The nature is breathtaking in Costa Rica, where you may benefit from hiring via a PEO

What is a PEO in Costa Rica

If you require workers in Costa Rica for a limited term project, or if you want to explore the market before committing fully, you can hire employees through a professional employer organization or PEO in Costa Rica. The PEO company becomes the legal employer, handling legal obligations, while you retain control over tasks and working hours.

Investors often use a PEO in Costa Rica as a stop-gap, so they can  start working while they are still in the process of registering a company. These companies are also known as an employer of record (EOR), although there are some key basic differences. The distinction between a PEO and an EOR lies in the extent of services they offer.

Opting for a PEO in Costa Rica means entrusting your HR responsibilities to an external provider. On the other hand, EORs in Costa Rica assume the legal employer role for your foreign-based employees. Costa Rica EORs take charge of labor compliance on behalf of your employees in the country.

Recruit and attract the best talent for your company. If you are looking for entrepreneurship in Latin America, Biz Latin Hub is your ally to hire the human talent you need.
Recruit and attract the best talent for your company with a PEO in Costa Rica

 Why is Costa Rica a good place to do business?

Costa Rica is renowned for being one of the most stable and prosperous nations in Latin America, boasting impressively low rates of violent crime within the region.

Prosperity figures in some Latin American countries. Learn some economic data of the countries where you could form a company and hire staff such as with a PEO in Costa Rica
A PEO in Costa Rica helps enter a rich market.

This remarkable was achieved following nearly four decades of consistent growth, with the gross domestic product (GDP) experiencing only a single annual decline between 1981 and 2019, and ultimately, reaching $61.8 billion by the end of this period. Costa Rica’s robust growth, political stability, and low crime rates have made it an attractive destination for expatriates, tourists, and foreign investors alike. In 2021, the country registered more than $3.9 billion of foreign direct investment (FDI). This has made a PEO in Costa Rica more attractive. 

The nation boasts a thriving technology sector, a well-established professional services industry, and highly-developed tourism and agriculture sectors. It also possesses a strong manufacturing base. Costa Rica produces critical exports such as pharmaceuticals, electrical machinery, and medical equipment.

Costa Rica has taken significant steps to boost its competitiveness by introducing new incentives to attract foreign direct investment across the country, particularly in emerging regions. This includes signing  nine government decrees that focus on strengthening territorial competitiveness and streamlining administrative processes.  The new regulations have made  it even easier to use a PEO in Costa Rica.

The new laws introduce no less than eleven incentives aimed at promoting territorial development in sectors such as agroindustry, food industry, light manufacturing, tourism infrastructure, and services. These measures aim to stimulate investment and create employment opportunities in regions outside the Greater Metropolitan Area, where nearly half of the country’s population resides.

To take advantage of the business opportunities in Costa Rica,  it is important to know how to use a Professional Employer Organization. If you have an interest in conducting business in one of Latin America’s most stable and prosperous countries, continue reading to gain insights into how utilizing a PEO in Costa Rica could be the ideal choice for you. Alternatively, feel free to reach out to us now to discuss your business options.

Why hire via a PEO in Costa Rica?

A professional employer organization (PEO) in Costa Rica can handle salaries and benefits while you maintain control over tasks. Partnering with one allows your company to enter the market without company formation. This option is ideal for short-term or limited-scale operations, where you will want to avoid  complex company setup and dissolution. It also accelerates operations and market understanding.

A Costa Rican PEO has a recruitment network and local job market knowledge, enabling rapid workforce acquisition based on desired profiles. Furthermore, the Professional Employer Organization in Costa Rica acts as your legal representative, ensuring compliance and providing guidance on regulatory updates. Hiring through a PEO is cost-effective compared to company formation, and facilitates swift market entry and exit.

The general responsibilities of the Costa Rican PEO include:

  1. Crafting and executing employment agreements.
  2. Managing recruitment and documentation.
  3. Calculating and disbursing salaries.
  4. Ensuring compliance with benefits and leave requirements.

Advantages of hiring via a professional employer organization in Costa Rica

Firstly, your chosen PEO in Costa Rica will act as your legal representative, handling matters concerning the workers they hire on your behalf. Their team of corporate and employment lawyers will address any issues and represent you before local authorities if needed.

