With a projected GDP growth rate of 3.7% by the end of 2024, Costa Rica boasts a diverse and relatively stable economy in the Central American region. The services sector, including tourism, finance, and technology, has significantly impacted Costa Rica's economic development. Agriculture remains an important element of the economy, notably tropical commodity exports.
Those seeking to expand their business into this foreign land and hire in Costa Rica must comply with the employment laws in Costa Rica.
Labor Laws in Costa Rica
Costa Rica, renowned for its cascading waterfalls and sprawling rainforests, boasts a well-defined legal framework governing labor relations. Understanding the intricacies of Costa Rican labor laws is important for employers and employees for a compliant hiring process.
Standard Working Hours
Working hours in Costa Rica are divided into three main categories. They include,
- Day Shift - 48 hours per week, 8 hours per day
- Night Shift- 36 hours per week, 6 hours per day
- Mixed Shift - 42 hours per week, 7 hours per day
Minimum Wage Requirements
- The minimum wage in Costa Rica is as follows:
Overtime
- Overtime pay in Costa Rica is 1.5 times the regular hourly wage.
- Workers can do up to four extra overtime hours, making it twelve hours a day.
- The goal is fair compensation without overworking, ensuring a balanced approach to employee well-being.
Notice Period
- Employers can give legal notice for termination, allowing the employee to work during this notice period. They can also pay the employees in place of notice for immediate termination.
- If the payment option is chosen, it must be based on the total average wage earned by the employee over the preceding six months.
- Notice period in Costa Rica depends on the length of employment service:
- 1 week of notice - 3-6 months of service
- 2 weeks of notice - 6-12 months of service
- 1 month of notice - 1+ years of service.
Severance Pay
- If an employer terminates an individual's employment unilaterally or without any just cause, they must provide a severance payment, equivalent to 20 days of pay per year of service.
| Employment Duration |
Entitlement |
| 3 to 6 months |
Equivalent of one week's wages |
| 6 months to 1 year |
Fourteen days of wages |
| 1 year or more |
Twenty days of wages |
- Employees are also entitled to compensation for unused vacations and a proportion of their annual bonus, among other things.
Statutory Benefits
- In Costa Rica, employees receive statutory benefits in addition to their wages, encompassing paid holidays, sick leave, and maternity/paternity leave. These benefits are regulated by various acts, including the Labor Code (Código de Trabajo) in Costa Rica.
Equality
- Costa Rica upholds principles of equality through legislation such as the Anti-Discrimination Act (Ley contra la Discriminación), which prohibits discrimination based on race, gender, religion, or belief. This legal framework ensures that all workers get equal treatment in the workplace.
Payroll and Taxes in Costa Rica
If you wish to hire in Costa Rica, managing payroll and taxes is critical to financial compliance. Understanding the intricacies of this region’s tax regulations is important for employees and employers. On that note, mentioned below are a few key elements.
Social Security System
- As per the laws, both employers (34.5%) and employees (9.5%) need to contribute to the social security system in Costa Rica, commonly known as Caja.
Payroll Frequency
- The payroll frequency in Costa Rica is with salary payments due no later than the last working day of the month.
Income Tax
- For income earned through profitable activities, individuals will face the following income tax rates:
| Amount of income |
Rate |
| Up to CRC4,181,000 (US$7,003) |
Exempt |
| Above CRC4,181,000 to CRC6,244,000 (US$7,003 to US$10,459) |
10% |
| Above CRC6,244,000 to CRC10,414,000 (US$10,459 to US$17,445) |
15% |
| Above CRC10,414,000 to CRC20,872,000 (US$17,445 to US$34,963) |
20% |
| Above CRC20,872,000 (US$34,963) |
25% |
Corporate Tax Rate
- Costa Rica has a corporate tax rate of 30%.
Christmas Bonus
- Every employee in Costa Rica is entitled to a Christmas bonus equal to one month's wages.
- Employers are required to pay this bonus within the first twenty days of December.
Employee Benefits in Costa Rica
In Costa Rica, providing comprehensive employee benefits is a legal requirement and a strategic method for attracting and retaining top talent.
If you wish to hire in this region, you need to understand all the nuances of benefit offerings, including the leave policy in Costa Rica. It creates a positive workplace and boosts overall job satisfaction.
Leave Policy
Following is the leave policy in Costa Rica:
Paid Leave
- Employees in Costa Rica are entitled to 15 days, provided they have completed 50 weeks of service.
- Vacations can be split into two segments.
