Payroll in Costa Rica

Navigating payroll in Costa Rica requires a thorough understanding of local regulations and compliance standards. Mercans, as a trusted payroll partner, offers comprehensive solutions tailored to the unique requirements of the Costa Rican business landscape. Our expertise in handling payroll intricacies ensures accuracy, compliance with government regulations, and seamless processing. By choosing Mercans for payroll services in Costa Rica, businesses not only streamline their payroll processes but also gain access to a wealth of knowledge, enabling them to stay ahead in the dynamic payroll landscape of this vibrant Central American nation.

Scope of Payroll Services in Costa Rica

Mercans excels in providing payroll services in Costa Rica. As a trusted payroll company in Costa Rica, we prioritize delivering exceptional solutions, utilizing cutting-edge technology for the payroll process in Costa Rica. Our expertise extends to Payroll outsourcing in Costa Rica, making us the preferred choice for businesses managing one employee or an entire workforce. Count on Mercans for precise, timely transactions and the convenience of multi-currency payments. As your local payroll provider in Costa Rica, our in-country specialists are well-versed in local laws, offering comprehensive support for a seamless payroll experience tailored to your business needs.

Included Services

• Employee Master Data Maintenance
• Leave Processing
• Payroll Calculations
• Payroll Journal Entry
• Bank Transfer Management
• Payroll Cycle Documentation
• Payroll Reporting
• Data Security
• Employee Self-Service (ESS)
• Statutory Certificate Issuance
• Employee Final Settlements
• Employee Queries and Support Desk Services

Additional Offerings

• Legal Entity Setup
• Compliance Information
• Annual Tax Filing Support
• Advisory Services
• Benefit Program Administration
• Technology Integration
• Training Sessions and Webinars

Elevating Payroll Excellence with Technology, Integrations, and Recognitions

Mercans stands at the forefront of delivering exceptional payroll services in Costa Rica, offering a versatile array of customized solutions to meet the unique requirements of our clients. Opt for Mercans as your trusted partner, ensuring a seamless and efficient payroll process in the vibrant business landscape of Costa Rica.

• Technology Explore the forefront of innovation with Mercans’ cutting-edge technology that powers our global payroll solutions. Learn more about our technological prowess here.
• Integrations Seamlessly integrate your Human Capital Management (HCM) systems with Mercans’ solutions, enhancing efficiency and connectivity. Discover the power of integration here.
• Recognitions Join a partner recognized for excellence. Mercans has earned accolades for its commitment to delivering exceptional payroll services. Explore our awards and recognitions here.

Payroll Solutions in Costa Rica

Discover the potential of seamless payroll processing in Costa Rica with Mercans’ Global Payroll Solutions. Our adaptable models guarantee local compliance, facilitate multi-currency transactions, and integrate with global Human Capital Management (HCM) and Enterprise Resource Planning (ERP) systems. Ensuring accurate payments has never been more straightforward.

Explore Our Adaptable Models

Experience payroll solutions that transcend borders, customized to meet the unique needs of your business in Costa Rica and beyond. Learn more. 

Things you need to know before running payroll in Costa Rica

Costa Rica Overview

Nestled in the heart of Central America, Costa Rica, often referred to as the “Switzerland of Central America,” boasts a rich tapestry of cultural heritage. The nation’s commitment to peace and progress, marked by its strategic decisions following the 1948 civil war, has transformed it into a beacon of stability in a region often plagued by political unrest. With no standing army, a focus on education, health, social programs, and environmental initiatives has propelled Costa Rica to rank among the highest in Latin America for literacy, life expectancy, government transparency, and environmental protection.

Over the years, Costa Rica’s economic landscape has flourished, evident in its ranking as the top nation globally for Inward Foreign Direct Investment. The country’s economic success is diversified, with sectors such as technology, business, professional services, life sciences, and medical devices playing a pivotal role. Foreign companies, drawn by the stability and a skilled workforce at a competitive cost, are pouring investments into the nation. The innovative approach of Costa Rica, marked by outward-looking economic strategies, continues to attract major players in the technology and medical services industries, propelling the country into a hub for outsourcing and manufacturing. As the economic opportunities burgeon, Costa Rica stands as a testament to the efficacy of a stable system that prioritizes sustained growth and prosperity.