 In addition, when you sign a services agreement with a Professional Employer Organization in Costa Rica, you receive the assurance of compliance with all local laws and regulations. This ensures your company maintains good standing with local authorities and avoids any fines or penalties.

Moreover, your professional employer organization in Costa Rica possesses a well-established recruitment network. This enables them to quickly find suitable staff. Their recruiters also have extensive knowledge of top local educational institutes and courses. This allows them to effectively evaluate potential candidates.

Lastly, hiring via a Professional Employer Organization in Costa Rica offers the advantage of swift market entry and exit. Once the right individuals are identified, you can commence work within days. This is especially true for entry-level positions. Likewise, exiting the market is streamlined, following the statutory notice period required by the workers.

The graphic above highlights when it is best to use a Professional Employer Organization in Costa Rica
The graphic above highlights when it is best to use a PEO in Costa Rica or any country.

The legal framework governing employers of record in Costa Rica comprises various labor laws and regulations that define the rights and obligations of employers, employees, and EORs. Understanding this framework is essential for businesses considering hiring through an EOR in Costa Rica. The key aspects of the legal framework are the following:

  • Labor Code
  • Employment Contracts
  • Social Security Contributions
  • Taxation and Payroll Compliance
  • Employment Termination
  • Health and Safety

Each of these aspects, and how they relate to EORs or PEOs in Costa Rica, will be discussed below. 

Biz Latin Hub’s Snapshot of Employment Law in Costa Rica

WORKING HOURS

The maximum working week in Costa Rica is 48 hours long, with daytime shifts being no longer than eight hours long and night shifts being no longer than six hours. Under employment law in Costa Rica, daytime hours run from 05:00 to 19:00, while nighttime hours are between 19:00 and 05:00 the following day. 

Certain employees, such as management, legal representatives, and employees working without direct supervisions can work for longer than the statutory eight hours, however they should not work longer than 12 hours per day.

TYPES OF EMPLOYMENT CONTRACT

There a two main types of employment contracts in Costa Rica:

Regular employment agreement 
The most common type of contract in Costa Rica is a regular employment agreement, which has an indefinite duration and is only terminated when both the employer and employee mutually agree, or under circumstances that allow one of the parties to act unilaterally, such as an employee vacating their role, or in the case of malpractice that allows the employer to remove them.

Temporary employment agreement
Temporary employment agreements are established for a limited period of time under specific circumstances, such as in the case of seasonal work or to replace an employee on extended leave. Such a contract is limited to one year in length, and in the event of renewal after that period, the contract will become recognised as a regular employment agreement under Costa Rican employment law. All social security dues are applicable to a temporary contract. 

TERMINATION AND SEVERANCE

Under Costa Rican law, an employee must provide advanced notice that they will vacate their role based on the length of their service, ranging from one week of notice for anyone who has served for between three and six months to one month of notice for anyone who served for more than 12 months.

In the event that the employer wishes to unilaterally terminate an employee’s contract without just cause, the employee will be entitled to any outstanding salary and compensation for unused vacation and public holiday allowance. They must also be paid a proportion of the annual bonus (thirteenth salary) based on the proportion of the year they have worked. An additional severance payment of around 20 days pay per year of service must also be provided. 

An employee can only have their contract terminated without the right to compensation when they are found guilty of misconduct, as laid out in Article 81 of the Costa Rican Labor Code.

VACATIONS, LEAVE, AND OTHER ABSENCES

Statutory vacation allowance /  Paid Time Off leave (PTO): 
Once an employee has worked for 50 consecutive work weeks, they are entitled to two weeks of leave, essentially equating to two weeks of paid leave for each full year worked.

Maternity and paternity leave:
Maternity leave lasts for four months, made up of one month prior to the due date and three months after the birth of the child. However, this can be extended under the recommendation of a doctor. During maternity leave, 50% of the employee’s salary is paid by the Costa Rican Social Security Fund.

Currently, there is no statutory paid paternity leave allowance in Costa Rica.

Sick leave: 
Sick leave allowance is determined by the Costa Rican Social Security Fund, based on the condition of the employee. The employer must pay 50% of the employee’s salary during the first three days, with the rest covered by social security. From the fourth day onwards, the Social Security Fund will cover 60% of the salary and the employer is not obliged to cover the rest.