- Unused vacation days, if any, will be compensated based on the average salary from the last six months upon contract termination.
Sick Leave
- Costa Rican labor laws mandate paid sick leave for employees facing illness or injury.
- Costa Rica's social security fund usually determines the length of the period of sick leave.
- During the first three days of sick leave, the fund covers 50% of the employee’s salary, while the remaining amount is entrusted to the employer.
- From the fourth day of absence, the fund covers 60% of the salary. The employer is then no longer obligated to cover the shortfall.
Maternity Leave
- Maternity leave in Costa Rica is four months. It can be divided into one month before birth and three months after the birth of the child.
- It can be extended if approved by a registered medical professional.
- Employers have to pay 50% of their salary during the maternity leave and the remaining is covered by the Social Security Administration.
Paternity Leave
- Paternity leave in Costa Rica is eligible for all biological fathers.
- A father can get two days of paid leave every week for the first four weeks after the birth of a child.
Public Holidays
Employees are entitled to get the following public holiday
| Date |
Holiday |
| January 1 |
New Year's Day |
| Thursday preceding Easter Sunday |
Maundy Thursday |
| Friday preceding Easter Sunday |
Good Friday |
| April 11 |
Juan Santamaria Day |
| May 1 |
Labor Day |
| July 25 |
Annexation of the Party of Nicoya to Costa Rica |
| August 2 |
Feast of Our Lady of the Angels |
| August 15 |
Mother's Day |
| December 1 |
Army Abolition Day |
| 25 December |
Christmas Day |
Cost of Hiring an Employee in Costa Rica
The cost of hiring in Costa Rica includes initial costs, employment liabilities, operational overhead, and more. Understanding these factors is important for employers to budget accurately and comply with legal requirements. Here is a breakdown of the key cost components of hiring an employee in Costa Rica.
Establishing a Subsidiary vs. Employer of Record (EOR) in Costa Rica
| Parameters |
Establishing a Subsidiary |
Partnering with Skuad |
| Initial Cost |
Involves significant upfront cost and potential capital requirements. |
Companies can start hiring without setting up a local entity at a nominal, flat fee. |
| Duration for setup |
Setup duration can be lengthy, taking several weeks to months. |
Companies can start hiring in just a few days with Skuad’s existing infrastructure. |
| Employment Liabilities |
Subsidiary assumes full employment liabilities, including termination, severance, and compliance. |
Skuad assumes employment liabilities in Costa Rica. |
| Operational Overhead |
Higher ongoing operational costs, including hiring for different departments and compliance-related expenses. |
Lower operational overhead since Skuad manages the entire employment lifecycle. |
| Flexibility |
Requires long-term commitment; may be less adaptable to short-term or project-based needs. |
Offers flexibility to scale up and scale down the number of hires. |
| Local Compliance |
Requires a deep understanding of and continuous monitoring for compliance. |
Skuad handles local compliance, reducing the risk of legal issues. |
| Parameters |
Partnering with Skuad |
Establishing a Subsidiary |
| Initial Cost |
Companies can start hiring without setting up a local entity at a nominal, flat fee. |
Involves significant upfront cost and potential capital requirements. |
| Duration for setup |
Companies can start hiring in just a few days with Skuad’s existing infrastructure. |
Setup duration can be lengthy, taking several weeks to months. |
| Employment Liabilities |
Skuad assumes employment liabilities in Costa Rica. |
Subsidiary assumes full employment liabilities, including termination, severance, and compliance. |
| Operational Overhead |
Lower operational overhead since Skuad manages the entire employment lifecycle. |
Higher ongoing operational costs, including hiring for different departments and compliance-related expenses. |
| Flexibility |
Offers flexibility to scale up and scale down the number of hires. |
Requires long-term commitment; may be less adaptable to short-term or project-based needs. |
| Local Compliance |
Skuad handles local compliance, reducing the risk of legal issues. |
Requires a deep understanding of and continuous monitoring for compliance. |
Establishing a subsidiary or utilizing an EOR such as Skuad in Costa Rica depends on your needs, goals, and resources.
While a subsidiary offers long-term control, it comes with higher costs and operational responsibilities. On the other hand, leveraging Skuad provides quick market entry, cost savings, and reduced employment liabilities.
Top Job Listing Sites in Costa Rica
Here are a few notable job-search websites in the country:
- LinkedIn - LinkedIn is a global professional platform, and it is widely used in Costa Rica for job postings and networking.