Entity Setup in Costa Rica

Embarking on establishing your business entity in Costa Rica is a strategic move toward growth and success, and Mercans is here to guide you through the process. Our comprehensive support ensures a seamless experience for entrepreneurs venturing into this vibrant Central American nation.

Key Appointments for Success

• 1 Director At the helm of strategic decisions, our experts assist in appointing a capable director to steer your company toward success.
• 2 Stakeholders Identifying and appointing key stakeholders actively contributing to your company’s vision and growth is facilitated by Mercans.
• 1 Local Representative Agent Ensuring effective communication with local authorities and compliance with regulatory requirements is paramount, and Mercans assists in this crucial appointment.

Capital Requirements Simplified

Costa Rica’s business-friendly environment is highlighted by the minimal paid-up share capital requirement of US$1. Mercans ensures a seamless process, enabling businesses to meet this requirement efficiently.

Strategic Registered Office Selection

Selecting the right registered office is vital for legal compliance. Mercans provides insights and support to ensure your chosen location aligns with regulatory standards and business objectives.

Tax Compliance Expertise

Navigating the tax landscape is simplified with Mercans. We guide businesses in complying with Costa Rica’s tax regulations, fostering financial stability and adherence to legal frameworks.

Efficiency in Procedures

Understanding the urgency of establishing a robust legal foundation, Mercans streamlines procedures to minimize delays. This allows you to focus on core business activities with confidence.

How to Set Up an Entity?

Get Assistance from Mercans Experts!

Costa Rica is the perfect country to register your company in Central America! To ensure compliance with local laws and regulations, get in touch with Mercans. Our team of experts will make the company registration process easy for you, providing hassle-free online company registration experiences.

Payroll Setup and Compliance in Costa Rica

In Costa Rica, the responsibility for payroll setup rests with the employer. Upon establishment, a Costa Rican company is required to undergo registration with the Social Security and National Insurance Funds, which operate under the supervision of the Ministry of Labor and Social Security. Subsequently, adherence to a specific schedule for the payment of social contributions is essential, outlined as follows:

• Submission of reports must be completed before the 15th day of each month.
• Payment of payroll taxes is mandated between the 26th and 6th of the subsequent month.

Additionally, the enrollment of any new employee into the payroll system in Costa Rica must be carried out within a maximum of 8 days from the commencement of their employment. This structured approach ensures compliance with regulatory timelines and facilitates the smooth functioning of the payroll system for businesses operating in Costa Rica.

Payroll Compliance in Costa Rica

Following are the essential compliance and reporting requirements for payroll operations in Costa Rica.

Government requirements

Registration requirements

To operate payroll in Costa Rica, employers must fulfill several registration obligations before hiring staff or processing payments. These include registering with key government bodies such as the Costa Rican Social Security Fund (CCSS), the National Insurance Institute (INS), and the General Tax Office. These registrations ensure legal compliance and enable the provision of essential employee benefits like healthcare, pension contributions, and workplace injury protection.

Costa Rican Social Security Fund or CCSS

Employers in Costa Rica must register with the Caja Costarricense de Seguro Social (CCSS) before hiring any employees. This registration enables access to social health insurance and pension programs. To register, companies need to provide:

• A certificate of legal entity and company constitution documents
• Valid identification for the legal representative and employees
• A completed Employer Registration Form signed by the employer
• An official email address for online form submission

Once submitted and verified, the CCSS issues a Provisional Employer Certificate, followed by monthly certifications through the SICERE system.

Labor Risk Insurance – INS Institute

All employers are legally required to obtain labor risk insurance from the Instituto Nacional de Seguros (INS). This covers employees against work-related injuries and illnesses. Registration must be done by the legal representative or a duly authorized proxy, who must present a valid ID and a correctly filled insurance application specific to the policy type.

General Requirement

Each insurance type requires a designated application form, which must be completed based on the company’s operational risks. All applicants—whether employers or legal representatives—must submit valid, original ID documents in good condition. The policy must be active from the first day the employee begins work.

