, employers in Costa Rica can request criminal background checks, though it's not mandatory. Candidates must be informed in writing, and checks must comply with labor and data protection laws.

4) What is the difference between an Employer of Record and a Staffing Agency?

An Employer of Record (EOR) is a legal employer and manages employee payroll, taxes, benefits, and compliance with labor laws. A staffing agency only recruits temporary or contract workers for a company but does not take on the full legal responsibilities of employees. 

5) How much does an EOR cost?

The cost of an EOR varies depending on the country, the complexity of local labor laws, and the number of employees. EOR providers typically charge a monthly fee per employee, which ranges from $100 to $1000 or even more. For Costa Rica, Skuad provides a transparent pricing structure that allows companies to know exactly what they are paying based on local regulations and workforce needs.‍

6‍) What are the benefits of an EOR?

An EOR ensures compliance with local laws, enables quick hiring without a local entity, reduces costs and legal risks, and lets businesses focus on core operations while handling administrative tasks.

7) What is the difference between employer of record and PEO?

One of the primary differences between a PEO and an EOR is that the former requires you to own a local entity and enter into a co-employment arrangement for international hiring. EOR, on the other hand, comes with no such requirements and allows you to hire in other countries without a business entity and without a co-employment status.

8) What is the employer tax rate in Costa Rica?

The income tax rate for companies that exceed the annual gross income of CRC 120,582,000 is 30%. Business organizations with an annual gross income of CRC 120,582,000 or less will be subject to a corporate income tax rate of 5-20%.

9) How do I choose an employer of record?

In order to choose the best employer of record in Costa Rica, you need to consider the following factors,

• Ease of building a remote team: Ensure that your selected Employer of Record in Costa Rica can assist your organization in entering the targeted market swiftly and effectively.
• Risk transfer and liability protection: Select an EOR that will handle all financial and legal responsibilities related to employment on your behalf.
• Legal and compliance expertise: Make sure that the EOR has a proven track record of expertise in country-specific labor regulations, tax liabilities, and termination procedures.