An Employer of Record (EOR) is a third-party organization that takes on the legal and administrative responsibilities of employing workers on behalf of another company. The EOR handles payroll, benefits, taxes, and compliance with local labor laws, allowing businesses to hire and manage employees in foreign countries without establishing their own legal entity.
Hiring workers from Costa Rica offers several benefits due to the country’s highly educated workforce, strong talent pool in fields like engineering and technology, and growing economy. Costa Rica is known for its political stability, high standard of living, and commitment to sustainability, making it an attractive destination for foreign investment and expansion.
According to recent data, employment in Costa Rica has seen positive growth, with the number of employed individuals increasing from around 507,000 to 520,517 (+2.6%) between 2018 and 2023. However, reports from Lightcast indicate a significant challenge in hiring talent due to an all-time high in job vacancies, suggesting a tightening labor market.
To effectively use an Employer of Record in Costa Rica, follow these 6 steps:
- Find talent to hire in Costa Rica
- Compare using an EOR to setting up a legal entity in Costa Rica
- Get the information needed from your talent
- Choose an EOR provider with expertise in Costa Rica
- Communicate your hiring needs to the EOR
- Have the EOR set up the contracts and hiring procedure
An EOR in Costa Rica manages payroll processing, ensures compliance with tax regulations, and administers statutory benefits such as social security contributions and vacation time. They also handle the complexities of Costa Rican labor laws, including working hours, overtime pay, and termination procedures.
When hiring remotely in Costa Rica, it’s crucial to consider various labor laws. The country has protective employment regulations, including strict rules on employment contracts, working hours, and paid time off. Costa Rica mandates a 48-hour standard work week, with overtime pay required for additional hours. Employees are entitled to two weeks of paid vacation after 50 weeks of continuous work, and there is a mandatory Christmas bonus (aguinaldo) equivalent to one month’s salary.
The hiring process in Costa Rica typically involves identifying suitable candidates, conducting interviews, and ensuring compliance with local employment laws. Employment contracts must be in writing and include specific details such as job responsibilities, working hours, and compensation. The EOR facilitates this process, ensuring all legal requirements are met and managing the onboarding of new employees.
1. Find talent to hire in Costa Rica
Businesses should explore a variety of channels to find talent to hire in Costa Rica, emphasizing both local and global platforms to maximize reach. TrovoLavoro, recognized as one of Costa Rica’s largest job boards, offers extensive listings catering to diverse industries. Careerjet, with its strong global presence, also serves as a crucial resource for employers, particularly those seeking international candidates.
LinkedIn remains an essential tool for talent acquisition in Costa Rica. It allows companies to search for candidates actively seeking opportunities and to headhunt passive candidates. Its widespread use among professionals in Costa Rica makes it a valuable platform for networking and direct outreach.
Specialized recruitment agencies, such as Airswift, provide tailored solutions for industries requiring specific expertise, particularly in technical and STEM fields. These agencies manage the complexities of sourcing and vetting candidates, significantly easing the hiring process for companies.
Job posting websites like Glassdoor and Indeed offer another avenue for employers to advertise openings. These platforms are popular among job seekers in Costa Rica, making them an important part of a comprehensive recruitment strategy.
Considering local job boards and regional networks can be advantageous for businesses focusing on hiring within specific regions or industries. Costa Rica’s industrial activity is concentrated in certain areas, such as San José for finance and technology, making a targeted search strategy crucial.
2. Compare using an EOR to setting up a legal entity in Costa Rica
When working with employees in Costa Rica, you need to consider working with an EOR to set up your own legal entity. An Employer of Record offers a quicker, less complex route to hiring local staff, bypassing the need for a formal company presence. This approach suits companies looking to test the Costa Rican market or expand quickly without significant upfront investment.
An EOR manages all local employment laws, tax, and compliance issues, assuming responsibility for hired employees. This setup allows companies to start operations in weeks, compared to the months required to establish a legal entity in Costa Rica.
On the other hand, setting up a legal entity in Costa Rica offers greater control and the ability to customize business operations and policies. However, establishing a legal entity involves complex registration processes, significant upfront fees, and a deeper understanding of local laws and tax regulations.
In comparison, using an EOR is generally less expensive. It involves less risk, making it a suitable option for small to medium-sized businesses or those in the initial stages of market exploration. It eliminates the need for a local expert or dedicated legal and tax teams, as the EOR handles these aspects. However, it offers limited flexibility in tailoring employment contracts and benefits to specific company policies.