For Tax Administration

Any individual or company conducting commercial activity in Costa Rica must register with the General Tax Office. This is done using Form D-140, submitted either via the Virtual Tax Administration (ATV) system or in person. Registration is effective only once completed—it cannot be backdated—and is mandatory before beginning any payroll operations.

Ongoing compliance requirements

Once an employer is registered and operational in Costa Rica, ongoing compliance is essential to maintain legal standing and ensure proper employee coverage. This includes monthly reporting and payments to the social security system, as well as payroll tax filings. These obligations must be met consistently and on time to avoid penalties or disruptions in employee benefits.

Social Security

Employers must submit social security reports to the Caja Costarricense de Seguro Social (CCSS) between the 26th of each month and the 4th business day of the following month. For large taxpayers, the deadline is the 3rd business day of the next month.

• Reports are submitted via the SICERE system in a specified text (.txt) file format.
• Payment for the invoice generated from the report is typically due between the 14th and 17th of each month.
• Social contributions cover health insurance, maternity leave, and pension funding, with a combined employee contribution rate of 10.67%.

Payroll

Employers are required to submit a monthly payroll withholding tax return by the 15th of each month. Additionally:

• Information related to work risk insurance must be submitted to the INS (Instituto Nacional de Seguros) via the Riesgo de Trabajo (RT) virtual platform, usually by the 14th of each month.
• Employers must report all types of salary payments (monthly, biweekly, or weekly), including bonuses and other compensations.
• An annual withholding tax return (Form D-152) is also due by February 28th of the following year.

Pension requirements

Pension compliance in Costa Rica is primarily governed by the Costa Rican Social Security Fund (CCSS) and reinforced by labor protection laws. Employers are required to register employees for pension contributions and manage their obligations in accordance with national legislation. These contributions ensure workers receive appropriate retirement, disability, and survivorship benefits.

Registration Requirements

Employers must enroll all employees in the Invalidez, Vejez y Muerte (IVM) program under the CCSS from the first day of employment. This includes both Costa Rican nationals and legal foreign workers. The registration ensures employees are eligible for state retirement and other pension-related benefits.

In addition to CCSS registration, employers are also responsible for managing contributions under the Worker Protection Law, which splits the severance contribution as follows:

• 5.33% of the employee’s salary is allocated directly to the employee’s severance account.
• 3% is directed to the Labor Capitalization Fund to support supplementary pension benefits.
• This brings the total severance-related contribution to 8.33%, in compliance with Costa Rican labor regulations.

These contributions are handled monthly and are part of the broader payroll compliance obligations.

Employment Obligations

Employers in Costa Rica must adhere to a number of statutory employment obligations to ensure workforce protection and legal compliance. Key responsibilities include registering with relevant government institutions, adhering to local labor laws, and providing mandated employee benefits.

Some of the essential employer obligations include:

• Social Security Contributions: Employers contribute 26.67% to the Costa Rican Social Security Fund (CCSS).
• Labor Risk Insurance (INS): A 1% contribution is required for occupational risk insurance.
• Christmas Bonus (Aguinaldo): Employers must accrue 8.33% of the employee’s annual salary for the December bonus, payable no later than December 20th.
• Vacation Accrual: Employers must allocate 3.33% toward paid vacation.
• Severance Contributions: These are scaled based on years of service, with increasing percentages that can reach over 6% by the 8th year.

In addition, all employees are entitled to paid annual leave after 50 weeks of continuous service, and employment contracts must comply with Costa Rica’s Labor Code.

Payroll Requirements

Payroll in Costa Rica is governed by strict monthly and annual reporting obligations. Employers are required to process and pay wages either monthly or biweekly, depending on their payroll cycle.

Key payroll compliance requirements include:

• Monthly Reporting to CCSS: Employers must submit payroll data to the CCSS via the SICERE system between the 26th of the month and the fourth business day of the following month. For large taxpayers, the due date is the third business day.
• Withholding Tax Returns: Monthly income tax withholdings must be submitted to the General Tax Office by around the 15th of each month.
• INS Payroll Submissions: Monthly employee and salary data must be submitted to the Institute of Insurance (INS) through the Riesgo de Trabajo (RT) platform, typically by the 14th of each month.
• Annual Returns: The D-152 Annual Withholding Tax Return must be filed by February 28th of the following year.

