How to use an Employer of Record in Costa Rica

Costa Rica is the epicenter of Latin America’s technology revolution, an industry that brought the country $4.7 billion in revenue in 2019, thanks to a growing number of technology giants setting up roots across Latin America.

Driven by favorable government regulations and a highly skilled workforce, Costa Rica’s growing technology industry has attracted an army of technology giants (think Amazon, McKinsey, and Oracle) to stage critical R&D functions in the Silicon Valley of Latin America.

So, how do you get started with finding talented professionals in Costa Rica? To begin with, you’ll have to establish a local entity in the country you’re hiring from, figure out HR processes to hire and pay your employees, and stay compliant with local regulations. This process is expensive and can take several months.

But that shouldn’t stop you. If you’re looking to hire employees in Costa Rica, an employer of record (EOR) can do the legal legwork on your behalf quickly and easily. An EOR can help you fulfill applicable local regulations, manage payroll, stay compliant with changing regulations, and file any applicable local taxes.

In this guide, we’ll explain how to use an employer of record in Costa Rica, the benefits and costs of using an EOR, and how to choose the right EOR for your needs.

Five steps to hiring employees in Costa Rica using an employer of record

Hiring employees via an employer of record can help you streamline the employment process so that you can build your remote team faster — that’s if you choose the right partner. Use the following steps to find the best employer of record to hire employees in Costa Rica.

Step 1: Weigh up the pros and cons of each potential partner.

Before choosing an employer of record to partner with, you need to create a shortlist of features an ideal provider should offer, such as:

• Intellectual property security

• Payroll and benefits support

• Flat pricing for your entire workforce

• Full local compliance with owned entities, and

• Easy self-onboarding so you can get your team set up easily

Using this checklist, you can vet each potential partner against each feature to ensure you're choosing an employer of record that’s positioned to provide a seamless international hiring experience.

Step 2: Take the time to select the most appropriate EOR service provider 

Before partnering with an employer of record, you need to ensure they’re well-positioned to help you hire new employees via their own entity in Costa Rica. Partner-dependent EORs may not be reliable when it comes to security, compliance, and providing your employees with an excellent experience.      

In essence, you need to assess your options to ensure that the EOR has:

• A global payroll infrastructure for disbursing wages

• Compliant local entities that qualify you to hire in Costa Rica

• Full-stack HR infrastructure for managing onboarding, payroll, benefits, and taxes

• Security best practices that guarantee data protection

• Intellectual property security that secures the right to your employees’ inventions by default

Step 3: Check the reviews, testimonials, and coverage of your shortlist of providers

Reviews and testimonials are a rich tool that provides evidence that your shortlisted employer of record providers has a track record of great performance— or not.

Using social proof to vet potential partners helps answer questions about their service quality, pricing policies, and infrastructure quality that you may not see on their homepage.

Step 4: Ensure that the EOR solution for Costa Rica will provide a best-in-class employee experience

An employer of record does more than just enable you to hire internationally. They function as your HR operator for managing payroll and benefits for your international workforce. So, you need to ensure that the EOR has the capabilities to offer a seamless experience to your employees. Find out answers to questions such as:

• Do they pay salaries on time?

• How quickly do they onboard new employees, and how seamless is the process?

• Are they flexible enough to accommodate changing local regulations?

• How user-friendly is their employee portal?

Since an employee of record serves as an extension of your brand, opting for a provider who can guarantee an employee-friendly experience will help reinforce your brand as a good employer to potential hires.

Step 5: Work with your partner to make sure you always provide a fair and equitable compensation package 

Working out compensation for a distributed team can be tricky. First, you have to figure out market rates for the role you’re hiring, then ensure you match mandatory minimum wages while trying to optimize for the local cost of living.

For instance, a senior software engineer based in Ukraine might earn up to $36k annually, while the same role in the San Francisco Bay Area might cost five times as much, or over $155,000 annually.

Compensation for a distributed team is a balancing act. An EOR should ideally help you figure out a fair wage and competitive benefits for your potential recruits, factoring in the local cost of living, the individual’s role, experience, and skills, as well as any applicable minimum wage laws.

Step 6: Make sure your partner will guard your intellectual property and maintain data security for your business

Local regulations often vary as to who owns the intellectual property employees produce using an employer’s time and resources, usually in a bid to safeguard workers’ rights until they deliberately give away their work.

This arrangement can create issues if inventions and IP aren’t transferred to your control and might get in the way of an IPO or a liquidation event when your company is getting acquired.

