How to hire and pay Costa Rica contractors

Approximately one-fourth of the workforce in Costa Rica is self-employed, and Costa Rica contractors form a crucial part of this segment. The Latin American country boasts an increasing talent pool of bilingual, skilled professionals, particularly in technology, design, and remote services. 

Hiring contractors in Costa Rica is not just efficient but also a strategic way to tap into a skilled talent pool without the overhead of establishing a local office. 

With recent changes to Costa Rica independent contractor laws, the government has made it easier for both contractors and businesses to stay compliant and avoid excessive liabilities, giving you the confidence to make this decision.

However, before you jump in, it’s essential to understand how to hire independent contractors legally and effectively, without exposing yourself to misclassification risks.

This guide streamlines the process of contracting and paying contractors in Costa Rica, making it easier to understand legal distinctions, receive compliance advice, and utilize effective payment processing methods, such as Payoneer WFM.

How to hire contractors in Costa Rica

In this section, we discuss the most important legal differences and hiring best practices to assist you in getting started:

1. Understand the contractor vs employee Costa Rica classification

Classifying someone as a contractor in Costa Rica if they work as an employee risks you with tax penalties, lawsuits, or back payments. Here’s a general comparison between a contractor vs employee in Costa Rica:

Criteria	Costa Rica Contractors	Employees
Work Schedule	Flexible hours set by mutual agreement	Fixed hours, typically 8 hours/day, with a weekly limit of 48 hours
Supervision	Work independently, with no close oversight	Requires your direct supervision
Payment Structure	Paid per task, milestone, or invoice	Monthly salary with benefits
Tax Withholding	Contractors handle their taxes	You must withhold income tax and social security contributions
Entitlements	No statutory entitlements; defined only by contract	Eligible for paid leave, severance, insurance, and bonuses

2. Understand Costa Rica independent contractor laws

Independent contractors in Costa Rica are governed by commercial, not labor, law. Recently, though, Costa Rica has moved to update and simplify regulations for self-employed persons with the issuance of Law No. 10,363. 

The new Costa Rica independent contractor laws protect compliant contractors, offer amnesty, and simplify dispute resolution, i.e., 

• Statute of Limitations: The social security obligations of independent contractors are now limited to 4 years, except where fraud or non-registration is involved, in which case the limitation period is extended to 10 years.
• Amnesty Program: Provides a 24-month grace period for unregistered contractors to enroll with the Costa Rican Social Security Fund (CCSS) and enjoy the abbreviated liability window.

What can be done by employers?

Employers hiring Costa Rica contractors should be proactive to remain compliant and avoid possible legal or financial repercussions:

• Verify contractor registration with the Costa Rican Social Security Fund (CCSS), especially when hiring new staff during amnesty periods.
• Invite unregistered contractors to take advantage of the 24-month amnesty opportunity and legalize their status—this minimizes future conflicts.
• Prevent misclassification by explicitly outlining the character of the working relationship in the contract—no regular hours, no direct oversight, and no furnishing of equipment.
• Maintain documentation in compliance, such as signed contracts, tax IDs, and evidence of billing, in case problems occur within the 4-year statute of limitations.
• Be open about payments and prevent any actions that would be indicative of an employer-employee relationship.

3. Find independent contractors in Costa Rica

You may hire contractors in Costa Rica through:

• Freelance platforms such as Upwork, Fiverr, and Toptal
• Local job boards such as Computrabajo Costa Rica
• Recruitment agencies that specialize in LATAM or remote technical talent
• Referrals and LinkedIn outreach

4. How to hire Costa Rican contractors from the US

It is simple to hire Costa Rica contractors based in the US if you take a few easy steps:

• Utilize a clean contract with scope, payment terms, and verification of independent contractor status.
• Steer clear of fixed hours or oversight to avoid misclassification risks.
• Obtain tax information and ID, and ask for invoices for every payment. You can view your tax obligations for paying independent contractors here. More specifically, you may be required to comply with Form W-8BEN filings while hiring Costa Rica contractors.
• Maintain professional communication with tools such as Slack or Trello, but not as full-time employees.

For expanding teams, solutions like Payoneer WorkForce Management (WFM) make it easy to onboard and pay contractors in Costa Rica. 

How to pay contractors in Costa Rica

If you’re paying in CRC or USD, this section guides you through safe payments, tax obligations, and the paperwork you’ll need to pay contractors in Costa Rica.

1. Determine how to pay 

Costa Rica contractors can be paid:

• Per project or milestone
• Hourly (with time tracking software)
• On an ongoing retainer basis

Organize payments in a manner corresponding to their work style and keep it easy for accounting.

2. Ensure your Costa Rica contractors have the right tax information

Unlike employees, independent contractors are liable for their tax returns. But you need to:

• Collect local tax identification information
• Ask for invoices with the registration number of the business (if any)
• Report payments to the IRS if you’re a US company

3. Pay in Costa Rican Colón or US Dollars

Costa Rica uses the Costa Rican Colón (CRC), but many contractors in Costa Rica also accept US Dollars (USD), especially in tech or international-facing roles. Clarify preferred currency and include it in the contract. 

The current exchange rate is 1 USD = 503.667 CRC. 

4. Maintain compliant records

Ensure that you:

• Save signed contracts and invoices
• Keep receipts for payments and evidence of work performed
• Monitor all contractor information for year-end reporting (for local and US tax filing)

Why Payoneer WFM is the easiest way to hire and pay contractors in Costa Rica

If you are scaling a remote team internationally, products like Payoneer’s Workforce Management (WFM) will make it easier. With Payoneer WFM, you can:

• Onboard contractors in Costa Rica with region-specific agreements
• Pay in local currency or USD, either through bank transfers or e-wallets
• Automate the sending of invoices and compliance status checks
• Avoid the need to set up a local entity

It offers centralized legal and payment support for easily and worry-free employment, administration, and payment of overseas contractors, including Costa Rica contractors.

FAQs on managing contractors in Costa Rica

Can I hire a contractor in Costa Rica without a local entity?

Yes, if you are hiring them as an independent contractor, not an employee, you can hire contractors in Costa Rica without establishing a local entity. 

Do I need to pay Social Security or benefits?

No, but it might make you liable for those expenses if you incorrectly classify a contractor as an employee. Costa Rica independent contractor laws have also clarified social security debt time limits—4 years for complying workers and 10 years for non-complying workers who avoid registration.

How do I minimize compliance risks?

Utilize precise contracts, don’t micromanage, and utilize global payment providers like Payoneer WFM or attorneys. Encourage your Costa Rica contractors to enroll with CCSS under the present amnesty.