Employers are expected to provide detailed pay slips and ensure that all payroll activities are documented and aligned with employment contracts.

Banking Requirements Related to Payroll

There are no rigid banking regulations tied specifically to payroll processing in Costa Rica. However, best practices and employer responsibilities include:

• Local Currency Payments: Salaries must be paid in Costa Rican Colón (CRC).
• Bank Transfers: Most employers process salaries through electronic bank transfers to employees’ local bank accounts.
• Use of Authorized Platforms: Payroll-related payments to CCSS, INS, and tax authorities are typically made via approved online banking systems or institutional portals (e.g., SICERE, INS RT portal, Virtual Tax Administration (ATV)).

Ensuring proper and timely payment through verified banking channels is a critical component of payroll compliance in Costa Rica. Mercans offers end-to-end payroll solutions in Costa Rica, tailored to meet the needs of organizations of all sizes—ensuring accuracy, transparency, and full compliance in every payroll cycle.

Minimum Wages 

In Costa Rica, the Minimum Wage System is a structured framework encompassing rates for unskilled, semi-skilled, skilled, and specialized workers. Administered by the National Commission of Minimum Wages, these rates undergo biannual revisions to align with inflation and cost-of-living adjustments, ensuring equitable compensation based on skills and qualifications.

In addition to the base rates, workers with varying educational levels receive supplemental wages. The following table illustrates these educational level-based rates:

Compliance with Costa Rican labor laws is imperative for companies, ensuring avoidance of penalties and prioritizing the well-being of their workforce. Adherence to mandatory benefits such as social security contributions, parental leave, vacation leave, and severance pay is crucial. Companies must also navigate specific regulations when hiring foreign nationals, including securing work permits and complying with visa requirements. Mercans provides comprehensive support to ensure companies seamlessly align with these regulations for a successful and compliant operation in Costa Rica.

Working Hours

The specifics of working hours are outlined in the employer-employee contract, resulting in slight variations across the country. In a general context, typical working hours span eight hours per day, not exceeding a total of 48 hours weekly.

The Ministry of Labor in Costa Rica permits an extension of daily working hours to nine, provided it does not compromise employee health or the work environment. Notably, certain sectors, such as retail stores, allow employees to work up to nine hours daily.

In the private sector, standard working hours usually involve an eight-hour workday from Monday to Saturday, spanning from 8 am to 5 pm.

Payroll Cycle

The typical payroll cycle in Costa Rica is monthly, with payments scheduled for once per month.

Severance Pay

In the event of an employee being terminated without cause after a minimum of three months of service, the employer is obligated to provide severance pay. The payment is calculated according to the duration of employment and may reach a maximum of 22 days per year worked, with a limit of eight years. The Costa Rica Labor Code (CRLC) includes a dedicated calculation table to ascertain the total compensation owed to the employee.

Payroll Taxes

Navigating the intricacies of payroll taxes is a crucial aspect of operating a business in Costa Rica. Mercans, with its expertise and dedication, ensures a seamless process for businesses establishing themselves in the country. One of the key aspects is registering new employees with the social security and tax authorities, and meticulously handling contributions and taxes in accordance with Costa Rican local payroll laws.

Payroll Taxes in Costa Rica

Employees and employers in Costa Rica are both contributors to the nation’s social security system, commonly known as the Caja. Employees are required to contribute approximately 9.5% of their salary, while employers bear a contribution of around 34.5%.

Income Tax

The income tax in Costa Rica follows a progressive structure, with higher income levels incurring higher rates. Employee income tax rates range from 0% to 25%, ensuring a fair distribution based on earnings.

Corporate Tax

For most companies in Costa Rica, the corporate tax rate stands at 30%, forming a significant part of the overall taxation framework.

The table below provides an overview of the breakdown of employer payroll tax, employee payroll tax, employee income tax, and other related contributions:

Social Security in Costa Rica

The oversight of employment law in Costa Rica falls under the purview of the Ministry of Labor and Social Security. Costa Rican employers deduct three contributions from their employees’ monthly salaries, the amounts of which are determined by the salary.