An ideal employer of record should have ironclad IP protections in place to secure any of your company’s financial records in their possession, as well as guarantee control over the IP produced by your employees in Costa Rica.

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What are the benefits of using an employer of record in Costa Rica?

An employer of record helps keep your business compliant by meeting government employment regulations — which is typically a challenge when you’re trying to hire from a foreign country. In addition to saving you the hassle of compliance, using an EOR saves you a significant amount of money and time because the EOR practically hires and pays workers for you.

An EOR formalizes the employment relationship by issuing contracts to your employees in Costa Rica, and handles HR and admin processes that follow from onboarding and taxes, to managing payroll and benefits.

As a representative of your company’s interests in Costa Rica, an employer of record helps you:

• Create and maintain a local entity that qualifies you to employ in Costa Rica

• Maintain a formal relationship with your Costa Rican workforce stipulated in a contract

• Outline formal terms of employment in your employees’ contracts, covering their remuneration, working hours, vacation entitlement, termination terms, contract terms, payroll policies, etc. 

• Manage payroll and ensure your employees are paid on time

• Ensure employees and contractors are correctly classified

• Keep up to date with changing regulations and make any changes required

• Manage the termination process to ensure employees are only let go in accordance with local labor regulations

• Settle any requisite employment taxes and levies

How much does it cost to use an EOR in Costa Rica?

EOR costs depend on the kind of services provided by the company, the number of workers you want to hire, and their location. Generally, you can expect to pay anything from $599 to upwards of $2,000 per employee per month.

While older, established EORs support several countries, they often charge enterprise rates. Smaller EORs often charge lower prices. However, you’ll need to make sure they have the infrastructure you need to hire globally. Some low-cost EOR providers may not offer high levels of security or compliance, unlike traditional providers. Whatever option you go for, you must ensure that the company owns its own local entities, which can help you mitigate security risks.

Remote offers affordable flat-rate pricing, combined with a robust infrastructure that integrates with your existing HR stack. You can manage payroll, issue contracts, fulfill local employment obligations, secure your data, and stay compliant for one fixed price.

Learn how Remote’s services compare with legacy EOR operators and how we can help you start hiring globally at a fraction of the cost.

Hiring in Costa Rica

Choosing an employer of record to help you manage your team in Costa Rica is only half the work done: you also need to understand Costa Rica’s labor landscape, including local labor regulations, salaries, and minimum wage rates, and how to manage payroll for your Costa Rican team.

The Costa Rican Labor Code (Código de Trabajo) spells out regulations regarding the minimum salary you can pay employees, benefits administration, vacations and holidays, and acceptable terms for letting employees go.

Our guide to hiring in Costa Rica explores the specifics of building and managing a team in Costa Rica while staying compliant with applicable local laws. To understand the local employment landscape, we’ll dive into the specifics of employment contracts, payroll, benefits, severance packages, and terminations.

Employment contracts and agreements in Costa Rica

Regulations around employment contracts in Costa Rica are flexible and contracts can be verbal or written, as well as for a limited or unlimited period of time.

Written employment contracts must spell out the employee’s details along with other specific provisions of the engagement, such as:

• The employee’s name, age, sex, and marital status

• The addresses of both employer and employee

• Number and details of the employee’s identity cards

• The duration of the employment contract with the agreed remuneration along with any payment terms

• Working hours and any overtime agreements

• Designated workplace(s)

• Provisions for terminating the contract, notice periods, etc., with the date and location of the signing noted, in the presence of legal witnesses

Contracts can either be signed in person or digitally using e-signature software.

Labor compliance in Costa Rica

Costa Rican labor law stipulates several provisions businesses hiring in Costa Rica must fulfill and stay compliant with to maintain good standing and avoid legal challenges.

• Employees must be paid at least once a month.

• Mandatory 13th-month salary due by 20th December every year

• Costa Rica maintains tax treaties with many nations; reviewing your local tax situation can help you avoid double taxation and make your foray into the Costa Rican labor market less costly.

Payroll and payroll taxes in Costa Rica

Costa Rican income and employee payroll taxes are capped at 25% and 9.5% respectively, to be withheld and remitted by the employer.

Employee payroll taxes are made up of medical and maternity contributions (5.5%) and disability, old age, and death benefits contributions (4%).

Income taxes are progressive in Costa Rica, starting at a tax-free bottom bracket all the way to the 25% cap.

• 0% - Up to CRC 817,000 

• 10% - CRC 817,001 to 1,226,000

• 15% - CRC 1,226,000 to CRC 2,103,000 

• 20% - CRC 2,103,000 to CRC 4,205,000 

• 25% - Over 4,205,000 

Employer payroll taxes (excluding the corporate tax rate) sum up at 26.5%, divided as follows:

• 9.25% - Health & Maternity

• 5.25% - Basic Pension Scheme

• 0.25% - Banco Popular Employer Fee

• 5.0% - Family Assignations

• 0.5% - Social Aid: (IMAS)

• 1.5% - INA

• 0.25% - Contribution from Banco Popular Employer

• 3% - Labor Capitalization Fund

• 0.5% - Complementary Pension Fund

• 1% - National Insurance Institute

Costa Rican employment benefits and compensation

Costa Rican employees are entitled to a minimum wage and several statutory benefits as defined by the Costa Rican Labor Code.

Understanding how they work and in which scenarios they apply will help you design your compensation and benefits program to attract the best talent.

Maternity and Paternity Leave

Female employees are entitled to four months of fully paid maternity leave starting a month before delivery, with benefits paid 50:50 by the employer and the Costa Rican Social Security Fund (CCCS).

Sick leave and benefits

Ailing employees are entitled to sickness benefits from both their employer and the social security administration. For the first three days of an illness, an employee is entitled to full wages paid 50:50 by the employer and the social security fund.

Sickness benefits are capped at 60% of an employee’s normal salary starting the fourth day of an illness.

Vacation

Employees are entitled to at least two weeks of paid leave after their first year working with an employer, and employers often offer more days off as a benefit.

Holidays

Employees are entitled to nine paid public holidays and non-Catholics can take time off work to attend to their religious holidays such as Hanukkah, Eid-el-Kabir, etc.

Healthcare

Employers pay a 9.25% premium on their payroll expenses as a maternity and healthcare contribution that augments the 5.5% paid by the employee. This contribution funds Costa Rica’s universal healthcare program that covers all citizens.

Pensions

Employers contribute a cumulative 5.75% of payroll expenses as a pension contribution that funds Costa Rica’s guaranteed pension program for retirees with at least 300 months of contributions.

Offering an additional private pension can also serve as a talent magnet, especially for roles where seniority is required to bring more experience.

Costa Rica severance pay and employee terminations

Under Costa Rican law, employee contracts can only be summarily terminated for just cause such as dishonesty, negligence, and fraud. For any other reason, employers are required to provide prior notice and a severance package.

Notice periods range from one week for workers employed for at least three months, to a month’s notice for workers with at least a year of service.

Severance payments are likewise made based on an employee’s tenure with the employer and are covered in depth in our guide to hiring in Costa Rica.

Benefits & Leave —

12 min

Employee benefits in Costa Rica: all you need to know

We put together this detailed guide to help companies understand benefits and compensation packages in Costa Rica.

What are the risks of employee misclassification in Costa Rica?

Misclassifying employees in Costa Rica can be a costly mistake that can lead to fines, penalties, losing your company’s intellectual property, and an outright ban on doing business in the country. And not to mention the bad press you’d get from going back and forth with your employees in court.

Across the LATAM region, independent contractor relationships often come under scrutiny. A worker is said to be a contractor when:

• The contractor uses his own resources to deliver on projects

• The contractor does not receive orders from the client regarding where, when, and how services are rendered, and that

• There’s no economic dependency between both parties

Depending on your company’s needs, it can be tricky distinguishing between employees and contractors in Costa Rica without an employer of record. Remote has a team of experts with in-depth knowledge of employment laws who can help you classify your workers correctly and help you stay in compliance with local regulations.

Get started with an employer of record in Costa Rica

If you want to tap into Costa Rica’s talented workforce, you’ll have to open a local entity and manage HR processes to hire and pay employees in the country. Trying to navigate local regulations in the Costa Rican labor market can prove costly and expose you to compliance risks.

A trusted EOR like Remote can help you build and maintain a world-class remote team without the regulatory headache and hassle of hiring abroad. Remote simplifies hiring Costa Rican talent so that you can focus your efforts on business growth. With Remote, you can: 

• Manage payroll efficiently and ensure your workers are paid on time

• Stay compliant with changing local regulations

• Own a dedicated legal entity that authorizes you to hire in Costa Rica

• Secure your intellectual property and HR data

• Classify your workforce accurately to avoid penalties and fines

Learn more about how you can use Remote’s employer of record to hire your global team quickly, easily, and safely. If you’re ready to start onboarding employees in Costa Rica, get started with Remote and take your business to