Employer of Record (EOR) in Costa Rica

An Employer of Record, also known as a Global Professional Employer Organization (Global PEO), assumes the vital role of the legal employer for workers in Costa Rica. This comprehensive function involves overseeing various employment facets, ensuring strict compliance with local labor laws, and efficiently managing essential processes like payroll, taxes, statutory benefits, and the creation of employment agreements.

Our Employer of Record (EOR) services in Costa Rica ensure legal compliance, including Intellectual Property protection, allowing your business to focus on core activities. Facilitate seamless global mobility, work visas, and foster a diverse and efficient global workforce. Partner with Mercans, your dedicated Employer of Record in Costa Rica, for a compliant and efficient employment experience for your global workforce.

EOR Solutions in Costa Rica

• EOR for Prospective Employees: Mercans offers seamless Employer of Record (EOR) solutions for businesses that have already identified their ideal candidates in Costa Rica. Our services encompass every aspect of the employee lifecycle, ensuring compliance with Costa Rican labor laws and regulations.
• EOR + Recruitment: For those seeking assistance in talent acquisition, our EOR and recruitment services provide a holistic solution. We tap into our extensive network and expertise to help you find, onboard, and retain top talent, streamlining your expansion into the Costa Rican market.
• Visa Sponsorship and Global Mobility: Navigating the intricacies of expatriate employment is simplified through our visa sponsorship and global mobility services. We facilitate the relocation of your international workforce, ensuring compliance with Costa Rica immigration and employment laws.
• AOR for Contractor Payments: Businesses grappling with contractor payments can leverage our Assistance on Record (AOR) services. We handle the complexities of contractor payments, guaranteeing accuracy and compliance.
• Converting Freelancers to Employees: Mercans supports the transition from independent contractors to permanent employees in Costa Rica. Our expertise ensures smooth conversions while adhering to legal requirements.
• HCM Integration: Integrate Mercans’ EOR services seamlessly with your HCM system in Costa Rica for real-time data exchange, enhanced compliance, and cost-efficiency. Trust our expertise for a unified, compliant, and efficient approach, elevating your workforce management and payroll operations.

Things you need to know before hiring in Costa Rica

Employees vs Independent Contractor Compliance

This table highlights the distinctions between employees and independent contractors in Costa Rica across various factors, encompassing employment laws, hiring practices, tax documents, remuneration, workers’ rights, benefits, payment methods, classification criteria, contracting models, engagement models, and tax obligations.

Employment Contracts in Costa Rica

Section 18 of the Labor Code in Costa Rica establishes the presumption of a contract, whether written or oral, between the employer and the worker. The mere initiation of the working relationship is enough to assume the existence of a contract, binding the two parties to adhere to the obligations and rights established by law.

Any agreements made by the parties in the labor relationship, whether written or not, become integral to it if they form part of the current conditions. This aligns with a fundamental principle of local labor law, known as the “Contrato Realidad” or Reality Contract, emphasizing the actual contents of the employment relationship, even if different from the written agreement, favoring the employee.

Legal subordination grants the employer general management power over the contracted individual concerning the agreed-upon work and business. The employer has the authority to give orders and instructions, and the worker is obligated to comply. Refusal to comply may lead to the employer exercising disciplinary power, with sanctions commensurate to the offense under Costa Rican Labor Law.

Contrary to common belief, a written contract is not a necessity under Costa Rican Labor Law. Oral contracts hold the same weight in terms of rights and obligations. In cases where contracts are not in writing, they are verified by testimonial evidence. Witness testimonies, especially those in the service of the same employer, play a crucial role in confirming the essential points of the contract.

Additionally, employers can enter into agreements for specific tasks or work, providing flexibility under Costa Rican Labor Law.

Working Hours

In Costa Rica, working days are divided into day shifts and night shifts, each with specified maximum hours for a standard work week:

Probation Period

The probationary period in Costa Rica is three months, as indicated by the provisions of the Labour Code. During this period, an indefinite-term contract can be terminated without notice or payment in lieu of notice. This three-month probation also applies to domestic workers.

