Employer of Record in Costa Rica

An Employer of Record (EOR) in Costa Rica is a company that legally hires employees on your behalf. This means you can build a team in Costa Rica without setting up a local entity. The EOR handles all the legal and HR tasks that come with employment. This includes payroll, taxes, benefits, and making sure you follow local labor laws. You still manage your employees' day to day work. An EOR like Rivermate simplifies your expansion into Costa Rica.

How an Employer of Record (EOR) Works in Costa Rica

Using an EOR in Costa Rica is a straightforward process. It allows you to hire employees quickly and compliantly.

Here are the steps:

1. You find the candidate you want to hire in Costa Rica.
2. The EOR, through its local legal entity, officially hires the employee under Costa Rican law.
3. The EOR creates a locally compliant employment contract.
4. The EOR manages all HR administrative tasks. This includes processing payroll, withholding taxes, and handling social security contributions.
5. You manage your employee's daily tasks and responsibilities, while the EOR handles the legal and administrative side of their employment.

Benefits of Using an EOR for Hiring in Costa Rica

Using an EOR to hire in Costa Rica offers several advantages. It saves you time and money, especially when you are new to the market. You can enter the Costa Rican market faster and with less risk.

• Avoids Setting Up a Local Entity. You can hire employees in Costa Rica without the cost and time of establishing a legal entity there.
• Ensures Compliance. EORs are experts in Costa Rican labor law. They make sure your employment practices are fully compliant with local regulations.
• Faster Onboarding. You can hire and onboard new employees in a fraction of the time it would take to do it yourself.
• Saves Time and Money. The EOR handles all the administrative work of employment, freeing you to focus on your core business.

Rivermate's transparent pricing model eliminates complexity with a single, competitive monthly fee per employee. Unlike traditional PEO providers, our pricing in Costa Rica includes comprehensive HR support, benefits administration, compliance management, and access to our proprietary dashboard for real-time workforce analytics. No hidden costs, no setup fees—just straightforward pricing that scales with your business needs while ensuring full legal compliance in Costa Rica.

Hiring in Costa Rica offers a chance to tap into a stable economy and a skilled workforce. The country is a great place for business expansion in Central America. To hire here, you need to understand the local labor laws. This guide will walk you through the key aspects of hiring in Costa Rica.

Employment contracts & must-have clauses

When you hire an employee in Costa Rica, a written contract is the best way to go. While verbal agreements are recognized, a written document provides clarity for both you and your employee. There are two main types of employment contracts:

• Indefinite-term contracts: These are the most common and are used for permanent positions without a set end date.
• Fixed-term contracts: You can use these for specific projects or temporary work. They have a defined start and end date and are typically limited to one year.

Your employment contracts must include specific information to be compliant. Here are the essential clauses to include:

• Full names and details of both the employer and employee.
• A clear description of the employee's role and responsibilities.
• The start date of employment.
• The duration of the contract.
• Workplace location.
• Working hours.
• Salary and how it will be paid.
• Signatures of both parties.

Probation periods

In Costa Rica, you can include a probationary period in your employment contracts. This gives you time to assess a new employee's suitability for the role.

The standard probation period is three months. During this time, either you or the employee can end the employment relationship without needing to provide a reason or severance pay. It is important to note that probation periods are not a legal requirement but a common practice. If you choose not to have a probation period, the employee has full labor protections from their first day.

Working hours & overtime

The standard workweek in Costa Rica depends on the shift:

Any work done beyond these hours is considered overtime. You must pay employees 1.5 times their regular hourly rate for overtime work. Overtime is limited to four hours per day.

Public & regional holidays

Your employees in Costa Rica are entitled to paid time off for public holidays. Here is a list of the national holidays for 2024:

Hiring contractors in Costa Rica

You might consider hiring independent contractors for the flexibility it offers. However, it is crucial to understand the difference between a contractor and an employee to avoid misclassification.

An independent contractor operates their own business, sets their own hours, and uses their own tools. An employee, on the other hand, works under your direct supervision and follows your company's schedule.

Misclassifying an employee as a contractor can lead to serious consequences, including:

• Fines from the Ministry of Labor.
• Back payments for social security contributions, with penalties.
• Responsibility for retroactive payment of employee benefits like vacation pay and bonuses.

An Employer of Record (EOR) can help you avoid these risks. An EOR acts as the legal employer for your workers, ensuring they are classified correctly. This means the EOR handles all the legal and administrative tasks of employment, like payroll, taxes, and benefits. By using an EOR, you can confidently hire in Costa Rica while staying compliant with local labor laws.

Navigating compensation and payroll in Costa Rica requires a clear understanding of local regulations. The system is designed to be straightforward, ensuring you pay your employees correctly and on time. This guide breaks down the key elements you need to know.

Payroll cycles & wage structure

In Costa Rica, you typically pay employees monthly. You must ensure payments are made by the last working day of the month. A key feature of Costa Rican compensation is the "Aguinaldo," a mandatory 13th-month salary. You must pay this bonus to employees by December 20th each year.

Overtime & minimums

The standard workweek in Costa Rica is 48 hours. Any work beyond this is overtime. You must pay employees 150% of their regular wage for overtime hours. Work performed on public holidays is paid at double the regular rate.

The government sets minimum wages, which vary by skill level and profession. These rates are updated periodically to reflect the cost of living, so it's important to stay current with the latest requirements.

Employer taxes and contributions

As an employer, you are responsible for several contributions to social security and other funds. These are calculated as a percentage of the employee's gross salary.

Employee taxes and deductions

Employees also contribute to social security from their gross salary. You must withhold these amounts and remit them to the appropriate authorities.

In Costa Rica, you'll find a strong system of employee benefits and leave entitlements. The labor laws ensure that employees have a good work-life balance and are protected. This includes paid time off for vacations, illness, and family needs. You are also entitled to a number of public holidays each year. Beyond the basics, many employers offer extra benefits to attract and keep the best talent.

Statutory leave

The law in Costa Rica provides several types of paid leave.

• Annual Leave After 50 weeks of continuous work, you get two full weeks of paid vacation. If you have worked for less than 50 weeks, you get one day of paid leave for each month you have worked.
• Sick Leave If you get sick, you are entitled to paid time off. For the first three days of your illness, your employer and the social security system each pay 50% of your salary. From the fourth day on, social security pays 60% of your salary.
• Maternity Leave Pregnant employees get four months of paid maternity leave. This is usually one month before the birth and three months after. Your employer and social security split the cost of your full salary during this time.
• Paternity Leave Fathers are entitled to eight paid days of paternity leave. This is taken as two days per week for the first four weeks after the child's birth. The cost is shared between the employer and social security.
• Adoption Leave A new law gives adoptive parents three months of paid leave, which can be shared between them.

Public holidays & regional holidays

Costa Rica has a number of public holidays throughout the year.

Typical supplemental benefits

Many companies in Costa Rica offer more than just the legally required benefits.

How an EOR can help with setting up benefits

Setting up employee benefits in a new country can be complex. An Employer of Record (EOR) simplifies this process for you.

An EOR already has a legal entity in Costa Rica. This means you don't have to set one up yourself. They handle all the administrative tasks related to hiring and paying your employees. This includes managing payroll, taxes, and social security contributions.

An EOR ensures you comply with all local labor laws. They understand the mandatory benefits and can help you create a competitive benefits package. This helps you attract and retain top talent in the Costa Rican market. By handling the legal and administrative burdens, an EOR lets you focus on your business goals.

Letting an employee go in Costa Rica involves clear legal steps. You must follow the country's labor laws to ensure a smooth and compliant process. This involves understanding notice periods, severance pay, and the reasons for termination. Whether you are ending a contract with or without cause impacts the steps you need to take.

Notice periods

When you terminate an employee without just cause, you need to provide advance notice. The length of this notice depends on how long the employee has worked for your company. You can also pay the employee their regular salary instead of having them work during the notice period.

Here are the required notice periods:

For employees who have worked less than three months, no notice period is required.

Severance pay

In Costa Rica, severance pay, known as "cesantía," is required when you terminate an employee without just cause. This payment recognizes the employee's service to your company. The amount is based on the employee's average salary over the last six months, or their most recent monthly salary if it was higher.

The amount of severance pay also depends on the employee's length of service:

• 3 to 6 months of service: 7 days of pay.
• 6 to 12 months of service: 14 days of pay.
• 1 to 2 years of service: Varies from 19.5 to 20 days of pay per year worked.
• 7 to 9 years of service: 22 days of pay for each year of service.

In addition to severance, final payments must include unused vacation time and a proportional part of the Christmas bonus, called "aguinaldo."

How Rivermate handles compliant exits

At Rivermate, we ensure that every termination process in Costa Rica is handled correctly and legally. We guide you through the necessary steps to avoid any legal issues.

Our process includes:

• Clear documentation: We help you prepare a detailed written termination letter. This letter clearly states the reasons for termination and the effective date.
• Final payment calculation: We calculate all final payments, including outstanding salary, unused vacation, the proportional Christmas bonus, and any required severance pay.
• Legal compliance: We make sure you follow all the rules in Costa Rica's Labor Code, whether the termination is with or without just cause.
• Step-by-step guidance: We walk you through the entire process, from the initial decision to the final payment, to ensure a respectful and compliant offboarding experience.

Getting the right visas and work permits in Costa Rica is essential for legal employment. If you are not a citizen or permanent resident, you will need government authorization to work in the country. The process involves proving that a Costa Rican national cannot fill the position, which makes it a complex process to navigate.

Employment visas & sponsorship realities

An Employer of Record (EOR) can sponsor work permits for foreign employees, but there are some practical things to keep in mind.

What an EOR can sponsor:

• Temporary Work Visas: This is the most common route for sponsoring full-time foreign talent. An EOR with a registered legal entity in Costa Rica can sponsor this visa.
• "Special Category" Permits: Work permits in Costa Rica often fall under a "Special Category" which includes professional and technical workers.

What an EOR cannot sponsor:

• Independent Contractors: An EOR cannot sponsor visas for independent contractors or freelancers. These individuals must use other routes, like the Digital Nomad Visa or Rentista Visa.
• Circumventing Local Labor Laws: The Costa Rican government protects its local workforce. A key step in the sponsorship process is a labor market test, where the employer must prove that a qualified Costa Rican could not be found for the job.

Practical Routes for Employment:

Business travel compliance

For short-term business trips, you may not need a full work permit, but you must comply with Costa Rica's entry requirements.

Short-Term Visits:

• Many nationalities, including U.S. citizens, can enter Costa Rica without a visa for business or tourism for up to 90 or 120 days.
• You will need a valid passport and a return or outbound ticket.

Permitted Activities on a Business Visit:

• Attending meetings and conferences
• Market research
• Negotiating contracts

You cannot perform work that would otherwise be done by a Costa Rican employee. If your activities go beyond these limited business functions, you will need to secure the proper work authorization.