Bereavement: 
There are no statutory stipulations under Costa Rican employment law with regard to paid leave in the case of bereavement, which therefore must be negotiated directly between the employer and employee.

STATUTORY CONTRIBUTIONS
Employee deductions:
Deductions from employee salaries total 10.5% of their salaries, made up of 5.5% towards state funds to support sickness and maternity, and 4% towards the state pension fund, as well as a further 1% towards the Banco Popular, which promotes economic development.
Employer contributions: 
Employer contributions total 26.5% of an employee’s salary, made up of  9.25% sickness and maternity funds, 5.25% towards the state pension fund, and a further 12% divided among various funds including the Banco Popular and supplementary pension contributions.
Snapshot of employment law for a PEO in Costa Rica.
  1. Labor Code: The Labor Code of Costa Rica regulates labor relations in the country. It outlines the rights and obligations of employers and employees, covering aspects such as working hours, minimum wage, social security, and termination of employment contracts. EORs must comply with the provisions outlined in the Labor Code to protect workers’ rights.
  2. Employment Contracts: Employment contracts in Costa Rica can be written or verbal. However, it is advisable to have written contracts that specify crucial details such as job description, working hours, compensation, benefits, and duration of employment. EORs play a vital role in ensuring that employment contracts comply with the requirements of the Labor Code and other relevant regulations.
  3. Social Security Contributions: EORs in Costa Rica must contribute to the social security system on behalf of their employees. These contributions cover health insurance, retirement benefits, and other social programs. The Employer of Record is responsible for managing and ensuring the accurate calculation and payment of these social security contributions on behalf of the employer and the employees.
  4. Taxation and Payroll Compliance: The Costa Rican tax authorities require EORs to comply with their regulations. They are responsible for calculating and deducting the appropriate income tax and social security contributions from employee salaries. EORs also ensure the accurate filing and payment of these taxes to the tax authorities, relieving the hiring organization of the administrative burden associated with payroll compliance.
  5. Employment Termination: The Labor Code establishes the grounds and procedures for terminating employment contracts in Costa Rica. To avoid legal disputes EORs should follow legal requirements when terminating an employee’s contract. Under the Labor Code, termination can be based on mutual agreement, expiration of the employment contract, disciplinary issues, or economic reasons.
  6. Work Permits and Immigration: If hiring foreign employees through an EOR, it is necessary to comply with the immigration laws and regulations of Costa Rica. EORs assist in obtaining the required work permits and visas for foreign employees, ensuring compliance with immigration requirements.
  7. Health and Safety: Employers, including EORs, are responsible for providing a safe and healthy work environment. They must comply with Occupational Health and Safety regulations, including implementing safety measures, conducting necessary training, and ensuring compliance with workplace health and safety standards.

Businesses need to work with an Employer of Record that understands Costa Rica’s employment laws. A good EORs ensures compliance with labor laws, taxation, and other regulatory requirements, minimizing the risk of legal issues and ensuring a smooth employment process for employers and employees.

How to use a payroll calculator

If you want to get an idea of the possible costs involved in outsourcing to Costa Rica, using a payroll calculator is one way to get a good estimate.

Use Biz Latin Hub Payroll Calculator for PEO in Costa Rica.
Use the Biz Latin Hub payroll calculator for PEO in Costa Rica.

Although a payroll calculator won’t be completely accurate, it will give you the opportunity to evaluate options while varying the salary, the number of employees, the country you want to enter, and the currency you wish to work in. As such, you will be able to understand your likely costs across a range of salaries, while also being able to compare other countries as potential alternative destinations. 

You can find the BLH payroll calculator at the bottom of our Hiring & PEO Services page. The calculator will allow you to make good estimations of the costs involved in hiring in Latin America and the Caribbean based on country, currency, and salary, with the calculator factoring in local statutory deductions.

To use the BLH payroll calculator, you will need to undertake the following steps:

Step 1: Select the country

Choose the country where you are doing business, or planning to launch. This feature will be useful when it comes to comparing potential alternative markets.