For employment periods exceeding three months but less than six months, a one-week notice period is required. If the employment duration is over six months but less than one year, a two-week notice period is mandated. In cases of employment lasting one year or more, a one-month notice is obligatory. The notice should be provided in writing, but in the case of a verbal contract, the employer can give verbal notice in the presence of two witnesses. Failure to give the required notice necessitates payment in lieu of notice, equivalent to the salary the employee would have earned during the notice period.

Source: §28, 29 & 35 of the Labour Code of 27 August 1943, last amended in 2020

13th Month Salary

In Costa Rica, the mandatory 13th-month salary, commonly referred to as “aguinaldo,” serves as a Christmas bonus for employees. This bonus, equivalent to one month’s salary, must be disbursed by employers before the 20th of December each year. As an integral part of the compensation structure, the aguinaldo ensures that employees receive an additional month’s pay, contributing to festive celebrations during the holiday season.

Payroll in Costa Rica

Minimum Wages

The minimum wage, determined by the National Council on Wages, undergoes a biannual revision and is officially disclosed in the newspaper “La Gaceta” as the “Decreto de Salario Mínimo.” Payment frequency—hourly, daily, biweekly, or monthly—is mutually agreed upon by the parties involved.

In the majority of cases, employee wages are market-driven and often surpass the minimum wage standards. Employers compensating above the minimum wage are not obliged to implement a percentage wage hike mandated by the government’s mandatory resolution, as this requirement only applies to employees receiving the minimum wage.

The minimum wage varies across specified industries, ranging from ₡10,060.75 (US$16.73) per 8-hour work day for general workers to ₡13,141.39 (US$23) per day for specialized professionals. Occupations not explicitly specified adhere to the generic scale, spanning from ₡350,975 (US$528) per month for unskilled workers to ₡644,689.3 (US$1,134) per month for licentiates.

Payroll Cycle 

In Costa Rica, the standard payroll cycle is typically monthly, with payments to be processed once each month.

Mercans’ payroll capabilities:

Explore Mercans’ full suite of payroll capabilities to streamline your global workforce management here: https://mercans.com/

Social Security and Income Tax in Costa Rica (page 22)

The labor legislation in Costa Rica encompasses Social Costs, referred to as “Cargas sociales,” encompassing various elements that fulfill all the social security requirements for employees. Both employers and employees contribute to these costs. The employee’s portion is deducted by the employer from their salary, similar to the income tax process described earlier, and subsequently transferred to the Costa Rican social security institution, “Caja Costarricense del Seguro Social” (C.C.S.S.).

The breakdown of social security costs for both employees and employers is detailed below:

Additionally, Labor Risk Insurance is compulsory under the Costa Rican Labor Code. Employers must pay this policy to the National Insurance Institute, a state-owned insurance provider, based on varied rates according to the employee’s status or position. These rates adjust depending on the risk associated with the nature of the work, such as a common office clerk having a lower rate of 1% of their salary.

Individuals are entitled to annual tax credits, outlined as follows:

Allowances

• Child: CRC 29,160
• Child (each) (1): CRC 19,320

Note: The child allowance is applicable only if the child is a minor, unable to work, or a university student under 25 years of age.

Notably, income tax exemptions are granted for Christmas bonuses, Social Security contributions, severance, and termination payments as per the provisions of the Labor Code.

Costa Rica Employee Hiring Cost

Let us assume that the Gross Annual Salary, which is the direct income for the employee, stands at CRC 9,999.96. On top of that, there are additional costs that the employer covers, known as Total Annual Employer Costs, totaling CRC 2,703.96. When you add these two components together, you get the Total Annual Cost, which represents the comprehensive expenditure related to this position. In this case, the overall cost, considering both the salary and the employer’s contributions, amounts to CRC 12,703.92. This figure gives a holistic view of what the employer invests annually for this specific role, encompassing both the direct salary paid to the employee and the supplementary costs covered by the employer.

Payment of Tax

Employees who receive salaries and other similar or complementary remunerations or benefits must pay a monthly income tax that is withheld by the employer from the monthly payroll. Individuals do not need to file an annual tax return for this type of income. Self-employed individuals are required to make installments of estimated taxes, which are computed on the average of the last three fiscal years, and a final payment two and a half months after the end of the fiscal year.

