Located in a Central American rainforest, Costa Rica has a powerful economy, especially relative to its small population. Sectors like tourism, agriculture, and electronics continue to be important, as well as biomedicine and sustainable energy. The country is particularly open to foreign investment and trade opportunities.
In Costa Rica, to begin expansion of your business, you cannot hire employees without either establishing an entity or partnering with an Employer of Record (EOR) service like Via.
A wide range of businesses want to hire citizens and foreigners based in Costa Rica. However, the country has complex restrictions on what jobs citizens and foreigners are able to have. Without having first-hand knowledge of the country’s HR processes, hiring internationally can be difficult.
This article breaks down everything employers need to know about setting up an employer-of-record in Costa Rica, as well as gives Costa Rican employees a background on their rights and benefits.
PEO services help foreign employers with an established entity manage global payroll in Costa Rica, including benefits.
Partnering with a PEO means:
Hiring new employees in a short amount of time
Helping manage employee responsibilities
But, PEO services are not solely responsible for compliance. With PEOs, employers enter into a co-employment with the PEO, which comes with additional risks.
To use a PEO service, the parent company must already have a local legal entity or subsidiary, which can take months to set up. Companies need to hire local labor experts, open a Costa Rican bank account, and complete a series of government forms.
If you already have a subsidiary established, using a PEO service can be a good option. However, if you don’t, seeking the services of an employer-of-record in Costa Rica may be a better choice.
If your business is still growing and you’re looking to test the Costa Rican labor market, an employer-of-record can help you streamline the HR, hiring, and compliance process.
Costa Rica has very specific labor laws protecting their citizens, and an EOR partner can help you understand nuances that are easily missed.
Manage all HR related tasks
Acts as its own entity to free parent companies from legal issues
Hires new employees without you having to wait to open an entity
If you are just beginning to expand, using an EOR service allows you to grow without having to make the jump to opening a subsidiary, branch, or entity. An EOR can also help you to understand compensation & benefits packages, salary ranges, and other in-country specifics.
Capital city: San Jose
Largest city by population: Bagaces
Currency: Costa Rican Colón (CRC)
Population: 5.094 million
Costa Rica GDP: 61.52 billion (USD)
Payroll frequency: Monthly, on the last day
Federal Minimum wage: No mandated federal minimum wage
Costa Rica observes 11 public holidays. This includes:
New Year’s Day
Juan Santamaria Day
Annexation of Guanacaste Day
Patron Saint Day
All Souls Day
Military Armed Force Abolition Day
In addition to these holidays off, employees are entitled to paid personal time off. The length of vacation depends on the employee’s years of service with the company. Standard paid leave is 2 weeks of vacation per year for employees with over 50 weeks of service. If the employee has worked less than 50 weeks, then they are entitled to one day of leave per month worked.
Paid leave is not allowed to be carried over or accumulated unless specially agreed up and stated in the initial employment contract.
Employers must give time off for illness. During this period, the employer pays 50% of their salary while social security covers the other half.
Beginning on the 4th day of sickness, this changes: social security covers 60% of their normal daily wage, while employers are off the hook.
To be paid by social security, the employee must present a medical certificate 2 days after the onset of illness or their payment might be denied.
New mothers receive 4 months of maternity leave, which begins 1 month before the due date. After the baby is born, they can take an additional 3 months of leave, which is paid for by their employer and social security.
For private sector employees in areas like tourism and technology, paid paternity leave is not a guaranteed benefit and must be agreed upon in the employment contract. In the public sector, new fathers are entitled to 8 days of paid leave.
In the case of the death of an immediate family member, employees can take 3 days of paid time off.
Any other leave, including marriage leave, must be negotiated and agreed upon between employer and employee in the collective agreement at the start of employment.
Payroll taxes in Costa Rica are split between employee and employer for social security, or the Caja. Employers are required to enroll their employees in the social security system upon employment.
Employers pay 26.5% of an employees' base salary to social security. Employee deductions are 10.5% of their salary. The social security system covers:
Medical and healthcare
Disability, old age, and death
Workmen's compensation, in the case of accident or injury
The employer of record must draft the contract in Spanish, so knowing the language or having a translator is crucial. Each contract should specifically highlight the employees work responsibilities, salary, and other benefits.
Employees already receive a large amount of benefits through the country’s social security, so adding supplemental benefits like dental insurance is a plus and will garner interest from potential candidates.
When you use an EOR service like Via, the stress of making sure your team's needs are met is taken off of you. We make sure that your business practices remain compliant with standard Costa Rican practices. Our employment contracts ensure that Costa Rican guidelines for employment contracts are met.
There are no guaranteed probation periods in Costa Rica. Any probation or training period must be stipulated in the employment contract. Normally, these periods last for 3 months and allow employers to see if potential candidates will be a good fit.
Costa Rica does not have strict laws on what constitutes normal working days or working hours. Depending on the industry, work weeks can be anywhere from Monday-Friday or Monday-Saturday.
The maximum number of hours an employee can work in 1 week is 48 hours without being paid overtime. Night workers (7 a.m.-5 a.m.) can only work a maximum of 36 hours per week.
Anything over 48 hours in 1 week is considered overtime. Employers must pay overtime at 150% of the employees regular wages. For holidays, overtime is paid at 200%. The maximum amount of overtime any one employee can work in a week is 4 hours per day.
The termination process varies according to the employment contract or collective agreement put into place and varies based on the reason for termination.
Individual employment contracts may be terminated by law if:
There is mutual consent of both parties
By either party within the terms and conditions provided by law
Employers are allowed to terminate an employment contract by dismissal if there are disciplinary issues or problems with employee performance, or if there is an issue not associated with the employee like job cancellation.
Employees may request a dismissal letter, and the employer must present one, no matter the case of termination.
Notice for termination is dependent on the employee's length of service. Notice periods break down as follows:
0-3 months: no notice is required
3-6 months: 1 week
6 months-1 year: 15 days
Over 1 year: 1 month
Employees are entitled to severance pay, and this pay is dependent upon the employee’s length of service and should be specifically addressed in their employment contract. Severance pay breaks down as follows:
3-6 months: 7 days of pay
6 months-1 year: 14 days of pay
1 year: 19.5 days of pay
2 years: 20 days of pay
3 years: 20.5 days of pay
4 years: 21 days of pay
5 years: 21.24 days of pay
6 years: 21.5 days of pay
7 years: 22 days of pay
The process of hiring talented employees in Costa Rica can be daunting, as expansion is limited by strict employment laws, especially without using a third-party PEO or EOR service like Via.
Becoming your own employer-of-record in Costa Rica requires a lot of knowledge and local account and legal help. To maintain compliance with benefits and payroll, you will need to hire an outsourced payroll service or build your own HR team after establishing a subsidiary or entity to expand your business.
For companies who plan to hire a large number of employees in Costa Rica, opening an entity with a strong HR and legal team might make sense. Most of the time, however, using a third-party EOR service like Via is the easiest move for your business.
Opening a subsidiary or entity in Costa Rica requires you to pay employees internally and establish your own HR team, both of these processes are lengthy and costly. This is your only option when you use a third-party global PEO service, because you must have an entity already established in-country.
However, the process of opening an entity takes months, since you will need on-the-ground experts who can assist with opening a new bank account, finding an office, and registering with local government institutions. For this reason, businesses looking to hire people in Costa Rica as soon as possible can streamline the process by partnering with an EOR service like Via who already has an established Costa Rican entity.
For companies that want to build a large team in Costa Rica and have their own entities, using a global PEO service makes sense.
PEO companies act as co-employers and manage the HR process. However, they do not accept nearly as much legal responsibility for the entity in the country. If any compliance issues come to light, the PEO service usually passes the legal responsibilities to the parent company.
When using a global EOR service like Via, you do not need to open a bank account or take legal responsibility for complying with governmental institutions in Costa Rica. Via takes care of that paperwork for you, including opening a bank account and registering with all of the necessary government institutions.
When trying to build a small but strategic team in Costa Rica, using an EOR service expedites the process. Via allows you to hire and onboard employees without needing to become an expert on tax and hiring regulations.
For corporations looking to build out small teams, small startups, and SMBs, partnering with an EOR makes sense. Even large enterprises and tech companies looking to build out a small team abroad can benefit from partnering with an EOR.
Many companies want to hire within Costa Rica but do not have the in-depth knowledge of beginning the process compliantly. Via makes hiring Costa Rican talent and building your global team seamless. Via helps you manage local HR processes for direct employment such as work visas & permits, benefits, payroll, background checks, and more. Our team of local labor lawyers and on-the-ground experts ensure that your company remains compliant while expanding abroad. As your employer-or-record/entity in Costa Rica, Via assumes full responsibility for employment liability, so that you can focus on what matters: recruiting and managing your team.
With Via’s transparent pricing, you can pay full-time employees or contractors in Costa Rica with no hidden set-up fees, no foreign exchange or transaction fees, and no minimums–start with 1 employee and scale up at your own pace.