Hire and pay employees in Costa Rica

Employer of Record (EOR) vs. entity

A great first step is deciding between setting up your own entity or hiring employees through an EOR.

• Legal entity. Setting up a legal entity in Costa Rica involves registering with the National Registry, opening a local bank account, and ensuring compliance with tax, benefit, and labor laws. You’ll also need a legal representative, and all documents are required to be in Spanish.
• EOR. An EOR service acts as an employer on your behalf, eliminating the need for your own local entity. EORs handle all legal obligations related to the Costa Rican labor code, such as payroll, contracts, and benefits. They also handle tasks like tax calculations, employee onboarding and management, and running payroll in Costa Rican Colón or dollars.

Your decision will likely depend on your company’s size, resources, and growth plans. Here are the pros and cons of using an EOR vs. setting up a legal entity:

With an EOR, you can begin the hiring process by collecting your employee’s information (like their name, initials, date of birth, and mailing address).

Rippling can help you compliantly hire and onboard Costa Rican employees in 90 seconds—learn more about EORs and the steps to hiring in our guide.

Classifying Costa Rican workers: employees vs. contractors

In Costa Rica, it’s crucial to classify workers correctly. Misclassification of workers can lead to expensive lawsuits, significant fines, and harsh penalties.

Our in-depth guide teaches you what you need to know about classifying Costa Rican employees and maintaining compliance with employment laws. Here’s a brief overview of the ways Costa Rican law differentiates between employees and independent contractors.

Work permits for Costa Rican employees

It is crucial to ensure that your potential employees have the necessary work authorization in Costa Rica. In order to legally work in Costa Rica, an employee must be a Costa Rican citizen or have a permanent residence permit. If not, the employee must obtain both a temporary residence permit and a work permit to work for a company.

The “special category” is the only type of work permit in Costa Rica. It allows temporary legal residents and foreign workers to be employed in Costa Rica.

See our guide on work permits in Costa Rica for all the details on applications and eligibility.

New hire onboarding checklist

When it comes to onboarding new full-time employees, there are several essential tasks you need to accomplish, from handling paperwork to equipping them for their first day. It’s also an opportunity to create a lasting impression: A positive onboarding experience can significantly boost employee productivity and retention.

Let’s break down the onboarding process into stages and outline some specific tasks to complete in each stage.

Before their first day

• Complete a background check. 
• Send an offer letter (read on to learn more).
• Prepare for tax withholdings. 
• Enroll them in benefits.
• Add them to the payroll. 
• Order and configure their devices. 
• Schedule their orientation.

On Day 1

• Make sure their workspace is ready. 
• Send a welcome email. 
• Give them a 30-60-90 plan. 
• Schedule a meeting with their manager or onboarding mentor. 
• Give them an office tour if they’re working on-site.

During their first 90 days

• Schedule training. 
• Assign work and help them set goals. 
• Schedule regular one-on-ones. 
• Ask for feedback on how to improve the experience.

For a comprehensive list of onboarding essentials, read our guide on new hire onboarding in Costa Rica.

What to include in an offer letter in Costa Rica

Offer letters, sometimes called employment contracts, set the stage for the employment relationship. The offer letter needs to be legally compliant and serve as a reference point for negotiations with your potential new hire.

The following should be included in your offer letter:

• Job title, description, and start date
• Trial or probation period 
• Working hours 
• Compensation and benefits (monthly salary, pension contributions, holiday leave, healthcare, and more)
• Confidentiality agreements 
• Termination policy 
• Non-compete and non-solicit clauses

Check out our full guide to creating legally compliant job offer letters in Costa Rica.

NDAs and confidentiality agreements in Costa Rica

Employers use non-disclosure agreements to protect confidential information, intellectual property, and trade agreements. Under the Undisclosed Information Law, in Costa Rica it is a crime to disclose confidential information without authorization. More than protecting companies, this law protects personal data.  

Some things to know about NDAs in Costa Rica include:

• Data protection laws cover the fundamental right of individuals to decide what personal information can be shared publicly.
• They must be well-written and specific. NDAs should clearly state what is confidential, what constitutes a waiver, and the time frame for the containment of the information.
• Consent is required from both parties.

Read more about NDAs and their enforceability in our primer on NDAs in Costa Rica.

Running background checks on Costa Rican employees

In Costa Rica, running a background check isn’t mandatory but it is advised. In recent years Costa Rica has experienced a surge in fraudulent activities, including deceit, computer-based scams, and identity theft. The Judicial Investigation Department of Costa Rica has reported a notable increase in forged identification documents, in part due to the rise of remote work. 

Before running a background check, an employer must receive express and informed consent in writing. Commonly run background checks include:

• Criminal records 
• Civil records
• Employment history
• References
• Education degree verification
• Credit reports
• Driving record
• Government ID check

See our full guide for more details and common mistakes to avoid during the screening process.

Paying employees in Costa Rica

After deciding between an EOR and establishing your own local entity, you’ll need to select a payroll solution.

The next steps are:

• Double check that employees are correctly classified.
• Collect employee information, including name, date of birth, date of hire, and contact and bank information.
• Input the remuneration amount in CRC or USD. Get written permission from the employee if you’re planning to pay them in a different currency.
• Ensure that you’re adhering to statutory requirements when calculating payroll deductions and tax rates.
• Run payroll.

Read more about paying employees in Costa Rica with our step-by-step guide.

Mandatory employee benefits in Costa Rica

Offering employees an enticing benefits package will make your company stand out to prospective hires, as well as boost retention of employees. Moreover, it’s important to ensure that the benefits package meets the minimum standards mandated by Costa Rican labor laws. If you fail to comply with the legal obligations of providing statutory benefits, there can be severe consequences, including government penalties, financial fines, potential legal disputes, and other undesirable outcomes.

Mandatory benefits in Costa Rica include:

• Social security, commonly referred to as Caja Costarricense de Seguro Social (CCSS) or Caja, is a mandatory requirement for all employers in Costa Rica. It entails employers giving social security contributions on behalf of their employees. The standard contribution rate for employers is 26.67% of the employee's salary.
• Worker's compensation, known as seguro de riesgos del trabajo in Costa Rica, is mandatory insurance that employers must provide for their employees. It serves as a form of protection in the event of work-related accidents or injuries. Employers are responsible for paying premiums to the Instituto Nacional de Seguros (INS), the entity entrusted with managing labor risk insurance claims and facilitating appropriate compensation to affected employees.
• Overtime pay. In Costa Rica, the regular work week consists of 48 hours, divided into eight hours per day. Any work performed beyond this limit is classified as overtime. Employees have the opportunity to work overtime; however, the maximum permitted duration is four hours per day, allowing for a total of 12 hours of work in a single day.
• Parental leave. This cost is shared between employers and social security.

From paternity leave and paid sick leave to the Christmas bonus, read our guide to offering benefits in Costa Rica for more details on mandatory and supplementary benefits.

Managing remote employees’ computers and apps

There are numerous factors to consider when onboarding employees globally, such as shipping computers, establishing and securing employee accounts, and effectively managing applications throughout the entire employee lifecycle. Managing the supply and maintenance of employees' devices remotely poses significant challenges in the age of global employment. 

It’s the employer’s responsibility to ensure that employees are ready to go on their first day with all the apps and tools they need to work with the rest of their team. With Rippling, you can:

• Speedily set up all your employees’ accounts
• Ensure that employees have access and permissions for all the tools they need
• Streamline the process of setting up, managing, and disabling employee applications with a centralized platform

Check out our guide to learn more about setting up and managing remote workers’ devices.

Protecting company IP in Costa Rica

When providing new employees with access to company applications and sensitive information, it’s important to take the proper precautions and get ahead of any risks. And to safeguard your company's original ideas, you need to address intellectual property (IP) protections explicitly within the employee agreement. 

This includes clearly defining ownership of IP created by the employee, establishing rights for commercial use, implementing confidentiality agreements to protect trade secrets, and incorporating any other provisions you need to ensure comprehensive protection.

Three important takeaways are below—and you can learn more in our beginner’s guide to IP law in Costa Rica.

• Intellectual property protection is written into the Costa Rica Constitution.
• Ownership of work must be clearly stated in contracts with independent contractors.
• Costa Rica’s National Patent Office has electronic filing for faster patent protection.

Complying with Costa Rican labor laws

It’s vital to stay well-informed about local labor laws. But navigating Costa Rica's labor and employment laws can be a complex task, given the cultural disparities, language variations, and evolving regulations within the labor code.

In Costa Rica, you need to remain compliant with labor standards set by the Employment Bureau of the Ministry of Labor and Social Security, including:

• Employment contracts are required. Verbal offers are only allowed for jobs in agriculture and temporary work.
• Work permits can take a while. The work permit process is extremely slow, sometimes taking up to eight months or longer.
• At-will employment does not exist. In Costa Rica you can terminate an employee without just cause as long as you pay them severance pay per their employment contract.

Get a better understanding of the most important regulations in our guide.

Terminating employees in Costa Rica

Similar to employment laws in various countries worldwide, the Costa Rican Labor Code safeguards employees from unjust or abrupt termination. However, unlike certain regions like Europe, employers in Costa Rica are not obligated to provide severance pay when dismissing employees.

Mandatory notice periods for Costa Rican employees are:

Non-compliance with termination requirements can be costly. Learn more about handling terminations in Costa Rica with our full guide to terminations.

Disclaimer: Rippling and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any related activities or transactions.