Understanding Payroll in Costa Rica: What Global Companies Need to Know

What Global Companies Need to Know About Costa Rica’s Payroll

Sandwiched between Nicaragua and Panama in Central America, Costa Rica is a beautiful country of rainforests, volcanoes, and coastlines on both the Atlantic and Pacific Oceans. But it’s the business and societal attributes of this country of around five million people that make it especially alluring for international organizations.

Education and literacy in Costa Rica is high, and its economy has consistently grown over the past three decades: its GDP ran at approximately $62billion in 2019, its highest figure on record. Manufacturing has become an area of major growth in the country even since Intel set up a plant for assembling and testing computer microprocessors in 1998, but agriculture and tourism are also important business areas.

Costa Rica may not be the most obvious candidate for international expansion, so its rules regarding business operations and payroll may not be especially familiar. This guide sets out the basics of running payroll in Costa Rica.


Getting Started 

Setting up a business in Costa Rica is simpler than it is in many other developing countries. The first step is to register with the Public Registry and choose the company structure: most foreign companies opt to form as a corporation (S.A.) or a limited liability company (S.R.L).

Then an in-country bank account can be opened, either with a public (insured) or private bank - this is the most difficult part of the process and having a Spanish-speaking partner with local expertise can make a major difference here. There are no minimum capital requirements for either an S.A. or an S.R.L.

After incorporation, a company can then register with the Ministry of Finance for tax purposes, the Social Security Fund and the National Insurance Institute, as well as obtaining any municipal permits required. It’s important to note that online service is generally lacking in Costa Rica, so businesses should expect to conduct the set-up process in person.


Employment Considerations

Written employment contracts are not mandatory in Costa Rica, but due to government concerns about undocumented workers, they are strongly recommended. Although collective bargaining is permissible in Costa Rica, it is rarely seen outside the public sector. Probation periods generally last one month and can run for a maximum of three months.

Foreign workers must apply for a work permit to operate in Costa Rica. This permit costs around US$300, and although it takes as much as a year to process, foreign workers can start working as soon as the application is submitted while they wait for the decision to be made. 

The maximum working week in Costa Rica is 48 hours. Many workers generally work eight-hour days Monday to Friday and a half-day on Saturday. It is commonplace to provide a 45-minute lunch break and two 15-minute coffee breaks during the day. Overtime is capped at four hours per day and is paid at a minimum of 150% of the normal rate, and at least 200% on public holidays.


Compensation, Bonuses and Severance

Minimum wage levels in Costa Rica vary considerably, depending on the level of skill required in the job and even the level of the employee’s education. Furthermore, the rates are reviewed every six months and so it can be incredibly difficult to keep track of who should be earning what. As a guide, from January 2021 the minimum wage for a generic unskilled worker is CRC 317,915.58 per month (approximately £375; $520; €435), while the rate for a graduate technical worker is CRC 682,607.23 per month (approx. £800; $1100; €940).

All employees are entitled to the 13th-month bonus, known as Aguinaldo, which should be paid at some point within the first 20 days of December.

Severance and termination rules vary by industry, so it’s important for companies to check their specific regulations. In general, severance pay is one week’s salary after three months of service, two weeks after six months, and 20 days after a year or longer. Employees should also be paid for their unused paid leave days and a pro-rata portion of their Aguinaldo bonus.


Tax and Social Security

Like many countries, Costa Rica levies income tax on a progressive scale. The first CRC 842,000 per month (approx. £1000; $1400; €1150) are exempt, beyond which the following four bandings apply:

  • Beyond CRC 842,000 up to CRC 1,236,000 (approx. £1450; $2000; €1700): 10%
  • Beyond this up to CRC 2,169,000 (approx. £2550; $3500; €2950): 15%
  • Beyond this up to CRC 4,337,000 (approx. £5100; $7000; €5900): 20%
  • Beyond CRC 4,337,000: 25%

Corporation tax runs at 30% for companies with annual gross income over CRC 109,032,000 (approx. £129,000; $178,000; €150,000). Companies with gross income smaller than this are subject to progressive rates of 5%, 10%, 15% and 20% depending on the level of profit. VAT in Costa Rica runs at 13%, with a selection of exemptions and reduced rates of 5% and 10% applying to certain goods and services.

Social security payments (abbreviated to CCSS) are 26% of gross salary from the employer and 10.5% from the employee.


Holidays and Leave

Paid leave entitlement is two weeks for every 50 weeks of employment. Employees are entitled to time off (or overtime at double the normal rate) on the nine days of public holidays each year. There are also three public holidays that are officially unpaid - the Virgin of Los Angeles Day on August 2, Culture Day on October 12 and Army Abolition Day on December 1 (introduced in 2020) - although salaried employees are paid for these as normal.

Maternity leave entitlement in Costa Rica is four months, one before the birth and three months after it. The payment of maternity pay is split 50/50 between the employer and social security. At present, there is no statutory paid paternity leave in Costa Rica.

For the first three days of medically certified sick leave, employers must cover 50% of an employee’s pay while social security picks up the other half. From the fourth day onwards, social security increases its payment to 60%, but there is no longer any obligation on the employer to contribute.


 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

Costa Rica, while attractive for international businesses in many industries, has its own set of challenges regarding set-up and payroll. These can be especially challenging for organizations who don’t have any experience of the local culture or customs there, or who don’t have access to third-party expertise in this area. This is where a global payroll provider can help by supporting the whole process and ensuring a successful, efficient, compliant payroll set-up throughout your time 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.