Costa Rica Labor Law in a Nutshell provides a comprehensive overview of Costa Rican labor laws. Understanding these regulations is crucial for anyone employing staff in Costa Rica, as it ensures legal compliance and avoidance of potential issues. The article highlights how Costa Rican courts typically favor employees in legal interpretations, and delves into fundamental aspects of the nation’s labor laws, offering valuable insights for both employers and employees.
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.
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.
Employee Wages.
The National Council on Wages sets the minimum wage, which undergoes biannual revision and is announced in the official newspaper, “La Gaceta,” under the title “Decreto de Salario Minimo.” Employers have the flexibility to pay wages hourly, daily, biweekly, or monthly, based on mutual agreement. Typically, the wages offered to employees are determined by market conditions and often exceed the minimum wage scale. Employers who pay their employees above the minimum wage are not required to apply the government’s mandatory wage increase, as this increase is only applicable to employees earning the minimum wage.
The Work Week
In Costa Rica, the standard work week is capped at 48 hours, with any hours worked beyond this threshold qualifying as overtime. Professional employees typically adhere to an 8-hour workday, five days a week, while laborers often work the same daily hours from Monday to Friday, with a half-day on Saturday. It’s crucial for employers to clearly establish work schedules and hours with their employees, as any time worked beyond the standard 48-hour week falls under the category of overtime which is referred to locally as “extraordinary” hours, necessitating overtime compensation for the employee.
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.
The Christmas Bonus (Aguinaldo)
In Costa Rica, every employee is legally entitled to a year-end Christmas Bonus, known as the “Aguinaldo,” which is equivalent to an additional month’s wages. This bonus is provided by the employer without any conditions attached. Employers are required to make this payment between December 1st and 20th, ensuring that all workers receive this mandatory financial benefit in time for the holiday season. This practice underscores the commitment to workers’ rights and welfare within Costa Rican employment law.
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 weeks
More 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 ChristmasBonus 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.
Registering your Employee with Social Security
In Costa Rica, any employer hiring an employee is legally required to register with the Social Security Administration. This process involves the employer first registering themselves with the Social Security Administration, either as an individual or under the name of their incorporated business. Registration can be completed at the Social Security office in the area where the employer is located, or at the nearest branch if outside San José.
Individual employers must submit the following documents for registration: (1) the completed registration application form, (2) a copy of their identification document, (3) copies of the identification documents for each worker being registered, and (4) a copy of the electricity bill for the workplace. Corporate entities need to provide additional documents: (1) a certificate of corporate standing (personería jurídica), (2) a copy of the Articles of Incorporation, and (3) a copy of the Corporate Identification document.
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 gardener for example you can purchase the RT-Hogar policy from INS.
Hiring a Maid
The Costa Rican Labor Code includes specific provisions for “Domestic Employees,” which outline a 30-day probationary period during which either the employer or the employee can terminate the employment relationship without any severance obligations. After this period, the standard termination provisions apply.
In addition to their salary, domestic employees are typically entitled to room and board, unless otherwise agreed upon. This room and board is considered as a non-monetary form of compensation (pago en especies), valued at an additional 50% of their salary for all legal purposes under the labor code. A domestic employee’s workday is limited to a maximum of twelve hours, which must include a one-hour break. They are also entitled to a half-day off during any day of the week, as determined by the employer, with the stipulation that at least twice a month, these days off must fall on a Sunday.
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