- Overview: Costa Rica
- Global HR Compliance
- Global PEO and payroll
- Work permit for hiring expats via PEO
- Contractor vs. employee: which is better?
Global HR Compliance in Costa Rica
If you hire an international workforce, or plan to hire, then Hiring and Firing Workforce in Costa Rica Guide below will help you understand the nuances of labor legislation in the country.
When the company is planning to enter a new foreign market of Costa Rica and has a need to employ a local national there, the first question to answer is how it is going to make local hires.
We have designed a Global Employer of Record service to help you outsource global employment of your foreign workforce to companies like ours.
This solution helps you employ your global sales force in Costa Rica as well as in other 180+ countries of the world, and provide pay and benefits to your employees, as well as administer any business expenses with our help.
Our solution is different from other hiring modes in that it helps you engage your foreign workforce in full compliance with the local labor legislation. This means you are protected from any non-compliance and employee misclassification risks while we bear all employment risks, not you.
So, it looks very much like hiring your in-house sales force in your home country. However, you focus on only on your global business development while we admin your global HR. In addition, you don’t need to open your own entities in the foreign countries and can leverage our infrastructure in Costa Rica instead. With our service, you can become a global company with reduced costs and minimized time and effort on your end.
Your employed foreign sales force will devote 100% of their time to your company product and may stay with you longer than foreign independent sales reps.
Global Employer of Record solution is 100% compliant solution that guarantees you and your employees fully compliance with local legislation in Costa Rica .
We are experts in global workforce employment in Costa Rica, and our goal is to become your single provider. Instead of working with numerous local staffing agencies and legal advisors, Acumen International can solve your global business challenges and save you time, costs, and resources.
Our team of English-speaking professionals frees you from working through language nuances. Acumen International works 24/7 and can assist you whenever you need, regardless of time zones. Our goal is to create tailored labor solutions for you that are managed legally and in full compliance with the local employment laws.
With our knowledge and deep understanding of local nuances, you easily satisfy your need for skilled professionals in your global industry. With our qualified local partners, you can trust that your global workforce satisfies all local tax, social security, and immigration requirements in Costa Rica.
See Hiring and Firing Workforce in Costa Rica Guide below for a general overview of labor rules and regulations in the country. Or contact us if you need to employ workers in Costa Rica or would like to get more details.
Hiring and Firing Workforce in Costa Rica Guide
# Employment contracts
In Costa Rica there are employment agreements (as governed by Labor Law) and professional services agreements (as governed by Commercial Law).
What the labor doctrine calls “legal subordination” does not exist in a professional services agreement. This allows employers to exercise powers of authority and direction over employees and even enforce disciplinary sanctions.
The individual engaged to provide professional services is not required to meet any work schedule or perform the work at any specific location or explain to the contracting party how the work is being performed, etc. This type of agreement depends on the type of work involved and the working conditions required by the employer.
The different types of agreement are indefinite-term, fixed-term and specific work agreements.
A labour relationship between employer and employee exists according to the Labour Code when thefollowing requirements are established: a scheduled, salary and legal subordination.
Therefore only the agreements that contain these three requirements would be considered employment agreements. Thus professional services agreements and outsourcing agreements are not a proper employment agreement according to Costa Rican law.
The types of employment agreements that exist in Costa Rica are indefinite- term, fixed-term and specific work agreements.
# Minimum (Statutory) Employment Rules and Regulations in Costa Rica
# Hours of work:
The number of work hours per day depends on the type of work performed by the employees and their work schedule (night, day or mixed shift). Such number of hours are known as daily work hours, and there are two types: regular hours fixed by law as the maximum number of working hours that the employee is required to work under normal conditions; and extraordinary work hours, better known as “overtime”, when work is performed beyond the daily or weekly limits or else as agreed upon between the employer and the employee. Overtime shall be compensated at a higher rate than regular work hours.
For regular work hours and depending on the work schedule, the maximum number of hours an employee can work are:
- Between 5:00 a.m. and 7:00 p.m., 8 hours per day; 48 hours per week. This is known as the day shift.
- Between 7:00 p.m. and 5:00 a.m., 6 hours per day; 36 hours per week. This is known as the night shift.
- When the schedule includes day and night hours, between 12:00 noon and 10:30 p.m., 7 hours per day; 42 hours per week. This is known as the mixed shift.
Likewise, schedules that include day and night hours between 1.30 a.m. and 12 noon, 42 hours per week. This schedule is also known as the mixed shift.
In jobs that are not unhealthy or dangerous, the law authorizes the parties to extend the regular work hours by up to 10 hours and the mixed shift by up to 8 hours, provided these work days do not exceed 48 or 42 hours per week respectively. The Labor Code prohibits extensions to the night shift. The maximum number of work hours per night shift is always 6 hours or 36 hours per week. The law provides that the employer can require employees to work overtime where the work is not unhealthy or dangerous. However, such overtime added to the regular work day cannot exceed 12 hours per day.
# Probation period:
Probation periods are only applicable where an employee is employed under an indefinite-term employment agreement. Under specific work or fixed-term agreements, the employer cannot subject the employee to a probation period in order to assess if the worker has the conditions and skills required to perform the work needed by the employer.
A trail period can last up to 3 months, which starts to run from the date on which the employee actually starts working. For domestic employees the probation period cannot exceed 1 month. If at the end of the probation period the worker is not suitable, the employer can dismiss the worker without being liable to pay severance pay or payment in lieu of notice. The employer is only obliged to pay the employee for accrued holiday leave and the mandatory Christmas bonus, on a proportional basis, as well as for any portion of the salary unpaid at the time of dismissal.
