Understanding Payroll in Costa Rica: What Global Companies Need to Know About Costa Rica’s Payroll
Jan 2, 2018 | Tag: Country Payroll
Costa Rica is known for its natural beauty, with incredibly diverse rain forests, exciting volcanic formations, and more than 900 miles of coastline ready to be explored. With approximately 4.85 million residents and a GDP of $57.44 billion, this tropical nation holds many opportunities for a large corporation hoping to expand its global reach. The vast majority of Costa Rica’s labor force has completed basic education, with many holding advanced degrees.
Costa Rica is welcoming to new businesses, but their tax brackets and exceptions can be complicated for those unfamiliar with the regulations. An international payroll solution can be instrumental in helping companies meet their obligations and avoid any legal repercussions.
Companies must register with the Public Registry before opening a bank account, with most corporations choosing either the Sociedad Anónima (SA) or the Sociedad de Responsabilidad Limitada (SRL) structure. Bank accounts can be difficult to open in Costa Rica, whether you choose a public (insured) or private bank. Delays are common, and customer service can be a challenge. However, persisting through the process will pay off.
The next step is to visit the local municipal office, where businesses will receive all the documentation and paperwork they need to complete before officially opening for business. Online service is generally lacking in Costa Rica. Business is generally done in-person or over the phone, so it’s important to have a Spanish-speaking individual to help with the process.
Employment Law & Employee Rights
Employers should have a written contract that lists the terms of employment. Government officials are vigilant about employee-employer relationships because undocumented workers are common in the country. Although collective bargaining is permissible in Costa Rica, it is rarely seen outside the public sector. Probation periods are acceptable as well, but cannot last longer than three months.
Compensation & Severance
Costa Rica's unit of currency is the colóne (¢), and the country’s minimum wage is determined based on the employee's profession and skill. A house cleaner's minimum wage is about ¢18,2928 (approximately $322, €273) per month, but those with a licentiate degree are required to earn at least ¢644,225 each month. The workweek in Costa Rica is capped at 48 hours a week, and overtime is compensated at 150% of the regular wage. It is customary to work eight hours a day from Monday to Friday, and a half day on Saturday.
Workers are entitled to two bonuses. The first is a Christmas bonus equal to one month's wages that is paid between December 1 and 20. The second bonus is known as Aguinaldo, which is also equal to a month's wages but generally paid in two installments (one in June and one in December.)
Severance and termination rules vary by industry, so it’s important for companies to check their specific regulations. In general, employees who have worked a minimum of six months receive 14 days of wages upon termination. Compensation packages usually include either all or some of the Aguinaldo, and terminated employees are entitled to receive paperwork within 10 days of their termination.
Tax Requirements & Withholding
Costa Rica calculates income tax according to a progressive scale, up to 15%. Taxes are withheld at the source, and annual incomes below ¢3,517,000 are exempt. Companies are typically taxed on a progressive scale according to their profits, up to 25%. The corporate tax rate is 30% for companies making more than ¢105,872,000 per year, 20% for those making between ¢52,634,000 and ¢105,872,000, and 10% for companies making less than ¢52,634,000. Corporations typically pay 4.92% of payroll to social security, while employees pay 2.67% of their pre-taxed earnings.
Time Off & Paid Leave
Costa Ricans receive two weeks of vacation for every 50 weeks worked. New mothers receive four months of paid leave, generally one month before giving birth and three months afterward. Social security will pay for half of the salary while the employer covers the other half. Vacation allowance is generally used to cover sick leave, with extended sick time paid by social security. There are eight paid national holidays and two typically unpaid national holidays (August 2 and October 12.)
|Date||Costa Rica's Public Holiday Schedule|
|January 1st||New Year's Day|
|April 11th||Juan Santamaria Day|
|Holy Thursday and Good Friday||Easter Week|
|May 1st||Labor Day|
|July 25th||Annexation of Guanacaste Day|
|August 15th||Mother's Day|
|September 15th||Independence Day|
|December 25th||Christmas Day|
A Better Payroll Solution
While there’s no denying Costa Rica is an attractive location for multinational organizations, the nation’s tax laws and payroll regulations can be a challenge. Having a global payroll solution provider to help manage the brackets, percentages, and numbers can make all the difference. With the right setup and partnerships, companies can be sure to benefit from doing business in Costa Rica.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.