If you are interested in starting a business in Costa Rica, or are already active in this highly-developed Central American economy, complying with local employment law will be crucial to your business running smoothly and maintaining your company’s good standing with local authorities.
Employment law in Costa Rica is overseen by the Ministry of Labor and Social Security, and although Costa Rican employment regulations are similar in many ways to those found in other countries in the region, there are also notable particularities to take into account.
If you only need a local representative or executive, or are looking to hire a team on a short term basis, you may find that working with a professional employer organization (PEO) in Costa Rica is your ideal choice.
Because a PEO in Costa Rica will hire staff for you via their locally incorporated entity, allowing you to enter the market in only the time it takes to find and hire the right staff, while also avoiding company formation and liquidation.
For those who already have the staff they want to employ lined up, getting to work only takes as long as the visa application processed – if they are not local nationals or residents – while the PEO firm will guarantee compliance with local labor and employment law as part of the service agreement, eliminating a compliance issue.
Below, an overview of Costa Rican employment law is offered, including statutory working hours, commonly used types of contracts, information related to terminations and severance, leave and other absences, and the tax contributions that employers must manage.
A free infographic covering these key aspects of employment law in Costa Rica is also included, which can be downloaded for free.
If you need professional services and support in Costa Rica, contact us today to find out more about how we can help.
Employment law in Costa Rica: working hours
The maximum working week in Costa Rica is 48 hours long, which is based on a daytime worker working six shifts of eight hours. Daytime workers are those whose hours fall between 05:00 and 19:00 on a given day. For nighttime workers, whose hours run between 19:00 and 05:00 the following day, a shift should be no longer than six hours long.
Certain employees – including the likes of management, legal representatives, and employees who are working without direct supervision – can work longer than the eight-hour daytime maximum, however they should not work longer than 12 hours per day.
Note that, there are generally between eight and nine public holidays that fall on weekdays, as well as three holidays for government employees observed in Costa Rica each year.
Labor contracts under employment law in Costa Rica
There are two main types of labor contracts used under employment law in Costa Rica:
Regular employment agreement:
A regular employment agreement is the standard type of contract under employment law in Costa Rica. Such a contract has an indefinite duration and only ends when the employer and employee mutually agree, or when one of the parties has the right to end the agreement unilaterally. Examples of such circumstances include an employee resigning from their role, or an employer terminating the contract of an employee found guilty of misconduct.
Temporary employment agreement:
The alternative to a regular employment agreement is a temporary employment agreement, which is established for a limited period of time and only under circumstances that require such an agreement. That includes the likes of seasonal work or replacement of an employee on an extended absence – such as maternity leave. A temporary employment agreement cannot last longer than one year, and should it be extended beyond that period, it is automatically recognized as a regular agreement under Costa Rican employment law.
Termination & severance
Under employment law in Costa Rica, employees must provide advanced notice of their intention to vacate a role based on their length of service. That notice period is established as follows:
- Three to six months of service: one week of notice
- Six to 12 months of service: two weeks of notice
- More than one year of service: one month of notice
Should the employer wish to terminate an employee’s contract unilaterally and without just cause, the employee will be entitled to:
- Any outstanding salary
- Compensation for unused vacations
- A proportion of their annual bonus (thirteenth salary) based on how much of the year they have worked
- A severance payment of around 20 days pay per year of service
Note that termination without compensation can only happen if an employee is be found guilty of misconduct, as laid out in Article 81 of the Costa Rican Labor Code.
Vacations, leave, & other absences under Costa Rican employment law
Under employment law in Costa Rica, an employee is entitled to two weeks of paid leave after the completion of 50 consecutive weeks of service – meaning that, unlike in many jurisdictions, the statutory vacation allowance is included within the first year of service.
Maternity and paternity leave:
Costa Rican employment law provides new months with four months of maternity leave, beginning one month before a doctor-confirmed due date. However, this can be extended under the recommendations of a registered medical professional. During maternity leave, 50% of the employee’s salary is covered by Costa Rica’s social security fund. There is no statutory paternity leave under Costa Rican law.
The length of a period of sick leave is determined by Costa Rica’s social security fund, based on the employee’s condition. That fund will cover 50% of the employees salary during their first three days of absence, with the employer obliged to cover the rest. From the fourth day of absence onwards, the social security fund will cover 60% of the employee’s salary, with the employer under no legal obligation to cover the shortfall.
Under employment law in Costa Rica, there is no stipulation with regard to bereavement leave, which must be negotiated and agreed between the employee and employer.
Employment law in Costa Rica: tax contributions the employer must oversee
Under Costa Rican employment law, the employer must oversee the following deductions from employee salaries, as well as make the following contributions based on those salaries:
In total, the employer is responsible for deducting 10.5% of an employee’s salary, made up of:
- 5.5% towards the social security fund
- 4% towards the state pension fund
- 1% towards Banco Popular, a body that promotes economic development
Employer contributions total the equivalent of 26.5% of an employee’s salary, made up of:
- 9.25% towards the social security fund
- 5.25% towards the state pension fund
- 12% divided among various funds including Banco Popular and supplementary pension contributions
Biz Latin Hub can assist you doing business in Costa Rica
Biz Latin hub provides integrated market entry and back office support to investors and corporations throughout Latin America and the Caribbean, helping them to bridge the cultural and linguistic gaps they encounter.
Our portfolio includes accounting & taxation, company formation, due diligence, legal services, and hiring & PEO, among others.
With offices in 17 major cities around the region, we are ideally placed to support multi-jurisdiction market entries and cross-border operations,
Contact us today to find out more about how we can support you doing business in Guatemala.
Or learn more about our team and expert authors.
Download our infographic on employment law in Costa Rica here: