Payroll in Costa Rica

Payroll Process in Costa Rica

Like other international jurisdictions, the payroll process in Costa Rica follows a set of standards:

• Identify statutory and salary components
• Create a payment schedule
• Collect employee information
• Make payouts
• Perform payroll accounting
• Carry out payroll-compliant reporting

Pre-payroll Phase

The pre-payroll phase involves factors of your business work culture, such as company philosophies, employee engagement, and organizational policies.

Business Profile

Your company needs a corporate identification card, which registers your business in Costa Rica and allows you to legally operate there. The corporate identification card allows you to legally submit tax forms and payroll slips. The Costa Rica Commercial Code regulates the mandatory requirements for a business to register in the country.

To begin this process, you must provide certified articles of incorporation. A Costa Rican Notary Public will then draft papers requesting the legal operation of your company. Once the Mercantile Registry, a section of the National Public Registry, approves the draft, they will issue you the corporate identification card.

Work Location

You may need to establish more than one business address across Costa Rica. In doing so, consider defining your company policies in each region.

Leave Policy

Follow Costa Rica’s Labor Code and formalize your policies on paid and unpaid leaves.

Attendance Policy

Establish attendance policies per Costa Rican labor laws. This includes, but is not limited to, regular hours, overtime, and half-day requests. You can track attendance with biometric devices and timesheets, influencing timely and accurate employee pay.

Statutory Components

Costa Rica’s Labor Code consists of the primary employment laws of the country, and having a corporate identification card is the first step to staying compliant. However, compliance doesn’t end there. You are responsible for keeping up to date with all other obligations of employer-employee relations, including the Costa Rican Social Security Administration and the National Insurance Institute for Workman’s Compensation.

It’s worth noting that Costa Rica conforms to the standards set by the International Labour Organization (ILO), an agency of the United Nations that promotes employment and human rights.

Salary Components

Design your salary and benefits packages to meet company policies and attract top-tier candidates. Consider what you can offer that will surpass your competition’s employment offers.

Pay Schedule

Refer to Costa Rica’s Labor Code on any stipulations regarding pay periods. Establish your pay schedules per company policy, including within employee contracts.

Employee Information

Costa Rican employment contracts must be in writing and signed by the appropriate party of your company and the employee. Gather and organize mandatory employee information for this purpose as well as tax reporting requirements. Such information includes:

• Name
• Address
• Gender
• Agreed working hours
• Wages
• Work location
• Location where the employer-employee contract was signed

Payroll Calculation Phase

Your company can utilize its own system for payroll calculation. Now, you can input all pre-payroll phase data to accurately calculate every employee’s paycheck, including taxes and withholdings.

Post-payroll Phase

Properly executed, this phase will result in timely, accurate, and compliant payroll.

Salary Payments

Depending on your company policies, you may use separate corporate bank accounts for salary disbursement or payroll software with built-in direct deposit features.

Payroll Accounting

Your company should keep track of international employee payments after calculating and distributing them. Depending on your company operations, you may opt for in-house payroll recording or outsource this service.

Payroll Reporting and Compliance

Your next step is to finalize reporting and compliance requirements regarding taxes and deductions. Automatic withholdings include Social Security and Worker’s Compensation, a section of Cost Rica’s National Insurance Institute.

You’ll benefit from using Skuad’s sophisticated payroll management solutions to help remain compliant with the Labor Code and other regulatory requirements — all necessary for successfully establishing your branch in Costa Rica.

Payroll Processing in Costa Rica

Maximizing your ROI in Costa Rica means mastering the ins and outs of payroll processing compliance, and your company may not have the time and resources to accomplish this. Skuad’s top-of-the-line payroll software platform with built-in compliance features can handle your global business needs.

Payroll Processing Company in Costa Rica

Skuad is a leading Employer of Record solutions provider in Costa Rica and can help you successfully establish your payroll process. Visit Skuad today and learn more about expanding and setting up your Costa Rican payroll.

Payroll Management in Costa Rica

The payroll management process in Costa Rica represents accurate record-keeping of employee payouts (gross and net), benefits, and compliance with the Costa Rica Labor Code and other employer-employee statutes.

Payroll Compliance in Costa Rica

An essential key to payroll in Costa Rica is statutory compliance with the Labor Code, the primary establishment of the country’s labor and payroll laws. Following the labor and payroll laws is not an option. Failing to comply with the Labor Code and other regulations puts you at legal risk for penalties, which are typically financial but may also include damage to your company’s reputation.

You are required to meet the Labor Codes standards on:

• Employment Agreement (employee vs. independent contractor)
• Minimum wage or other salary agreements
• Working hours
• Vacations
• Legal Holidays
• Christmas bonus
• Termination of employment
• Social security contributions
• Worker’s Compensation Insurance Policy
• Stipulations for firing an employee

Payroll Components in Costa Rica

Like many other countries, Costa Rica’s payroll processing laws contain several components that employers must follow to legally operate. As stipulated in the Costa Rica Decent Work Check, these components meet with ILO alliances.  