Comparison of Employer of Record (EOR) vs. Setting Up a Legal Entity in Costa Rica
| Factor | Employer of Record (EOR) | Setting Up Legal Entity in Costa Rica |
|---|---|---|
| Setup Time | Weeks | Months |
| Initial Cost | Low | High (significant upfront fees) |
| Ongoing Cost | Moderate (EOR fees + employee costs) | Variable (operational costs, compliance, etc.) |
| Complexity | Low (EOR handles most administrative tasks) | High (complex registration processes) |
| Control over Operations | Limited (company directs daily work, EOR handles employment) | Full (complete control over all aspects of business) |
| Compliance Management | Handled by EOR (payroll, taxes, social security) | Company Responsibility (requires local expertise) |
| Language Barrier | Managed by EOR | Company must handle (documents in Spanish) |
| Scalability | Highly Flexible (easy to add or remove employees) | Less Flexible (changes may require legal procedures) |
| Local Expertise Required | Minimal (EOR provides guidance) | Extensive (need for local legal and tax advisors) |
| Suitable for | Market testing, small-scale operations | Long-term presence, full operations |
| Risk | Lower (EOR assumes employer liabilities) | Higher (company bears all legal and financial risks) |
| Customization of Employment Terms | Limited (must adhere to EOR’s policies) | Extensive (can create company-specific policies) |
| Handling of Labor Law Changes | Managed by EOR | Company must stay updated and compliant |
3. Get the information needed from your talent
You’ll need to collect essential personal information and employment details to hire employees in Costa Rica. This typically includes:
- Employee’s full name
- Address
- Date of birth
- An alphanumeric tax identifier known as a Codice Fiscale
- Bank account details for salary payments
- Comprehensive job description, including title, duties, and place of work
Employment contracts in Costa Rica must be provided in writing, detailing the contract type, start date, salary, work hours, and other employment conditions. The contract should be in Spanish and include all terms and conditions of employment, including benefits and entitlements.
It’s important to note that collecting this data before the employee starts working in Costa Rica is crucial for compliance with local labor laws and regulations.
4. Choose an EOR provider with expertise in Costa Rica
When choosing an EOR provider to work with in Costa Rica, selecting one with deep expertise in the Costa Rican market and a strong understanding of local labor laws to ensure compliance and smooth business operations is crucial.
Evaluate the provider’s experience managing employee onboarding, payroll, and legal compliance in Costa Rica. Look for a provider with a proven track record of working successfully with companies similar to yours, and check their reputation through client case studies or reviews.
Assess the range of services offered to see if they align with your needs, such as visa and work permit support, employee benefits management, and payroll processing. It is important to choose a provider that offers comprehensive employment services and is flexible enough to adapt to changes in Costa Rican labor laws.
Consider the provider’s technology and platforms, ensuring they offer secure, user-friendly systems with strong data protection measures. Evaluate their pricing models, looking for transparency in fees, whether they charge a fixed monthly fee or a percentage of the employee’s salary, and assess the cost-effectiveness for your business.
Finally, choose an EOR provider that demonstrates a commitment to staying up-to-date with Costa Rican employment laws and can provide proper guidance and support to ensure your business remains compliant while operating in Costa Rica.
What are the best EOR providers to use in Costa Rica?
| EOR Provider | Why It’s a Good Fit for Costa Rica |
|---|---|
| Deel | – Extensive global coverage including Costa Rica – Quick onboarding process, typically within three business days – Comprehensive compliance management including adherence to Costa Rican labor laws and social security regulations |
| Remote | – Strong focus on compliance with Costa Rican employment laws – Offers a wide range of benefits management, crucial for meeting Costa Rica’s statutory employee benefits requirements – Provides robust data security and IP protection |
| Rippling | – Supports hiring in Costa Rica – Offers streamlined payroll processing in Costa Rican Colón (CRC) – Handles complex Costa Rican labor laws, including mandatory benefits like 13th-month salary (Aguinaldo) |
| Oyster HR | – Supports hiring in 180+ countries, including Costa Rica – Provides employment contracts tailored to Costa Rican labor laws – Offers comprehensive benefits management, essential for Costa Rica’s employee benefits system |
| Safeguard Global | – Offers EOR services in Costa Rica – Provides compliant payroll and employment solutions – Helps businesses expand their global workforce in Costa Rica |
5. Communicate your hiring needs to the EOR
Communicating your hiring needs to the EOR to ensure the process aligns with company goals and legal requirements is important. Provide a detailed job description, including title, responsibilities, required qualifications, and skills.
