Employment laws in Costa Rica

Costa Rica’s labor market has seen steady development over the years, which is supported by a growing private sector and increasing foreign investment. This growth has made Costa Rica an attractive destination for employers to access a skilled and diverse workforce.

However, to successfully hire and manage talent in Costa Rica, businesses must understand the employment laws in Costa Rica. A clear understanding of these regulations helps ensure compliance and supports strong, long-term working relationships with both employees and contractors.

In this guide, we explore the key aspects of labor law and employment in Costa Rica, including contract types, working hours, statutory benefits, termination rules, and labor union practices.

Key employment laws in Costa Rica

Here are some important elements covered by the labor laws in Costa Rica that employers need to be aware of:

• Employment contracts, working hours, leave, and termination rules under the Labor Code of 1943
• Mandatory social security contributions managed through the CCSS
• Minimum wage set by skill level, reviewed periodically by the government
• Overtime regulations capping extra hours and mandating premium pay
• Mandatory Christmas bonus (aguinaldo) payable by December 20 each year
• Progressive income tax ranging from 0% to 25%

Contract employment laws in Costa Rica

Employment contracts in Costa Rica can be written or verbal, but written contracts are strongly recommended, with a mandatory Spanish version. 

The Labor Code assumes an employment relationship exists once work begins, regardless of what’s on paper. That means even without a formal document, the employer is still bound by all labor obligations.

Types of contracts

Costa Rica’s Labor Code recognizes two main types of employment contracts:

• Temporary contract: Used for fixed-duration engagements with a defined end date. These are common for project-based work or seasonal roles. The same notice period rules apply based on the employee’s length of service.
• Permanent contract: No end date. Employment continues until either party terminates it. This is the default arrangement for most full-time hires, and it comes with the full range of protections under the Labor Code.

Both types carry the same statutory obligations around notice periods, severance, and benefits. The distinction mostly affects how long the relationship is expected to last, not what the employer owes during or after it.

Essential contract terms

Since the Labor Code treats any working relationship as a de facto employment contract, putting everything in writing protects both sides. 

All contracts in Costa Rica should typically include:

• Details of both parties (employer and employee)
• Job type, role, and responsibilities
• Work location
• Salary and payout currency (CRC or USD)
• Working hours and shift type (day, night, or mixed)
• Probation period terms (up to three months)
• Start date of employment
• Notice period and termination conditions

Getting these terms locked down before the employee’s first day isn’t just good practice. 

It’s how you avoid disputes later. And if you’re onboarding through an Employer of Record in Costa Rica, they’ll typically support with the contract drafting for you in line with local requirements.

Minimum wage in Costa Rica

Costa Rica doesn’t have a single flat minimum wage. Instead, the rate depends on the employee’s skill level: 

• For unskilled workers, the minimum daily wage is CRC 11,738.83. 
• For specialized employees, it goes up to CRC 15,333.31 per day. 

These figures are reviewed periodically by the government.

Working hours in Costa Rica

Working hours in Costa Rica are split into three categories based on the time of day:

Overtime

Any work beyond 48 hours in a week counts as overtime under the overtime laws in Costa Rica. It’s paid at 150% of the employee’s regular wage. Work on public holidays bumps that rate up to 200%. The maximum overtime an employee can work in a single day is four hours.

Mandatory benefits

The following statutory entitlements are the core of employee rights in Costa Rica: 

Annual bonus (Aguinaldo)

Every employee in Costa Rica is entitled to a Christmas bonus called the aguinaldo. It must be paid by December 20 each year. The amount is one-twelfth of the total wages the employee earned during the year.

Social security and health insurance

The Costa Rican Social Security Fund (CCSS) runs the country’s social security programs, covering health insurance, pensions, and social welfare benefits. The system is funded by contributions from employers, employees, and the government. 

Public health insurance is mandatory for all legal residents. Total employer costs, including accruals, come to roughly 53.66% of an employee’s annual salary.

For a detailed employment cost breakdown, use our employee cost calculator.

Leave entitlements

Employee rights in Costa Rica are well defined under the Labor Code. Here’s what every employer needs to account for:

• Annual leave: Employees earn two weeks (14 days) of paid vacation after every 50 weeks of continuous employment. Leave doesn’t carry forward. 
• Public holidays: There are 12 public holidays each year, separate from vacation. 
• Sick leave: Employees get at least one day so they can see a doctor. 
• Maternity leave: It runs for four months, split as one month before and three months after birth. 
• Paternity leave: Biological fathers get eight days of paternity leave: two days per week during the first four weeks of the child’s life.

Termination

Termination laws in Costa Rica allow four scenarios: the employee resigns, both sides agree to end it, the employer ends things during probation, or the employer fires for cause, such as misconduct, performance, or unapproved absence. Each scenario carries different obligations.

Notice period

How much notice you owe depends entirely on tenure. Here’s the breakdown for the notice period in Costa Rica:

Severance pay

Dismiss someone without just cause, and severance pay in Costa Rica (cesantía) applies. 

The calculation is tiered:

Get the employee termiantion process wrong, especially without valid grounds or proper severance can lead to a legal fallout. 

Hence, it is recommended to work with a workforce management partner who knows labor law compliance in Costa Rica.

Navigate employment laws in Costa Rica with Payoneer Workforce Management

Employment laws in Costa Rica touch every stage of the employee lifecycle, from onboarding to managing payroll, benefits, and termination. Getting any of it wrong means exposure to fines and legal disputes.

That’s where Payoneer Workforce Management comes in. 

Our Employer of Record (EOR) services in Costa Rica let you onboard, pay, and manage employees without needing a local entity. 

Payroll, statutory benefits, tax deductions, time-off tracking: it’s all handled through a single platform.

Looking to hire employees in Costa Rica? Or bring on contractors for something specific? Either way, Payoneer Workforce Management has you covered in 160+ countries, with payment support in 70+ currencies.

Book a demo today and see it for yourself.

FAQs

1. What is the overtime rate in Costa Rica?

You may have to pay at 150% of the regular pay once employees cross the 48-hour weekly threshold. Whereas, work on holidays must be paid at 200%. However, you can’t ask someone to do more than four hours of overtime in a single day.

2. How much notice does an employer need to give before termination?

You are not obliged to give a termination notice if the employment period is under three months of service. However, for an employment period between three and six months, the termination notice must be at least one week. For an employment period under one year, the notice period is 15 days, and for over one year, it is one month.

3. What is severance pay in Costa Rica?

Severance pay in Costa Rica applies when an employee is dismissed without cause. The amount depends on how long the employee has worked:

• 3- 6 months: 7 days of salary
• 6 months – 1 year: 14 days of salary
• 1+ years: A set number of days per year worked, ranging from 19.5 to 22 days in the early years, and gradually adjusting to 20 days per year from year 13 onward.

4. Is the Christmas bonus (aguinaldo) mandatory?

Absolutely. Every employer must pay the aguinaldo by December 20. It equals one-twelfth of the employee’s total wages earned during the year.

5. Can an employer terminate someone during probation?

Yes. During the first 3 months, the employer can end the employment without severance. After that, standard notice and severance rules apply.