Step 2: Select the currency you wish to deal in

You can choose between US dollars (USD), British Sterling (GBP) and Euros, as well as the local currency for the country you are looking at, in comparison to what is most convenient to you. Note that for Ecuador, El Salvador, and Panama, the local currency is also USD, as they have dollarized economies.

Step 3: Indicate an employees monthly income

Here you can indicate the expected salary you will be paying an employee, in the currency of your choice.

Step 4: Calculate your estimated costs

Based on all of the information you have provided, you will receive results indicating your estimated costs, including a breakdown for estimated statutory benefits you will be liable for.

Step 5: Compare your costs to other options

With a good estimate at hand of how much your staff in Costa Rica would cost, if you are flexible about your expansion into Latin America and the Caribbean, you can use the BLH payroll calculator to compare those costs to other jurisdictions.

FAQs on Hiring Through an EOR or PEO in Costa Rica

Based on our extensive experience, these are the common questions and doubts of our clients on on hiring through an EOR in Costa Rica:

1. How does one hire employees in Costa Rica?

You can hire an employee by incorporating your own legal entity in Costa Rica, and then using your own entity to hire employees or you can hire through an Employer of Record (EOR), which is a third party organization that allows you to hire employees in Costa Rica by acting as the legal employer. With an EOR you do not need a Costa Rican legal entity to hire local employees.

2. What is in a standard employment contract in Costa Rica?

A standard Costa Rican employment contract should be written in Spanish (and can also be in English) and must contain the following information:

  • ID and address of the employer and employee.
  • City and date.
  • The location where the service will be provided.
  • Type of tasks to be carried out.
  • Remuneration and bonifications/commissions (if applicable).
  • Method payment frequency.
  • Duration of the contract.
  • Probation period.
  • Work hours.
  • Additional benefits (if applicable).

3. What are the mandatory employment benefits in Costa Rica?

The mandatory employment benefits in Costa Rica are the following

  • Working tools necessary to carry out the work (if applicable)
  • Payment of social security contributions (health, pension, and labor risks).
  • Social benefits (severance pay, Christmas bonus, maternity, or paternity leave).
  • Paid time off (vacation and a day off).
  • Transportation allowance (if applicable)
  • Overtime and surcharges (if applicable)

For more information on mandatory employment benefits read our recent article on Employment laws in Costa Rica

4. What is the total cost for an employer to hire an employee in Costa Rica?

The total cost for an employer to hire an employee in Costa Rica can vary based on the salary. However, the employer cost for mandatory employment benefits is approximately 26.3% over the employee’s salary, which is additional to the employee’s gross salary.

Please use our Payroll Calculator to calculate employment costs.

5. What is the difference between hiring through an EOR and forming a legal entity?

  • Forming a legal entity is different to hiring an EOR in the following ways: 
  • Slower to establish. 
  • Permanent presence in the country. 
  • All costs deductible through a local entity. 
  • Ability to sign contracts and agreements locally. 
  • Ability to invoice through local entity. 
  • Legal entity compliance support required. 
  • Hire employees directly. 

6. What is the difference between a PEO and an EOR in Costa Rica?

A PEO acts as co-employer and an EOR acts as the legal employer of your employees. An EOR can offer broader services than a PEO. 

Biz Latin Hub offers hiring & PEO services in Costa Rica

At Biz Latin Hub, our team of multilingual hiring and PEO experts in Costa Rica has vast experience in sourcing, recruiting, and handling payroll for qualified personnel on behalf of foreign investors. We offer a comprehensive range of back-office solutions, such as legal, accounting, commercial representation, and company formation services.

With our expertise, we can serve as your sole point of contact to oversee your market entry and ongoing operations in Costa Rica. Additionally, we have a presence in 17 other countries across Latin America and the Caribbean, providing our services in those markets too.

Reach out to us now for a consultation or free quote. Or learn more about our team and expert authors.

Biz Latin Hub’s services include organizing a PEO in Costa Rica

The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.
Legal Team Costa Rica
Legal Team Costa Rica

Legal Team Costa Rica is the Biz Latin Hub leading experts on doing business in Rica The Team writes on the news, doing business, law, and changing regulations. The team are experts in corporate law, Administrative law, Employment law, Immigration law and legal advisory services. Read more about them here. You can contact Legal Team Costa Rica via our "contact us page".

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