Personal Income Tax

Income Level Tax Rate

For the tax year 2022 and onwards, the following salary tax rates are applicable:

Income Level Tax Rate

Above CRC4,845,000 (US$8,116) 25%

Effective from January 1, 2023, the new tax brackets have come into effect.

Employee Benefits in Costa Rica

Statutory Leaves

Termination, Severance Pay and Notice Period

Severance Pay:

In Costa Rican law, Severance Pay, termed as “auxilio de cesantía,” is a benefit granted when the termination of employment results from causes not attributed to the employee. It is considered an “expected right” or “not consolidated right” of the worker, ensuring compensation in case of unforeseen job termination.

Employment Termination:

The termination of employment in Costa Rica is regulated by the Labor Code, granting the right to both employers and employees to end the working relationship. Employers can terminate within the first three months or later for serious faults committed by the worker. These faults include acts against morality, attacks on the employer or colleagues, criminal acts, and unjustified absences.

Employees also possess the right to terminate the contract without responsibility if serious faults are committed by the employer, such as lack of payment, immoral acts, or endangering health and safety.

Notice Period and Severance Payment:

Section 28 of the Labor Code allows either party to terminate the contract without cause, provided prior notice (preaviso) is given. After three months of employment, if no notice is given, the employee is entitled to receive one month’s salary or a fraction thereof as compensation.

The notice period varies based on the duration of employment: one week for over three months but less than six months, two weeks for over six months but less than a year, and one month for employment exceeding a year.

If the termination occurs without justification after three months of service, the employer is obligated to pay severance. The severance amount increases with the duration of service, potentially reaching up to twenty-two days per year worked, with a maximum calculation based on eight years, as outlined in the Labor Code.

Notice Period Calculation:

The notice period calculation is contingent on the employee’s tenure. For employment over three months but less than six months, the notice period is one week. For employment over six months but less than a year, the notice period is two weeks. Finally, for employment exceeding a year, the notice period is one month. These provisions ensure a fair and structured approach to employment termination in Costa Rica.

Work Permit

Application Requirements

Navigating the residency process in Costa Rica involves a detailed submission of documents, adherence to specific guidelines, and understanding the nuances of work permit availability based on the type of residency sought.

EOR Solutions in Costa Rica

• EOR for Prospective Employees: Mercans offers seamless Employer of Record (EOR) solutions for businesses that have already identified their ideal candidates in Costa Rica. Our services encompass every aspect of the employee lifecycle, ensuring compliance with Costa Rican labor laws and regulations.
• EOR + Recruitment: For those seeking assistance in talent acquisition, our EOR and recruitment services provide a holistic solution. We tap into our extensive network and expertise to help you find, onboard, and retain top talent, streamlining your expansion into the Costa Rican market.
• Visa Sponsorship and Global Mobility: Navigating the intricacies of expatriate employment is simplified through our visa sponsorship and global mobility services. We facilitate the relocation of your international workforce, ensuring compliance with Costa Rica immigration and employment laws.
• AOR for Contractor Payments: Businesses grappling with contractor payments can leverage our Assistance on Record (AOR) services. We handle the complexities of contractor payments, guaranteeing accuracy and compliance.
• Converting Freelancers to Employees: Mercans supports the transition from independent contractors to permanent employees in Costa Rica. Our expertise ensures smooth conversions while adhering to legal requirements.
• HCM Integration: Integrate Mercans’ EOR services seamlessly with your HCM system in Costa Rica for real-time data exchange, enhanced compliance, and cost-efficiency. Trust our expertise for a unified, compliant, and efficient approach, elevating your workforce management and payroll operations.

Employer of Record San José

Mercans, with a dedicated presence in San José, serves as your trusted Employer of Record (EOR) partner in Costa Rica. Our local entity ensures seamless and compliant workforce management for foreign companies, providing comprehensive EOR services. From payroll and benefits administration to legal compliance, Mercans simplifies international expansion for businesses in San José, allowing them to focus on their core objectives.