Mandatory Contributions to Government-Sponsored Social Security Schemes

Table 1: Employee Contributions to Public Programs in Costa Rica

Table 2: Employer Contributions to Public Programs in Costa Rica

These tables outline the contribution rates for both employees and employers to various public programs in Costa Rica.

Personal Income Tax in Costa Rica

In Costa Rica, income taxes on individuals apply to local income regardless of nationality or resident status. Residents are subject to taxation on all income earned within the country, defined as Costa Rican-source income derived from assets, goods, or services within its borders. Non-residents, on the other hand, are liable for withholding taxes (WHTs) based on the nature of their local income.

Personal Income Tax Rates for Self-Employed Individuals (Tax Year 2019):

Personal Income Tax Rates for Employed Individuals (Monthly Salary):

Note: The income tax brackets for self-employed and salaried employees are adjusted annually.

Employee Benefits in Costa Rica

Ensuring employee well-being and satisfaction is a key aspect of employment in Costa Rica. The country mandates several benefits for workers, ranging from financial bonuses to leaves for various purposes. Below are some of the essential employee benefits in Costa Rica.

Christmas Bonus: Every employee in Costa Rica is entitled to a year-end Christmas bonus equivalent to one month’s wages, unconditionally provided by the employer. The bonus, prorated if the employee has worked for less than a year, must be disbursed between December 1-20.

Holidays: Refer to Table 2 for a comprehensive list of national holidays in Costa Rica. In case an employee is required to work on a legal holiday, the employer must pay double wages.

Table 2: Costa Rica National Holidays and Double Wage Requirement

Annual Leave (Vacation)

Employees are entitled to a minimum of two weeks of paid vacation for every 50 weeks of continuous employment with the same employer. Wages during vacation should be based on the average weekly wage earned in the preceding 50 weeks. The law does not permit accumulated vacation time, and employers may decide the optimal timing for mandatory vacations.

Sick Leave

During sick leave, an employee receives at least 50% of their salary for the first three days. From the fourth day onward, the Costa Rican Social Security Fund (CCSS) covers 60% of the salary if supported by a medical certificate from a CCSS doctor. The employer is not obligated to pay the salary after the third day, except for maternity leave.

Maternity Leave

Employers must grant one month of maternity leave before birth and three months after birth. During this period, the employer pays 50% of the salary for three months, with the CCSS covering the remaining 50%.

These employee benefits in Costa Rica are designed to promote a healthy work-life balance and contribute to the overall well-being of the workforce.

Table 3: Holidays and Observances in Costa Rica in 2024

Benefits of Outsourcing Payroll in Costa Rica

For businesses lacking the administrative capacity or expertise to handle payroll internally, seeking professional assistance from a trusted third party like Mercans can be a strategic move. Outsourcing payroll offers various advantages, including:

Time Savings

By entrusting payroll responsibilities to experts, employers free up valuable time to focus on core business activities such as product development, customer service, and sales.

Error Minimization

Payroll providers, like Mercans, leverage automation to reduce the risk of errors inherent in manual calculations and data entry, ensuring accurate and error-free payroll processing.

Enhanced Security

Outsourcing payroll to reputable providers with advanced technology, redundant backup systems, and secure server locations enhances data security, protecting confidential information from potential threats.

Compliance Maintenance

Mercans stays abreast of evolving government regulations, taking the lead in filing necessary paperwork for compliance. This proactive approach helps businesses remain compliant without the need for constant monitoring.

Data Integration

Full integration of payroll with time and attendance, benefits, and other HR applications improves data accuracy. Single sign-on access makes it easier to manage and retrieve information seamlessly.

Employee Self-Service

Mercans’ full-service payroll solutions often include features that empower employees. This includes the ability to view pay information, log working hours, and manage withholdings – all accessible from a mobile device for added convenience.

Cost Reduction

While payroll providers charge fees, the cost is often outweighed by the potential fines and penalties resulting from mistakes in handling payroll internally. Outsourcing payroll to Mercans can ultimately lead to cost savings for businesses.

By choosing Mercans as your payroll partner, you not only streamline your payroll processes but also gain the expertise and support needed to navigate the complexities of payroll management, ensuring efficiency, accuracy, and compliance.