Costa Rica Employment Laws: A Complete Guide for Employers

Costa Rica is spread across 51,060 square kilometers and is globally recognized for its unwavering dedication to preserving the environment. Many factors make it an attractive location for foreign investors. The government has also made undaunting efforts to uplift the economy and welcome foreign investors. 

These include offering a range of tax incentives to foreign investors. Exemptions from import duties, tax holidays, and exemptions from corporate income tax for specific industries are some benefits the government provides foreign investors with.

Costa Rica’s economy is stable and has been growing consistently. The country also has a relatively low inflation rate, and the government has implemented policies encouraging foreign investment. It makes Costa Rica a promising destination for business to expand their operations. 

Costa Rica has a highly educated and skilled workforce, with a literacy rate of nearly 98.04%. It makes it easier for businesses to hire skilled employees to help them expand their operations and make profits in a foreign land. The country also has several universities and technical colleges offering specialized technology, engineering, and business training. 

There are more than enough incentives for foreign investors to establish their business in Costa Rica. However, there are some labor regulations that every employer must know before setting up a business in Costa Rica. Knowing these laws will help them streamline their business operations and avoid any legal obligations that may arise later and hamper the smooth functioning of the business. 

Read this article till the end to have a clearer picture of what setting up a business in Costa Rica could mean for foreigners and learn more about Costa Rica’s labor law!

Applicability of the Act

Article 1 of the labor code of Costa Rica enumerates that the country’s labor laws apply to all employers and employees, including foreign nationals. The Costa Rican labor law applies to all employers and employees, regardless of nationality. 

Employment Contract

According to Costa Rica labor law, two types of employment contracts exist in Costa Rica. The first is the regular employment contract, and the second is the temporary one. Here is a more detailed description of the two:

Regular employment contract

Under Costa Rica labor law, the first kind of employment contract continues indefinitely. This contract can only be terminated by mutual agreement of the employer and employee or unilaterally by one of the parties for specific reasons. An employer can terminate an employee found guilty of misconduct. An employee may resign voluntarily.

Temporary employment contract

According to the labor code in Costa Rica, a temporary employment agreement is an agreement that lasts for a specific length of time. Such contracts may include seasonal work contracts. The maximum duration of a temporary employment agreement is one year. If the agreement extends beyond this period, it will be considered a regular employment agreement under Costa Rican law.

Key Provisions of the Act

Here are some of the critical provisions of the labor code in Costa Rica that employers must take note of-

Minimum wage

According to the labor code in Costa Rica, the minimum wage varies depending on the employee’s skill level. According to the latest guidelines from the government, unskilled employees earn a minimum of CRC 10,875.11 per 8-hour workday. This rate is slightly higher for specialized employees. Specialized employees make a minimum of CRC 14,205.12 per day. 

Nighttime work

According to the labor code in Costa Rica, night work refers to work between 7 p.m. and 5 a.m. Per the Costa Rica labor law, it is 36 hours per week or 6 hours per day. If an employee works a mixed shift, it should be at most 7 hours. 

Christmas bonus

According to Costa Rica labor law, employees are entitled to a Christmas bonus if they have worked in the company for over a month. This bonus is equivalent to one month’s salary. Even if an employer terminates the contract before December, they are still entitled to their Christmas bonus.

Minimum age

Per the labor code in Costa Rica, the minimum age to get employed is 15 years. A person needs no permission from institutions, parents, or guardians from 15 years onwards to get employed. 

Payroll taxes

Costa Rica has a clearly defined system of taxation that employers and employees must adhere to. The payment of taxes is divided between the employer and the employee in Costa Rica. Here is the division:

Maternity leave 

According to the labor code in Costa Rica, pregnant women get four months of paid maternity leave. It includes one month before and three months after their delivery. The employee must provide their company with a doctor’s certificate at least five weeks before the due date to avail of this benefit. 

If the employee has an unintentional abortion or a premature delivery, they are entitled to half of the maternity leave. If the employee is absent for longer due to an illness that prevents them from working, they will receive the same benefits for the entire recovery duration, up to three months.

In Costa Rica, paid maternity leave is mandatory. The employer must pay 50% of the employee’s salary during maternity leave, while the Social Security Administration must pay 

50%. The employer and employee must contribute to the Costa Rican Social Security Fund based on the employee’s entire salary. 

Adoption leave 

According to Costa Rica labor law, an employee adopting a child is entitled to three months of paid leave. This leave starts from the day the child arrives. The employee must provide their recruiter with a certificate from the National Foundation for Children or a family court confirming the adoption to avail of this benefit. 