Specify the job’s expected start date, location, and whether it’s remote or onsite. Outline the proposed salary, bonuses, commission structures, and other compensation benefits. Clarify the contract length, whether permanent or probationary and detail the working hours, including any flexibility or shift requirements.
Discuss the company culture, growth plans, and how the position fits into future expansion. Specify equipment needs and onboarding procedures. By accurately representing these aspects, the EOR can find the right talent and ensure legal and administrative compliance.
Additionally, communicate any requirements related to Costa Rican labor laws, such as the need for contracts in Spanish or any industry-specific regulations that may apply to your business.
6. Have the EOR set up the contracts and hiring procedure
Once you have chosen which provider to work with and communicated your hiring needs, the EOR will set up the contracts and hiring procedure, ensuring compliance with local labor laws and employment practices.
The EOR will draft employment contracts that comply with Costa Rican labor laws, including specific terms regarding job details, working hours, and termination procedures. They’ll also manage the necessary documentation for tax, social security, and payroll setup, adhering to mandatory withholdings and reporting requirements.
The EOR also registers employment with relevant Costa Rican authorities, such as the Costa Rican Social Security Fund (Caja Costarricense de Seguro Social, CCSS), to ensure the company is properly licensed and authorized to operate and hire employees in Costa Rica.
They’ll ensure your company complies with collective bargaining agreements, if applicable, and adjust contracts and practices as laws and agreements change. Additionally, the EOR administers benefits and handles formal onboarding, including the introduction to company systems and culture.
By following these six steps and leveraging the expertise of an Employer of Record, companies can efficiently and compliantly hire employees in Costa Rica, taking advantage of the country’s talented workforce while navigating its complex labor laws and regulations.
What help does an EOR provide in Costa Rica’s payroll, taxes, and benefits administration?
The EOR will support all of Costa Rica’s payroll, taxes, and benefits administration, ensuring compliance with complex local laws. It calculates and processes employee salaries, withholds the correct tax amounts, and handles social security contributions.
The EOR manages payslips that reflect mandatory withholdings for income tax and social insurance, adhering to Costa Rican regulations like the Certificación Unica for income reporting. It files monthly and annual tax returns with Costa Rican authorities, including the Dirección General de Tributación, and manages municipal tax requirements.
For benefits, the EOR enrolls employees in statutory programs, such as the national health service (Caja Costarricense de Seguro Social), and administers supplemental benefits like private health insurance. It manages statutory paid time off and sick pay according to CCSS guidelines and ensures correct accrual and payout of vacation and severance pay in line with the Labor Code.
The EOR also handles the mandatory 13th-month salary (aguinaldo), ensuring it’s paid out before December 20th each year as required by Costa Rican law. This Christmas bonus is equivalent to one month’s salary and is an integral part of the compensation structure in Costa Rica.
What labor laws do you need to consider when hiring in Costa Rica?
When hiring in Costa Rica, a few key labor laws must be considered. Costa Rica’s approach to labor laws is generally protective, offering extensive employee protections considered more stringent than those in many other countries.
| Law / Regulation | Key Points |
|---|---|
| Employment Contracts | Must be in writing and in Spanish. Specify job details, salary, working hours, and termination conditions. |
| Working Hours | Standard work week is 48 hours. Overtime limited to 8 hours per week, paid at 150% of base rate. |
| Paid Time Off | 2 weeks paid annual leave after 50 weeks of continuous work. 9 paid public holidays. |
| Taxes | Income tax rates from 0% to 25%. Employer contributes about 26.5% for social security, employee contributes 10.5%. |
| Termination and Severance | Notice periods vary by length of service. Severance pay required for unjustified termination, up to 22 days per year worked (max 8 years). |
| 13th Month Salary (Aguinaldo) | Mandatory Christmas bonus equivalent to one month’s salary, paid before December 20th. |
| Social Security | Employers must register employees with Costa Rican Social Security Fund (CCSS) and National Insurance Against Accidents at Work (INS). |
| Rest Periods | Mandatory 30-minute break for shifts over 4 hours, 1-hour break for shifts over 8 hours. |
This protective nature ensures that employees receive significant benefits and safeguards, particularly regarding employment contracts, working hours and paid holidays, taxes, and severance pay.
