Employer of Record in Costa Rica

Hiring in Costa Rica for the first time can be overwhelming, especially when navigating unfamiliar employment laws. Whether you hire independent contractors, set up a legal entity, or use an EOR service, understanding the local employment landscape is crucial for success. Playroll’s comprehensive guide can help you get started if you're hiring locally or relocating a team member.

Companies can hire employees in Costa Rica in the following three ways:

• Setting up a local entity. Entity establishment reduces risk exposure and enables direct hiring, but can be costly and time-consuming – making it less practical for companies seeking quick and flexible solutions for hiring in Costa Rica.
• Partnering with an Employer Of Record. An EOR, like Playroll, is a third-party entity that serves as the legal employer of your international workforce which hires, pays, and manages compliance with Costa Rica’s labor laws and tax regulations.
• Hiring independent contractors. Hiring contractors gives companies a flexible, affordable alternative to hiring local employees, though it involves unique misclassification risks.

Businesses can only operate smoothly in Costa Rica if they comply with local labor laws including drafting compliant employment contract agreements and meeting taxation and payroll obligations. Learn more about the employment laws and regulations in Costa Rica below, to avoid any compliance issues.

Employment Contract Requirements

In Costa Rica, verbal agreements are acceptable for short-term agricultural tasks lasting up to 90 days, but written contracts are mandatory for other situations. Contracts must be in Spanish or English and provided within a month of starting work. They should include:

• Identification of both parties
• Job responsibilities and duties
• Workplace(s)
• Employee's salary and other benefits

Onboarding Process

We can help you get a new employee started in Costa Rica quickly, with a minimum onboarding time of just 1-2 working days. The timeline starts once the employee submits all required information onto the Playroll platform and completes any necessary local authority registrations. For non-nationals, the Right to Work assessment (if applicable) may add up to three extra days. Additional time may be needed for follow-ups on this assessment. Please note, payroll cut-off dates can impact the actual start date. Playroll's payroll cut-off date is the 10th of each month unless otherwise specified.

Working Hours in Costa Rica

In Costa Rica, the standard workday is eight hours, up to a maximum of 48 hours per week. Employees can work up to nine hours a day if it doesn't affect their health, with a mandatory 30-minute rest period.

Overtime in Costa Rica

In Costa Rica, working over 48 hours per week constitutes overtime, compensated at 150% of regular wages. Holiday work earns employees 200% of their regular pay. Up to 4 hours of overtime can be worked per day.

Probation Period in Costa Rica

In Costa Rica, probation periods vary by job and are typically specified in the employment contract, lasting around three months. During this time, the employer can terminate the contract without cause and without compensation.

Fiscal Year in Costa Rica

January 1st - December 31st is the 12-month accounting period that businesses in Costa Rica use for financial and tax reporting purposes.

Payroll Cycle in Costa Rica

The payroll cycle in Costa Rica is usually monthly, with employees being paid as specified in the employment cotract.

Minimum Wage in Costa Rica

The minimum wage for employees in Costa Rica is typically 2,325 CRC per hour, amounting to ~372,000 CRC per month for a typical 40 hour work week.

Bonus Payments in Costa Rica

In Costa Rica, the provision of a 13th-month salary is compulsory, and these payments are required to be disbursed annually by December 20th.

Employer Tax Contributions

Employer payroll contributions are generally estimated at an additional 26.67% on top of the employee salary in Costa Rica.

Employee Payroll Tax Contributions

In Costa Rica , the typical estimation for employee payroll contributions cost is around 10.5%.

Individual Income Tax Contributions

In Costa Rica, income tax follows a progressive rate ranging from 0% to 25%, calculated based on individual income.

Pension in Costa Rica

Employers in Costa Rica contribute 5.42% (included in social security contribution) of employees' monthly earnings to social insurance, covering old age, invalidity, and survivors' benefits. To qualify for old-age benefits, individuals must be at least 62 years old (men) and 60 years (women) and contribute for a minimum of 300 months. Early retirement is available, however this may reduce the pension amount paid compared to that paid at standard retirement age.

Mandatory Leave Entitlement in Costa Rica

The annual leave entitlement in Costa Rica is 14 days for a full time worker. These can include public holidays on top of that or within those days, which would otherwise be unpaid.

Public Holidays In Costa Rica

Costa Rica observes 13 national public holidays.

Paid Time Off in Costa Rica

After completing one year of service, employees in Costa Rica are entitled to 12 working days of annual paid leave. Additionally, Costa Rican employers often offer additional vacation days as part of employee benefits.

Maternity Leave In Costa Rica

Pregnant employees in Costa Rica receive 112 days of paid maternity leave, made up of 28 days before delivery and continuing for 84 days after. The employer and the Costa Rican Social Security Fund split the payment equally for the entire duration. After returning to work, the employee is entitled to breastfeeding breaks of 1 hour per day subject to a certificate provided by social security.

Paternity Leave In Costa Rica

In Costa Rica, new birth parents receive two days per week for the first four weeks as paternity leave. During this time, the employee receives 50% of their salary from the employer and the remaining 50% from the Social Security Administration (CCSS).

Sick Leave In Costa Rica

In Costa Rica, employees receive full pay for the first 3 days of sick leave, with the employer covering 50% and Social Security paying the remaining 50%. From the fourth day onward, Social Security covers 60% of the daily wage, and the employer is not required to contribute, however can top this payment up at their discretion. A medical certificate is required within 48 hours for Social Security payment eligibility.

Parental Leave In Costa Rica

In Costa Rica, parental leave is structured through specific provisions for maternity, paternity, and adoption, rather than a unified "parental leave" policy. Adoptive parents, regardless of gender, are eligible for a three-month paid leave upon adopting a minor. In cases of joint adoption, parents can decide how to divide this leave between them.

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Termination Process in Costa Rica

The process of terminating employment in Costa Rica varies based on contract type, collective agreements, and the reason for termination. Contracts can end through legal provisions, mutual agreement, or as mandated by the law. Valid reasons for termination include:

• Dishonesty
• Negligence
• Fraud
• Redundance

Notice Period in Costa Rica

In Costa Rica, the notice period for employees depends on their length of service:

• 0-3 months: No notice required
• 3-6 months: 1 week notice
• 6 months - 1 year: 15 days notice
• 1 year or more: 1 month notice

Severance in Costa Rica

Workers in Costa Rica who resign or are terminated, whether with or without cause, are entitled to severance pay based on their length of employment and salary. The number of severance days is determined as follows:

• 7 days for 3 to 6 months of service
• 14 days for 6 to 12 months of service
• 19.5 days for 1 year of service
• 20 days for 2 years of service
• 20.5 days for 3 years of service
• 21 days for 4 years of service
• 21.25 days for 5 years of service
• 21.5 days for 6 years of service
• 22 days for 7-13 years of service
• 20 days for 13 or more years of service