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Costa Rica Labor Law in a Nutshell

Costa Rica Labor Law

Costa Rica Labor Law in a Nutshell will help you understand the ins and out of Costa Rica labor laws. The Labor Law in Costa Rica can affect us all.   If you hire an employee in Costa Rica you will need to know some aspects of Costa Rica labor law to ensure you stay out of trouble.  In Costa Rica the Court will always interpret the labor law with the light most favorable to the employee.  In this article I will cover some of the basics of Costa Rica labor law.

1.  The Employment Agreement.

When you hire somebody to work for you in Costa Rica there is a presumption that an employer-employee relationship exists.  It is up to the employer  to legally rebut that presumption.  Pursuant to Article 18 of the Labor Code and relevant case law from the Costa Rican Labor Court if the employer exerts direction and control over the employee it is presumed that an employee-employer relationship exists.   What does direction and control mean ¿   If you set the hours in which your employee comes and leaves from work you have direction, control and subordination over the employee. On the other hand if the worker carries out their work in an independent and autonomous manner then you have an independent contractor relationship.

There is a habit of trying to label a contract as an “independent contractor” when the reality is different.  The Labor Court will look beyond the written agreement at the reality of the relationship when reviewing this determination.

Keep in mind that in Costa Rica the Labor Court will always resolve any issue in the light most favorable to the Employee.

2.  Your Obligations as an Employer.

If you have an Employer-Employee relationship then you are subject to the legal dispositions of the Costa Rican Labor Code.  As an Employer you will also have obligations before the Costa Rican Social Security Administration and the National Insurance Institute (INS) for Workman’s Compensation all of which I will discuss in more detail below.

3.  Employee Wages.

The minimum wage is established by the National Council on Wages and is revised every six months and published in the official newspaper “La Gaceta” and known as “Decreto de Salario Minimo” Wages can be paid by the hour, day, biweekly or monthly as agreed upon between the parties. In most cases the wages you will pay an employee are set by the market and are most are above the minimum wage scale.  If you are paying your employee above the minimum wage scale you are not obligated to provide your employee with a percentage wage increase when the government publishes its mandatory wage increase resolution since this is only applicable if the employee is being paid the minimum wage.

4.  The Work Week. 

The standard work week in Costa Rica may not exceed 48 hours per week.  If the employee works more than that it shall be considered overtime.  The typical work schedule in Costa Rica is 8 hours a day 5 days a week for professional employees and for laborers it is generally 8 hours a day for Monday-Friday and ½ day on Saturday.<
As part of your agreement with your employee you should establish the work schedule and hours since any hours worked above the standard work week fall into the “extraordinary” pay schedule which means overtime payment to the employee.

5.   Employee Vacations and Legal Holidays 

Workers are entitled to a minimum of two weeks paid vacation for each fifty (50) weeks of continuous employment with the same employer.  The wages to be paid to the employee during their vacation must be based on the average weekly wage earned during the previous fifty weeks of employment.

The Labor Code does not allow the employee to accumulate vacation time and does not favor the partition of the vacation time.  Only under special circumstances will the law allowing breaking the vacation into a maximum of two part.

The officially recognized legal holidays in Costa Rica area as follows:  January 1 (New Years Day), April 11 (Juan Santamaria day), Easter (Holy Thursday and Good Friday), May 1 (Labor day), July 25 Nicoya Annexation day), August 15 (Mothers day), September 15 (Independence day), and December 25 (Christmas). Unpaid legal holidays include August 2 and October 12.8 An employee which is required to work on a legal holiday must be paid double wages.

6.    The Christmas Bonus  (Aguinaldo) 

Every worker in Costa Rica has the legal right to receive an additional month of wages paid by the Employer as a year end Christmas Bonus without any conditions.  The bonus must be paid by the employer between December 1st and the 20th.

7.  Firing an Employee.

In Costa Rica you must have cause to fire an employee at will.  If you don’t have cause you may still fire the employee but it will trigger severance payments to the employee by the employer.

To terminate an employee for cause it must be one of the grounds set forth in Article 81 of the Labor Code.    The dismissal must  be well substantiated since the employer carries the burden of proving that the termination was for cause should the employee file a complaint against the employer with the Labor Court.  If you terminate the employee without cause then you must compensate the employee with severance which is referred to locally as “Prestaciones Laborales”  as follows:

(i)   Pre-Termination Notice  (Pre-Aviso)  Before you can fire your employee you have two options.  You can provide them with legal notice of the termination and they can work out this pre-notice period or in lieu of this you can pay them the pre-notice period so that they leave the employment immediately.  The payment must be based upon the total average wage earned during the preceding 6 months or fraction thereof if they have not worked for six months. The amount of notice required depends on the length of time which the employee has worked for that particular employer.

