Using an employer of record in Costa Rica

Employers choose to hire in Costa Rica primarily for its cost-effective, skilled workforce and stable business environment. However, hiring and paying employees in Costa Rica can be complicated because one must comply with local labor and employment laws, which are subject to change. 

Fortunately, using a Costa Rica Employer of Record (EOR), like Payoneer Workforce Management, helps streamline the process.

Find out more about how Payoneer Workforce Management can help your business.

Continue reading to learn how an EOR in Costa Rica helps.

How to hire employees in Costa Rica

There are three key ways to hire employees in Costa Rica:

1. Setting up a local entity gives you total control over your operations in Costa Rica, but it can be expensive and time-consuming.
2. Hiring independent contractors offers flexibility and talent with specialized skillsets, but care should be taken to avoid misclassifying contractors as employees.
3. Hiring with an employer of record in Costa Rica helps businesses compliantly engage talent without setting up a local entity.

Partnering with an employer of record in Costa Rica

An Employer of Record is a third-party company that becomes the legal employer of talent, enabling businesses to access the local workforce without creating a legal entity.

By partnering with a Costa Rica EOR, you can hire Costa Rican nationals without having to incorporate a business or set up registered offices in the country. An EOR supports businesses with employment administration, payroll, taxes, and benefits in line with local regulations.

Payoneer Workforce Management offers EOR services in Costa Rica, helping businesses compliantly engage talent and reduce administrative complexity.

How to onboard employees in Costa Rica

Taking the time to welcome and introduce a new hire to your company is so important. This starts with a smooth and thorough onboarding. 

When onboarding a new Costa Rican employee, you need to:

• Verify their work permit status
• Enroll them in benefits and payroll
• Enroll them in social security
• Make introductions to the team and colleagues
• Set up all the devices and workplace software they’ll be using
• Set expectations and objectives
• Assign an onboarding buddy or other onboarding support

An Employer of Record in Costa Rica supports businesses with onboarding processes in line with local regulations.

Pay employees in Costa Rica

The fiscal year in Costa Rica runs from January 1st to December 31^st, and employees are paid monthly, typically on the last day of the month.

When paying employees in Costa Rica, employers must withhold income tax and employee contributions (10.67%) and pay employer contributions (26.67%).

The minimum wage differs depending on job category and skill levels, but Costa Rican employees also receive a yearly bonus known as Aguinaldo, equivalent to 1 month’s salary. Employers pay this bonus during the first 20 days of December.

A Costa Rica Employer of Record helps businesses manage payroll and related obligations in line with local regulations.

Employment laws in Costa Rica

When hiring employees in Costa Rica, you need to abide by the following labor laws, as laid out in the Costa Rica Labor Code:

• Working hours: Work between 5 am and 7 pm is considered a day shift. Work between 7 pm and 5 am is considered a night shift. An ordinary working day must not exceed 8 hours during the day, 6 hours during the night, and 48 hours per week. There are some exceptions to these rules for managerial roles and specific industries.
• Overtime: Overtime is any work outside previously established limits and should be paid at 150% of the employee’s regular wage. A maximum of 4 hours’ overtime is permitted per day. 
• Rest days: Employees are entitled to a 30-minute rest period during the workday. They are also entitled to 1 day of rest after every 6 days of continuous work.  
• Remuneration frequency: Employees are paid monthly, typically on the last day of the month, according to the schedule laid out in their employment contract.
• Insurance: Employers have to insure all workers against occupational hazards. Any employer who fails to insure their workers is liable to them and the insurance company for all medical, rehabilitation, and monetary benefits.

Minimum wage in Costa Rica

There is a mandatory minimum wage in Costa Rica that varies for skilled and unskilled workers.

• Unskilled workers: CRC 11,738.83 per day
• Specialized workers: CRC 15,333.31 per day

The minimum wage is reviewed and adjusted by state governments periodically to align with inflation and the cost of living. So, to comply with labor laws, it’s important for employers to stay up-to-date with the latest rates.

Partnering with an Employer of Record in Costa Rica can help businesses stay informed about wage updates and manage payroll in line with local regulations.

Employment contracts in Costa Rica

The most common types of employment contracts in Costa Rica are:

• Indefinite-term: A contract with no specified end date, suited to permanent positions within a company
• Fixed-term: A contract with a defined start and end date, suited to seasonal, temporary, and project-based roles

As per Article 22 of the Costa Rica Labor Code, you need to provide a written employment contract if the period of work is longer than 90 days. 

