Labor Laws and Policy – Costa Rica

Contents – Click to view
Social Security
Benefits
Minimum Wage
Vacations
Holidays
Personal Income Tax
Insurance
Termination
Domestic Employees
Aguinaldo

Costa Rica has a large educated population, the vast majority of whom can read and write.  Many have post high school (colegio) education at the numerous universities here, and many have advanced degrees.  This provides employers with a large pool from which to draw.  The percentage of persons who speak, read, and write English increases directly with their education.

1.Social Security (Caja Costarricense del Seguro Social CCSS or simply Caja)

All salaried employees must be registered with Social Security.  The employer must pay 25% of the total salary amount, and an additional 9%, which is deducted from the employee’s salary.  This covers the employee for medical care, hospitalization, other medical costs and 3% of this amount is a contribution to a savings and pension fund.

2.Benefits

Potential Benefits summary.  Approximations on an annual basis.

Caja Costarricense de Seguro Social         22.00% (9% withheld from employee)

Fondos de Capitalización & Pensiones      3.00%

Aguinaldo (Xmas bonus Dec 1 to Nov 30)               8.33%

Vacation pay      4.61%

Dias Feriados (Long weekends with pay) 1.92%

Preaviso y Cesantia (Termination pay)     13.80%

INS Workman.s Compensation insurance*             2.00%

*Required by law, not a benefit. You would be personally liable, and it could be very very expensive if there is an injury

3.Minimum Wage

Costa Rica has a minimum wage scale revised and published every six months by the Ministerio de Trabajo. Nearly every conceivable occupation is covered on the list. You may see a sample list HERE.

This changes every six months, and the one here is for 2014, but remember to get the current version. I will not be updating this regularly. If you are an employer, do not think you can pay less than what is the current minimum wage for that position. You will get caught and the fines and penalties are nasty. Remember also that one additional month is paid each December and that extra month is paid at the minimum wage or current wage if higher. It is NOT used to average out to the minimum wage. See Aguinaldo below.

4.Vacations

The law requires one day of vacation for every month of employment.  A two-week vacation is due after fifty weeks of work.  The employer can choose the time the vacations are taken and can require that half be taken at two different times, but they must be granted within 15 weeks of the time when they were due.  Vacations cannot include weekends or paid holidays, they must be regular working days.

5.Holidays (also see Public Holidays)

Paid holidays are:

Other holidays for which pay is not required for hourly employees are August 2 and October 12.  Salaried employees are paid for these days whether they work on them or not.

6.Income tax – Personal

There is a deduction of 10% on income from 296,000 to 445,000 per month. There is a deduction of 15% on income of over 445,000 colones per month.

7.Insurance

Personal injury insurance (similar to workman’s compensation) must be carried to cover all employees.  This policy must be purchased from INS, the Costa Rica government owned insurance institute.  (Private insurance is not permitted in Costa Rica.)  For office employees it works out to 0.57% of wages.

8.Termination

Firing an employee carries risk.  If an employee is dismissed (fired) without cause aguinaldo, vacation pay, notice and termination pay must be paid to them. If an employee is dismissed with cause or quits, aguinaldo and vacation pay must still be paid by the employer.

Preaviso (Advance Notice) The law requires 30 days advance notice to be given of impending termination. If no advance notice is given 30 days pay is due to the employee. If the required number of days of advance notice is given regular pay continues for 30 days, but the employee has the right of one paid day per week to look for another job. Exact calculation is according to the scale below.

Cesantia is severance pay. Maximum cesantia is 8 months.

When an employee quits or is fired with cause, preaviso and cesantia do not need to be paid.

When a company is sold, and the new owner keeps the staff, all benefits are paid to the new owner as if the staff had been laid off. The benefits are not paid to the employees at this time, as the new employer will have the responsibility of paying them in the future.

Domestic Employees (housekeepers, cooks and maids)

There are some special provisions governing live-in domestic employees. If an employer has a signed contract with a domestic employee offering less than the minimums proscribed by law, the contract is not valid.  Also, the minimum wage for a live-in domestic employee is much less than for day workers.

A domestic employee’s workday is 12 hours. Up to 16 hours is permitted, but double-time must be paid for the extra hours over 12 per day. One hour of rest, to coincide with a mealtime, is guaranteed. It is required that the employee be enrolled in the CCSS medical and pension system.

The employee has the right to half a day off per week and half a day off on official holidays. If they work pay must be at double time. 15 days of paid vacation each year is compulsory, and payment in lieu of vacation is not permitted. When the December aguinaldo payment is calculated the wage cost upon which aguinaldo is based must include the value of the food and lodging supplied as well as cash wages.

To dismiss a domestic employee, no notice is necessary if they worked for less than 30 days. Over 30 days requires 15 days notice. The cash equivalent of the notice period can be paid. For each weeks notice half a day of paid time must be given to look for another job.

A female domestic employee who becomes pregnant is entitled to 1 month of paid leave before birth and 3 months afterwards. If an employee is dismissed because they are pregnant it is required that their wages be paid from the day of dismissal until the 8th month of pregnancy, then maternity benefits and damages for wrongful dismissal.

You are also responsible for paying INS workman’s compensation. If an employee is injured and you do not have this insurance, you must pay all medical costs and are personally liable.

Many people are under the impression that if they employ an ‘illegal’, a person without legal residency or citizenship in Costa Rica, that they many ignore these laws.  They cannot.  While an illegal may be less likely to file a complaint, it happens often enough that you should exercise good judgment here.

Aguinaldo

Aguinaldo is the Christmas bonus. Bonus though, is not a good word as this bonus is really a salary. It is not optional and all employers must pay it. This means that as an employer, you are really paying 13 months of salary. Aguinaldo is based one one one months salary (averaged) and that salary must comply with the minimum wage laws based on occupation. It is pro-rated if the if the employee is not employed a full year.

The minimum wage list can be found HERE.

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