If your employee has worked for you:

More than 3 months but less than 6 months then notice =1 week

More than 6 months but less than 1 year then notice = 2 weeksMore than 1 year then notice = 1 month.

(ii)     Severance Pay (Cesantia) If an employee is terminated without cause by the employer or if the employee quits for cause, they are entitled to severance pay.  If the employee has worked with the employer for more than three (3) months but less than six (6) months then they are entitled to the  equivalent of seven (7) days wages. If the employee has worked from six (6) months to one (1) year they are entitled to fourteen (14) days of wages. If the employee has worked for more than one year then the following schedule applies for each year worked up to a maximum of eight years:

No of Years Worked Days of Severance Payment
1 19.5
2 20
3 20.5
4 21
5 21.5
6 2.15
7 22
8 22
9 22
10 21.5
11 21
12 20.5
13 20

(iii)  Accumulated Vacation Pay (Vacaciones)   When an employee is terminated, any unused vacation time must be paid.   The employee is entitled as part of their severance one day for each month worked.  As such if your employee worked for you for 8 months and did not take any vacation period upon termination they are entitled to 8 days wages as vacation severance.

(iv)  Pro-rated Christmas Bonus  If you terminate your employee prior to December you must still pay them the pro-rated Christmas Bonus. To calculate the amount of the bonus, add the total wages paid to the employer from December 1 through November 30 and divide that amount by twelve (12).

For domestic servants (live in maid)  the law requires that you add an additional 50% to the wages paid as in kind payments (food and housing) in calculating their Christmas bonus.

8.  Registering your Employee with Social Security. 

In Costa Rica registration with the Social Security system is compulsory for anybody that hires an employee.   If you hire a worker it is your obligation to have the employee sign up with the Social Security Administration.   Prior to registering your employee it is necessary for you as the employer to register with the Social Security Administration as an Employer.  You can do this either as an individual or if you operate an incorporated business in the name of your corporation. You can register in the Social Security office where you are physically located.  If you are located outside of San José you can process the registration with the Social Security branch nearest to your location.

You need to file the following documents if applying as an individual. (1) The registration application form.   (2) Copy of your identification document. (3) Copy of the identification document of each of the workers you wish to register with Social Security. (4) Copy of the Electricity bill where the workers will be working.  If you apply as a Corporate Entity you will need in addition to all the above: (1) Certificate of corporate standing (personería jurídica) (2) Copy of the Articles of Incorporation of the corporation. (3) Copy of the Corporate Identification document. The Social Security system provides your employee with medical care, disability payments and retirement benefits.   The employer contributes 26% of the salary and the employee 9%.

 9.    The Worker’s Compensation Insurance  Policy.

The National Insurance Institute (INS) which is the Costa Rican government owned insurance monopoly oversees the Worker’s Compensation Insurance Policy known locally as “Riesgos del Trabajo”.   The policy covers injuries for accidents or illness of the employee that is work related.

Every employer is under the legal obligation to provide a Worker’s Compensation Insurance Policy for their employee.   If your employee is injured and you do not have the insurance you will be liable for the medical expenses incurred.

 If you are a homeowner and only need coverage for a maid and a part time gardner for example you can purchase the RT-Hogar policy from INS.

10.   Hiring a Maid.

The Costa Rican Labor Code has a specific provision that covers “Domestic Employees”.   It provides a 30 day probationary period where either party may terminate the relationship without and severance responsibility.  After the 30 day period the termination provision discussed above apply as well.

In addition to their salary the domestic employee is entitled to Room and Board (unless agreed otherwise).   The Room and Board will be considered as a payment in kind (pago en especies) of an additional 50% of the salary paid for all legal effects under the labor code. The Domestic Employee is obligated to work no more than twelve hours [12] per day which must include a one hour break. The employee is entitled to half a day off during any day of the week that the employer deems convenient.  At least twice a month those days off must be on a Sunday.

Copyright.  No portion of this article my be copied or reproduced without the express written consent of the copyright holder.

 

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