Employment contracts
National labor laws govern employment contracts in Costa Rica and must be in writing. The contract must specify job details, including position, duties, working hours, salary, and termination conditions. These contracts provide a clear agreement between employer and employee.
Costa Rica offers various types of employment contracts, each serving different needs:
- Permanent Contracts (Contrato por Tiempo Indefinido): Offer the highest level of job security with unlimited duration.
- Fixed-Term Contracts (Contrato a Plazo Fijo): These are for specific, limited periods, not exceeding one year.
- Specific Task Contracts (Contrato por Obra determinada): To complete a specific project or task.
Key elements of an employment contract in Costa Rica include the starting date, notice periods for termination, and details on probationary periods, which typically last up to three months for permanent positions.
Working hours and paid holidays
In Costa Rica, the standard workweek is capped at 48 hours. Work beyond this is overtime, generally limited to 8 extra hours weekly. Overtime pay is at least 150% of the base rate.
Employees enjoy at least two weeks paid annual leave after 50 weeks of continuous work, plus nine paid public holidays. Each public holiday warrants an additional paid leave day.
Costa Rica also mandates a rest period of at least 30 minutes during each workday for shifts exceeding 4 hours and at least 1 hour for shifts exceeding 8 hours.
Taxes
Individual income tax rates in Costa Rica range from 0% to 25% based on income levels. Employers contribute about 26.5% of an employee’s salary for social security and other mandatory benefits, while employees contribute roughly 10.5%.
Employers’ mandatory contributions include payments to the Costa Rican Social Security Fund (Caja Costarricense de Seguro Social – CCSS) for health insurance, pensions, and other social benefits.
Termination and severance pay
In Costa Rica, termination notice periods vary by service length and employee level:
- For employment over three months but less than six months: 1 week notice
- For employment over six months but less than a year: 2 weeks’ notice
- For employment exceeding a year: 1 month’s notice
If termination occurs without justification after three months of service, the employer must pay severance. The severance amount increases with the duration of service, potentially reaching up to 22 days per year worked, with a maximum calculation based on eight years of service.
Employers calculate severance pay monthly based on the formula: (Annual gross salary / 12) * (Number of years worked), with a cap of eight years. This payment, known as cesantía, is mandated in any termination scenario without cause.
How does the hiring process work in Costa Rica?
Employers must follow a structured process and adhere to national labor laws and regulations when hiring staff in Costa Rica. Initially, they identify the vacancy and define the job’s requirements. They advertise the position through various channels to reach a wide pool of candidates.
Interested individuals submit their applications, which the employer reviews to shortlist qualified candidates. These candidates then undergo interviews and, in some cases, testing to assess their suitability for the position. Employers may also conduct background checks and request references to verify the candidates’ qualifications and experience.
Upon selecting a candidate, the employer issues a formal job offer detailing the role’s terms and conditions. If the candidate accepts, both parties sign a contract that must comply with Costa Rican employment law and specify salary, working hours, and job responsibilities.
Before the new hire starts, the employer must complete mandatory administrative tasks, including registering the employee with the Costa Rican Social Security Agency (CCSS) and the National Insurance Against Accidents at Work (INS). Additionally, the employer must report the new hire to the local labor office (Dirección Territorial del Trabajo) within the first few days of the start date.
Is Costa Rica a relatively easy country to hire employees remotely through an EOR?
Yes, Costa Rica is generally considered a relatively easy country to hire employees remotely through an Employer of Record. The country’s stable political environment, well-educated workforce, and growing technology sector make it an attractive destination for remote hiring.
Pros
Cons
Costa Rica’s labor laws, while protective of employees, are clear and well-established, making compliance manageable with the help of an experienced EOR. The country’s high level of English proficiency, particularly in urban areas and among professionals, facilitates communication for international companies.
Moreover, Costa Rica’s time zone alignment with North America (in the Central Time Zone) makes real-time collaboration with U.S.-based companies convenient. The country’s robust telecommunications infrastructure supports reliable remote work arrangements.
However, it’s important to note that while hiring through an EOR in Costa Rica is relatively straightforward, employers must still be mindful of the country’s strict labor laws, including working hours, overtime, and employee benefits. An experienced EOR can navigate these requirements effectively, ensuring compliance while simplifying the hiring process for foreign companies.
In conclusion, Costa Rica’s combination of a skilled workforce, favorable business environment, and established legal framework makes it a viable option for companies hiring remote employees through an EOR, provided they partner with a knowledgeable and experienced EOR provider.
