How To Hire And Pay Employees In Costa Rica

Costa Rica is extremely popular due to its highly skilled workforce, innovative technology, and the benefits it provides companies. The workforce has the highest literacy rate in Latin America due to the government’s commitment to transforming the country’s talent. Costa Rica is widely described as home to the top human capital in Latin America. Companies from the US and the UK tend to utilise the Costa Rican workforce to take advantage of the low labour costs compared to their home country.

Latin America is well-known overall for low attrition and Costa Rica has a great reputation of low attrition amongst developers specifically. This allows companies to invest in a team for an uninterrupted workflow which is highly attractive to tech start-ups, where IP protection is a priority. Costa Rica is invested in growing its tech industries. San Jose is becoming popular for its fast growth in the IT sector, as well as developing its digital tech across the region.

However, due to the country’s workforce being so sought after, the number of skilled developers available is low. Therefore, although labour costs are lower than in some countries, Costa Rica’s competitive working environment means that it may not be the most cost-effective destination for small start-ups to expand.

Costa Rica’s labour laws are known for being employee-friendly, which can be difficult for employers.

Full-time employees are entitled to one days holiday for each month worked, and two weeks after 50 weeks of employment. Employees are not permitted to carry over annual leave unless there is a written agreement.

There are 9 paid public holidays and a further 2 that are optional.

January 1st: New Year's Day 
April 11th: Battle of Rivas
April 14th: Maundy Thursday 

Probation periods in Costa Rica are generally 3 months. However, this can vary depending on the industry and role of the employee.

The employee may terminate their employment by providing notice in writing. The required notice period will depend on the length of service, as follows:

• 3-6 months: 1 week’s notice
• 6-12 months: 2 weeks’ notice
• 12+ months: 1 month’s notice

Termination processes may vary depending on if any agreements were negotiated when the employee was initially employed. If an employee is terminated without just cause, they will be entitled to a severance payment (Prestaciones Laborales) and advance notice (Preaviso) must also be provided. The advance notice period is 30 days and if the employee is not required to work during this time, the equivalent salary must be paid in addition to any severance payment. The below table is a guide to severance payments depending on length of service. In addition to severance payments, the employee will also be entitled to payment of any accumulated holiday pay and the pro-rated Christmas bonus.

If an employee is terminated with just cause this must be based on one of the grounds set out in Article 81 of the Costa Rican Labour Code. The employer holds the burden of proof, so the cause will need to be well justified. The employer will also need to personally deliver a dismissal letter to the employee clearly outlining the facts behind the dismissal. Employees dismissed with cause will not be entitled to notice or severance payments. They will only be entitled to payment of owed salary, accumulated holiday and the pro-rated Christmas bonus.

Non-compete provisions are permitted in Costa Rica if they are reasonable. The employee will need to be paid during any periods of restriction. The terms will need to be assessed on a case-by-case basis including activities, geographical restrictions, and payment. If no agreement is in place for payment, it is commonly 50% of the standard salary. Non-solicitation provisions are also permitted in Costa Rica.

Expectant mothers are entitled to four months' maternity leave. This is taken one month before the expected due date and three months after. The cost of maternity leave is split equally between the employer and the CCSS (Costa Rican Social Security Fund). Fathers working in the private sector are not entitled to paternity leave. Fathers working in the public sector are entitled to eight days’ paid paternity leave.

An employee is entitled to the first three days of sick leave at full pay. This is split between the employer and social security. After three days, the employer is not obliged to make continued payments, but social security will pay 60% of the employee’s salary. The employee must ensure a medical certificate is submitted to the social security administration within 48 hours of the start of the sick leave to receive payment. Employees are also entitled to three days’ paid bereavement leave.

Social security contributions in Costa Rica are compulsory and are based on an employee’s earnings. The Costa Rican Social Security Fund (Caja Costarricense de Seguro Social) is in charge of most of the public health sector. Both the employer and employee have mandatory contributions. The contributions cover items such as maternity benefits, health protection, work accidents, unemployment, child benefits, disabilities, and old age.

Costa Rica’s healthcare system is run by the Costa Rican Social Security Fund (CCSS) (Caja Costarricense de Seguro Social). When registered with the CCSS, employees will have access to free services such as doctors’ appointments, inpatient care, outpatient, maternity services, surgery, medications, dental care, optical care, and emergency services. Costa Rica’s healthcare system is very highly regarded in Latin America, ranking amongst one of the highest in the Americas. Around 30% of Costa Rica’s population have private health insurance and it is a very common option for foreign workers. This is because it is a lot easier to access English speaking staff in private hospitals and the wait times are considerably shorter.

The workforce in Costa Rica is well-educated, so it can be a challenge to prove there is not a suitable candidate available within the country. Once this has been proven, the applicant will need to apply for a provisional visa that is needed to enter Costa Rica.

Applicants from certain countries do not require a visa to enter but will still need to register with the Costa Rican consulate in their home country. Once the applicant has arrived in Costa Rica, the process for applying for a work permit must begin, including fingerprint registration with the Ministry of Public Security (Ministerio Seguridad Pública) and an application to the Immigration Department (Dirección General de Migración y Extranjería). All relevant documentation must be prepared before arrival in Costa Rica and must be translated to Spanish and notarised.

Applicants will need to start the process of applying for the work permit with plenty of time ahead of any intended start date in their new job in Costa Rica. It can take between three and eight months for a work permit to be processed.

Please find a non-exhaustive list of required documentation below:

• Completed application form
• Birth certificate
• Copies of every page of a valid passport, including blank pages
• 2 x passport photos
• A letter with reasons for the application, this should also include applicants details
• Statement from the employer for job details
• The employer's legal constitution and registration documents
• Receipt of consular inscription 
• Receipt of fingerprint registration issued by the Ministry of Public Security 
• Proof of insurance
• Proof of the applicants financial income 
• A police clearance certificate from the applicants home country or country of residence
• A certificate of the Costa Rican social security institution for the employing company

There is no set minimum wage in Costa Rica. Pay rates are generally agreed upon directly with the employer and stated on the contract of employment or through a collective bargaining agreement. As a general guide, pay rates per day should not fall below the following, according to skill level of the employee. The below rates are in Costa Rican Colon (CRC).

• Unskilled worker - 10,875.11 CRC
• Skilled worker - 12,043.60 CRC
• Specialised worker - 14,205.12 CRC
• General skilled worker- 367,058.74 CRC
• General highly skilled worker - 4,12,202.85 CRC
• Technical worker university graduate - 696,873.71 CRC

It is the employer’s responsibility to ensure taxes are paid from salaries before payments are made to employees. The general personal income tax rates are listed below as guidance.

Salaries in Costa Rica are generally paid on a monthly basis, manual employees must be paid every 15 days. A 13^th month salary payment (Aguinaldo) is mandatory. This must be paid within the first 20 days of December.

Social security contributions are the responsibility of the employer to deduct from an employee’s salary before payment, and for the employer to ensure all employees are registered. Both the employer and employee are subject to contributions. Below is a guide on approximate contribution rates for employers and employers. However, these can vary. Employer contributions are generally 26.5% and employees 10.5% of salary.