Sick leave 

In Costa Rica’s labor law, the duration of an employee’s sick leave depends on the country’s social security fund and medical condition. During the first three days of absence, the social security fund covers half of the employee’s salary, and the employer is responsible for covering the remaining half. However, from the fourth day of absence, the social security fund covers 60% of the employee’s salary, but the employer is not legally bound to cover the remaining 40% 

Bereavement leave 

Labor regulations in Costa Rica state that employees are entitled to a certain amount of bereavement leave during the death of a close family member. The amount of time off and the type of family member covered varies depending on the mutually agreed terms between the employer and the employee.

However, as per the labor regulations in Costa Rica, employees are entitled to at least three days of leave with pay in the event of the death of a spouse, parent, child, sibling, or grandparent. 

Vacation 

All employees in Costa Rica have the right to receive a paid vacation states, the labor regulations in Costa Rica. The number of vacation days a staff can take depends on their length of service with the company. Here is a table for a better understanding:

Paid holidays

Companies cannot make their employees work on national holidays. They should receive double their salary if they work on a national holiday. Both parties must mutually agree upon it. There are about ten national holidays in Costa Rica. 

Public holidays

There are 12 public holidays in Costa Rica. 

Working hours and overtime

The working hours in Costa Rica labor law are up to 48 hours a week. Usually, 8-hour workdays with six-weekly shifts apply. Workers are entitled to one day of rest per week, usually on Sundays.

Per Costa Rica’s paid working hours law, any work that exceeds the 48-hour weekly or 8-hour daily limit is considered overtime. The employer must pay the employee 1.5 times their regular hourly wage for overtime work. Employees can work up to 4 hours of overtime every day.

Termination of services

The Costa Rica labor law states that employers must notify the concerned employee if they want to terminate their services. The length of notice that an employee must provide before leaving a job depends on their length of service. According to labor act rules in Costa Rica, termination of an employment contract needs the following period of notice:

Severance pay 

According to Costa Rica labor law, terminating employees without a valid reason is entitled to severance pay on their last day of employment. However, termination for a valid reason results in employees receiving their earned vacation days and a portion of the Christmas bonus they earned that year.

Furthermore, employees terminated without cause are also entitled to receive additional compensation. Here is a table to better illustrate the amount of pay employees are entitled to receive depending upon the period of their service as laid down by the labor code of Costa Rica.

Penalties

The labor regulations in Costa Rica stipulate that employers in Costa Rica who do not comply with Costa Rica’s labor laws may face harsh penalties. The penalties may include fines of up to 12 times the minimum wage, suspension of operations, or the permanent closure of the business.

The International Labor Organization (ILO) has also stated that violating labor act rules in Costa Rica can result in penalties such as fines and imprisonment. 

Compliance Strategies for Employers

Any employer starting a business in Costa Rica must ensure that they have complete knowledge of the labor regulations in Costa Rica. It will ensure their business’s smooth functioning and help them avoid unforeseen problems. Here are a few strategies that employers can use to run their businesses with ease:

In-house HR Solutions

• Employers can establish an in-house HR team to ensure compliance with labor regulations in Costa Rica. 
• The HR team usually oversees remuneration, holidays, and working hours for employees per Costa Rican labor law. 

Dedicated HR Agencies

• Employers can also hire HR agencies to meet their compliance requirements. Their function is similar to that of in-house HR teams.
• This option is cost-effective as these HR agencies partner with several other companies. 

Employer of Records (EOR)

• An EOR service acts as an employer on behalf of another company, handling payroll, benefits, taxes, and other HR-related functions for the client company’s employees.
• An EOR enables employers to eliminate the need for an in-house HR team while ensuring compliance with labor laws in Costa Rica. 
• EOR solutions are cost-effective solutions suitable for businesses of all sizes.

How Multiplier Can Help Businesses Stay Compliant?

It’s essential for both employers and employees to be familiar with the labor act rules in Costa Rica and to comply with its provisions to ensure fair treatment and protection of workers’ rights. 

Before leveraging any lucrative benefits Costa Rica offers, employers must register a business there. It takes time, effort, and additional hiring, which can increase the budget. Multiplier is a SaaS-based EOR platform that allows businesses to leverage all benefits of a Costa-Rican company without needing to establish a business there. We can help you in various aspects of your business, including creating contracts in multiple languages, managing employee onboarding, and handling international payroll. 

By partnering with Multiplier, you can smoothly test 150+ markets, remain compliant with their labor laws, and expedite your business growth quickly! 

Avoid the challenges of penetrating the labor market of a new company with Multiplier’s unique and versatile solutions.