- Computrabajo - Computrabajo is a popular job portal in Latin America, including Costa Rica. It features a variety of job listings across different industries.
- GigaJob - Known for providing high-quality jobs to Costa Rican employees, GigaJob continues to be one of this region's most popular job-listing sites. It allows users to post their resumes on this platform free of charge.
- Indeed - Indeed is another popular global job search engine, and its Costa Rican version provides many job listings across different sectors.
- Glassdoor - From salary reports to interview reviews and more, Glassdoor provides a wide range of crucial information that has helped garner immense popularity in Costa Rica. Candidates can explore millions of jobs via this platform, making it the largest job board in this region.
Compliance Risks of Hiring Employees in Costa Rica
As you hire in Costa Rica, you need to be aware of certain compliance responsibilities and risks that come along with it. Failure to adhere to local labor laws and regulations can have legal ramifications and negatively impact the company's reputation. Below are a few examples -
- Minimum Wage Violations - Failure to comply with minimum wage requirements set by the Costa Rican laws can result in fines and legal penalties. Therefore, it is necessary to regularly review and adjust salaries to meet or exceed the established minimum wage.
- Working Hours and Overtime - Not adhering to regulations regarding standard working hours and overtime compensation can lead to legal disputes. Employers must ensure accurate recording of working hours and proper compensation for overtime work.
- Social Security Contributions - As per Costa Rican laws, employees and employers must make mandatory contributions for health, pension, and other benefits. Incomplete or inaccurate contributions to the social security system can result in legal consequences.
To mitigate these compliance risks, businesses operating in Costa Rica should stay informed about updates to labor laws, seek legal advice whenever needed, and establish robust internal policies and procedures. Regular audits of HR practices and compliance checks can assist in identifying and addressing these concerns.
How to Hire Talent in Costa Rica
Mentioned below are a few strategic ways by which you can hire in Costa Rica effectively.
Option 1: Establish a Subsidiary
- Overview: Establishing a subsidiary in Costa Rica involves creating a separate legal entity in this region.
- Pros: Creates local pressure, potentially enhancing the company’s image and market standing; ideal for companies with a long-term commitment.
- Cons: Incurs significant upfront costs and can be extremely time-consuming.
Option 2: Hire as a Contractor
- Overview: Hiring as a contractor involves engaging individuals on a contractual basis to provide specific services
- Pros: Provides flexibility for short-term projects or specific tasks; reduces the employer’s administrative and financial responsibilities.
- Cons: Limited control over independent contractors and misclassifying workers can lead to legal issues.
Option 3: Partner with an Employer of Record (EOR) - Skuad
- Overview: Skuad handles HR, payroll, and compliance, enabling businesses to concentrate on their core objectives.
- Pros: Quick market entry; reduced risk of legal issues related to employment; cost-effective solution for expanding your global footprint.
Hiring Trends in Costa Rica in 2024
Costa Rica has experienced significant technological and IT growth, attracting multinational companies to establish operations there. There has been an increase in demand for professionals in software development, cybersecurity, and data analysis.
In addition, the ability to speak English fluently continues to be a valuable asset, particularly in customer service, tech support, and shared service roles. Bilingual candidates, especially those proficient in English and Spanish, are most sought-after by foreign companies.
Hiring in Costa Rica, made hassle-free with Skuad
Managing the hiring processes in Costa Rica can be extremely challenging and financially draining. But what if, instead of spending your valuable time and resources in this endeavor, you can utilize them to grow your business?
With Skuad, you can easily hire, pay and manage talent in Costa Rica, compliantly. Trusted by global leaders, Skuad is the number one choice for companies to employ talent across borders.
Book a demo today and enjoy a seamless hiring experience with Skuad!
FAQs
Q1: What are the payroll laws in Costa Rica?
Ans: According to the labor laws governing the employee-employer relationship in Costa Rica, the payroll frequency is followed every month. In addition, candidates working overtime are entitled to compensation at a higher rate than regular hours.
Q2: How do I hire an employee from another country?
Ans: If you wish to hire in a foreign country such as Costa Rica, you must follow several crucial steps. These include obtaining the necessary documents and certifications, interviewing prospective foreign workers, conducting official interviews, obtaining work visas, and complying with tax regulations.
Q3: What is the minimum wage in Costa Rica in US dollars?
Ans: As set by the labor laws in Costa Rica, the minimum wage requirements fall within the range of ₡11,738.83 ($22.24) per day for unskilled workers and ₡396,210.87 ($750.51) per month for specialized workers.
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