This should be sent to both the employee and the Employment Office of the Ministry of Labor and Social Security within 15 days of the contract starting and following any contract changes.

The Costa Rica Labor Code specifies that an employment contract needs to include:

• The names and surnames, nationality, age, sex, marital status, and address of the contracting parties
• Identity card numbers, if the contracting parties are required to carry them
• The worker’s residence when they’re contracted to provide services in a place other than their usual one
• The duration of the contract
• The length of the workday and the hours during which work must be performed
• The salary, wage, or share the worker is to receive, and the form, period, and place of payment

Leave policy in Costa Rica

Employees in Costa Rica are entitled to the following:

Type of leave	Leave entitlement
Vacation	14 days per year, after completing 50 consecutive weeks of employment
Public holidays	12 days per year
Sick leave	Full pay for the first 3 days (50% paid by the employer, 50% by social security)60% pay from the 4th day onward (paid exclusively by social security with top-ups at an employer’s discretion)
Maternity	4 months, with 1 month taken before and 3 months taken after the birth of the child
Paternity	8 days, taken as 2 days per week in the first 4 weeks after the birth of the child

As these policies are subject to change, employers must stay up-to-date with the latest employee leave entitlements.

Background check in Costa Rica

Background checks are a common practice in Costa Rica, particularly when hiring for finance, healthcare, education, security, law enforcement, and public sector roles.

Some common background checks include:

• Criminal record check
• Employment verification
• Education verification
• Reference checks

Employers generally run these checks before signing the employment contract and after seeking written consent from the candidate. It is illegal to conduct background checks without explicit consent and without proper adherence to Costa Rica’s privacy laws.

It is also against the law to discriminate against a candidate based on information uncovered during background checks. This includes information on their marital status, religion, or sexual orientation.

Employment termination in Costa Rica

If an employee in Costa Rica wants to end their contract, notice periods are as follows:

Length of service	Notice period
0 to 3 months	No notice required
3 to 6 months	1 week
6 to 12 months	15 days
1 year+	1 month

If the employer terminates an indefinite contract for unjustified reasons or reasons beyond an employee’s control, they have to pay severance pay. 

This is calculated based on the length of time an employee has been working for the company, according to Article 29 of the Labor Code:

Length of service	Severance pay (per year worked)
3-6 months	7 days
6-12 months	14 days
1 year	19.5 days
2 years	20 days
3 years	20.5 days
4 years	21 days
5 years	21.24 days
6 years	21.5 days
7 years	22 days
8 years	22 days
9 years	22 days
10 years	21.5
11 years	21 days
12 years	20.5 days
13 years or more	20 days

Employers can end an indefinite contract without notice or severance pay if an employee is found guilty of gross misconduct.

However, if an employer can’t prove just cause for dismissal, the employee is entitled to receive their notice pay, any severance pay they’re owed, and, as compensation, the wages they would have earned from the date of termination until the final legal decision against the employer.

Company registration in Costa Rica

Registering a company in Costa Rica is a big undertaking that involves a lot of administrative overhead.

To register a business in Costa Rica, you need to:

• Choose your business structure
• Reserve a company name that complies with Registro Nacional guidelines
• Prepare and file the required documentation (including identification documents for directors, proof of address in Costa Rica, and taxpayer identification number)
• Open a corporate bank account
• Register for tax obligations

PEO in Costa Rica

For companies looking to build a workforce in Costa Rica, EOR services are considered a streamlined option. But a Professional Employer Organization (PEO) is also suggested as an alternative.

A PEO offers HR and administrative support for your business. It provides payroll, benefits management, and legal support services. However, a PEO can’t employ workers on your behalf. So, you would still need to register your company or create a legal entity in Costa Rica to hire Costa Rican workers.

Payoneer Workforce Management’s employer of record in Costa Rica

Payoneer Workforce Management offers Employer of Record services in Costa Rica, helping businesses engage talent without creating a local entity. An EOR helps mitigate risk while entering new markets.

Try Payoneer Workforce Management today.

FAQs 

1) What is an employer of record in Costa Rica?

An Employer of Record in Costa Rica becomes the legal employer of talent, supporting payroll, benefits, and tax administration in line with local regulations.

2) Does Costa Rica do background checks?

An employer is permitted to run background checks on employees as long as they have written consent from the employee and all checks are conducted in line with Costa Rican privacy laws.

3) What is the minimum wage in Costa Rica per day?

The minimum wage for Unskilled workers is CRC 11,738.83 per day, and for specialized workers it is CRC 15,333.31 per day.