Compensation

The National Council on Wages and the Ministry of Labour set Costa Rica’s minimum wage amount and revise it every six months. Government-published increases only apply to employees who are paid minimum wage. In short, if you’re already paying above the minimum wage per the employee contract, you are not required to increase that payment when the minimum wage percentage increases.

Depending on your company policies, you may set pay periods by:

• Hour
• Day
• Biweekly
• Monthly

Working Hours

The standard workweek in Costa Rica should not be more than 48 hours, and labor laws consider working over 48 hours to be overtime.

A typical working schedule for professionals is eight hours a day, five days a week. Laborers generally work the same, plus a half-day Saturdays. Younger workers, legally allowed to be employed, are capped at six-hour workdays and no more than 36 hours a week.

Overtime Laws

Overtime rates are typically 50% over the agreed regular pay wage.

Social Security

Costa Rica payroll and labor laws require you and your employees to make social security contributions. Employees contribute up to 9% per pay period, and employers contribute up to 26.33% per pay period.

Sick Leave

Costa Rican employees have the right to sickness benefits when their illness makes them unable to fulfill their employment responsibilities. This period should not exceed three months.

• Employer pays a minimum of 50% of wages during the initial three days of sick leave. (Social Security pays the remaining 50%.)
• Upon the fourth day of sick leave, Social Security pays 60% of the salary for up to 52 weeks. Employers do not have to pay for sick leave beyond the third day, but the Labor Code provides exceptions that you are required to follow.
• You are prohibited from terminating an employee’s contract during the first six months of illness.

Parental Leave

The Labor Code stipulates that a pregnant worker can take a paid parental leave one month before and three months after childbirth. The same leave applies to child adoption. Employee payments are split between you and Social Security.

Public Holidays

The Labor Code stipulates that you honor Sundays and public holidays as non-workdays.

Public holidays are:

• New Year’s Day: January 1
• San Jose Day: March 19
• Maundy Thursday: Widely known as Holy Thursday. This holiday date varies from year to year.
• Good Friday: This holiday date varies from year to year.
• Juan Santamaria Day: April 11
• Labor Day: May 1
• Corpus Christi Day: This holiday date varies from year to year.
• Saints Peter and Paul Day: June 29
• Guanacaste Day: July 25
• Our Lady of the Angels Day: August 2. This is an unpaid holiday.
• Mother’s Day: August 15
• Independence Day: September 15
• Día de las Culturas: October 12. This is an unpaid holiday.
• Feast of the Immaculate Conception: December 8
• Christmas Day: December 25

The Labor Code makes exceptions for working on public holidays, depending on the urgent nature of the work or if an employee volunteers to work on certain holidays listed.

Payroll Taxes

You calculate employee income tax based on annual tier levels. Note that the most recent U.S. currency exchange rate is $1.00 = ₡ 667.82.

The following information refers to Costa Rica Employed Resident Income Tax for 2022. You are responsible to keeping up to date with changes from year to year.

• ₡0.00 to ₡842,000.00: 0% tax rate
• ₡842,000.01 to ₡1,236,000.00: 10% tax rate
• ₡1,236,000.01 to ₡2,169,000.00: 15% tax rate
• ₡2,169,000.01 to ₡4,337,000.00: 20% tax rate
• ₡4,337,000.01 and over: 25% tax rate

Other Laws

• Vacation Pay: Costa Rican employees are entitled to two weeks of paid vacation time per 50 weeks of continuous employment. However, the Labor Code does not allow employees to accrue vacation time.
• Employment Termination: You must have a just cause to fire an employee and provide sufficient evidence to support employee termination. If you fire an employee without just cause, you must pay severance, which depends on the length of employment.
• Employee Benefits:  

• Minimum wage review when requested by five employers or 15 workers operating in the same industry or occupation at any time year-round.
• 200% of the wage rate if employees work on public holidays.
• 100% pension of minimum salary or wage pension amount plus 90% of earnings above such amount in case of permanent complete disability.
• Every employee receives a Christmas bonus, amounting to one-twelfth of net salary.

Navigating Costa Rica’s payroll complexities is not an easy task. You risk wasting money and resources doing it alone. Contact Skuad today and learn how they can help you reach international business growth in Costa Rica.

Work With a Trusted Global HR Platform for Payroll in Costa Rica

There are three options for managing payroll in Costa Rica:

1. Manage all payroll activities independently but risk overlooking all associated compliance components. Furthermore, you may not anticipate all the costs of setting up your own legal presence.
2. Outsource a portion of your payroll needs, such as payroll accounting. However, you still risk missing the pitfalls and gaps in service delivery and compliance.
3. Outsource all your payroll processing needs to an established employer of record. This option saves you time and money. Your payroll processing will be accurate and compliant.

Skuad will work with you on all your Costa Rican payroll processing management needs. Learn how Skuad can help build your globally distributed and diverse team in Costa Rica.