During the probation period the employer and employee are required to observe the same rights and obligations granted by law to employees and employers formally employed.
The probation period is indirectly established in the Labor Code, which provides that the payment in lieu of notice and severance pay take effect after the first 3 months of work. The Ministry of Labor has set out that such probation periods are also effective when there is a change in the employee’s position, e.g. when an employee is promoted. During the 3 month probation period the employer can decide if the employee has the requisite skills and expertise to hold such a promotion. The employee also has the right to decide whether or not he/she wants to hold such a new position.
If the employee rejects the promotion, he/ she shall have the right to go back to his/her former position under the same conditions, including, obviously, the salary that the worker received before the promotion probation period.
# Annual leave:
Employees are entitled to 1 day of rest after 6 days of work. The employee is only paid for his rest day when he works in a commercial company, or his salary is paid monthly.
Employees are entitled to an annual vacation of two weeks after being employed for 50 weeks. In addition, there are certain specified public holidays and detailed rules governing whether or not they are paid in particular circumstances.
The employer cannot require employees to work during holidays.
# Parental leave:
The Costa Rica Labor Code for female employee allowed 120 days’ paid maternity leave, the cost of which is split between the employer and the social security fund. The standard arrangement is to take 30 days before the birth and 90 days afterwards. The 90-day period is known as the Período de Lactancia, allowing the mother to be with the child for the whole of what is considered the minimum length of time that the infant should be breast-fed.
The Período de Lactancia can be extended if a doctor deems it necessary; this is officially confirmed by supplying medical documents to the employer.
During the period that the child is breast-fed, the mother is allowed either fifteen minutes every three hours, half an hour twice a day, or an hour at the beginning or end of a working day to breastfeed her child.
# Sick leave:
During the first 3 days of disability the employee is entitled to money or subsidy equal to 50% of his/her salary. However, this amount is not considered to be salary. The right to receive this subsidy only arises if the employee has worked for the employer for more than 3 months.
From the fourth day of disability, the subsidy is paid directly by the Costa Rican Social Security Administration. If an employee suffers a second disability before 30 days from when the first disability was established, the Costa Rican Social Security Administration shall pay the subsidy to the worker from the first day of the second disability. The subsidy to be delivered by the Costa Rican Social Security Administration shall be 60% of the average amount of the employee’s salary based on the 3 months immediately prior to the disability.
An employer can dismiss a disabled worker only 3 months after he became disabled.
Such a dismissal would mean that an employer would be liable to pay the employee all legal benefits he / she would be entitled to (severance pay, payment in lieu of notice of, vacations and mandatory Christmas bonus).
The extraordinary work hours, better known as “overtime”, when work is performed beyond the daily or weekly limits or else as agreed upon between the employer and the employee. Overtime shall be compensated at a higher rate than regular work hours.
# State minimum salary:
Costa Rica’s minimum wage ranges from 9,598.73 per 8-hour work day for unskilled workers to 12,537.91 per day for specialized workers. All other occupations not explicitly covered fall under the generic scale, which ranges from 286,467.36 per month for unskilled workers to 615,083.69 for licentiates. The minimum wage is set annually by the National Wage Council. Costa Rica’s minimum wage was last changed on July 01, 2015.
# Employee dismissal:
There are rules which set out the specific way of terminating an employment agreement. In certain situations (for example in the case of minors and pregnant women), the employer needs an official authorization from the Ministry of Labor.
In all other cases, it is mandatory for the employer to give the employee a dismissal letter.
With a few exceptions employers can dismiss employees at any time subject to paying the employees the labour benefits that they are entitled to by law. This situation is known as dismissal with employer’s liability: the employer decides to terminate the employment relationship even though the employee has not failed to comply with his/her duties or committed any fault that would form the grounds for termination. For this reason, the law protects the employee, requiring the employer to pay him/her certain amounts that would allow the employee to survive whilst he/she finds a new job. The types of benefits to be paid by the employer to the employee depend on the type of agreement in question (indefinite-term, fixed-term or specific work agreement).
Under an indefinite term agreement, the employer shall pay the following to the employee:
- Proportional mandatory Christmas-bonus.
- Vacations not yet enjoyed.
- Severance payment.
- Payment in lieu of notice.
If the employee is dismissed and the employer is liable under a fixed-term agreement or a specific work agreement, the employee shall receive compensation for any specific damages demonstrated, to be assessed depending on the following:
- The effectiveness of the termination.
- Importance of the work performed.
- Difficulty faced by the employee to find a similar position or job.
Furthermore, upon termination of the agreement, the worker shall be paid an amount equal to one day of salary for every 7 days of continuous work performed or fraction thereof, if such period of time has not been reached yet.
The employee can quit at any time, but must do so on notice. The employee will not be entitled to additional severance payment or payment in lieu of notice, but will still receive proportional Christmas Bonus and vacations.
The employer is under a duty to give the employee notice that a decision has been taken to dismiss the employee. Such notice should be given so that the employee has time to look for a new job. The amount of notice due depends on the employee’s length of service. If the employee has worked for:
- Less than 3 months (trial period): no notice needs to be given.
- 3 to 6 months: notice of one week must be given.
- 6 months to a year: fifteen days notice should be given.
- Over 1 year: one month’s notice should be given.
During this notice period, the employer is required to grant the employee one day off per week to find another job.
However, if for any reason the employer prefers not to give such prior notice to the employee, the employer shall pay the employee payment in lieu of notice.
Notice of termination should be given in writing, unless the employment agreement was verbal, in which case notice can be verbally given but before two witnesses.
Employment can be terminated by the parties’ agreement. Only if the relationship is terminated because of a justifiable cause will the employer be able to avoid the payment of severance and notice pay.