Costa Rica has always been at the forefront of outsourcing technology services in Latin America. With a population of just over 5 million, it’s well above its weight in near shore, with IBM, Accenture, Hewlett Packard and Intel Corporation just two of the biggest global names that have enjoyed a productive time in the country.
It’s an attractive site, and there are plenty of reasons why organizations want to make their mark there.
Nearshore Americas spoke with local employment attorneys to find out the details of hiring talent and, if necessary, separating that talent, when based in Costa Rica.
Work related taxes
Firms that focus on labor arbitration over anything else are unlikely to thrive in Costa Rica, a country with a robust tax system in place.
“Costa Rica is a costly country for an employer by Latin American standards, mainly because of the required social security contributions,” said Catherina Zamora, a labor and employment attorney at Arias Law, a company focused on Central America.
The Social Security system provides assistance to those out of work, and this is partly funded by both employees and employers.
“The employer must pay 27.5% of the salary that the employer provides in the payroll per month, then the employer contributes 10.5% of that salary as tax,” Zamora explained. “This is one of the most important aspects of business taxation that international companies must understand before arriving in Costa Rica.”
However, it’s not just the base salary that employers should consider when submitting payroll. Any form of additional remuneration, whether offered for personal performance or an annual bonus based on the facilities acquired by the company abroad, must be considered within the 27.5% that the employer is obligated to pay. For companies entering Costa Rica for the first time, this can be confusing and generally requires the assistance of local businesses.
“If the employer terminates the employee’s contract without cause, the employee is entitled to the corresponding proportional amount of leave and Christmas bonus (Aguinaldo) regardless of the type of termination” – Silvia Hernández-Carranza.
Companies must be registered with several public institutions in order to legally process these payments. Employee tax Among them, the National Insurance Institute is responsible for issuing workers’ compensation insurance policies that must cover every employee of the organization.
Silvia Hernandez Carranza, Senior Associate at Work and Recruitment, said: Denton Costa Rica. “But Costa Rican employees have the advantage.”
Often a source of surprise for non-Latin American companies is the “Aguinaldo” payment, given at Christmas, which equals up to a month’s salary depending on the length of time the employee has been with the company.
An employee who has spent 12 months working for the company will receive a full month’s salary paid on December 20th. Hernandez Carranza said those who are not 12 months old will receive a portion of the month depending on how many months they have worked there so far.
The Aguinaldo Payment – up to 8.33% of annual wage – is paid to all employers regardless of performance. Companies generally keep this amount throughout the year before repayment.
Leave must also be considered by employers. Although vacations in Costa Rica are not as generous as they are in parts of Europe, they are still larger than those in other Latin American countries.
“An employee is entitled to two weeks’ leave after every 50 weeks of continuous work for the same employer,” Hernandez Carranza said.
“What these two weeks mean in days is often a point of discussion, as this changes depending on the number of days the employee will be working in the week. As a law firm, we have made it clear that two weeks of statutory leave should count as 12 working days, but if the employer is working three days Only every week, the leave is reduced in kind. ”
Termination of Contract: The Ins and Outs of Costa Rica
With such a strong North American presence in Costa Rica, both attorneys say they are usually asked about hiring at will. Although there is no will-time contract in Costa Rica, employers have the legal right to terminate an employment contract without cause, as long as the employee is not discriminated against in any way. But payments will always be required by law to protect the employee.
“If the employer chooses to terminate the employee’s contract without cause, the employee is entitled to receive not only the corresponding proportional amount of leave and the Christmas bonus (Aguinaldo), the rights required of employees regardless of the type of termination,” Hernández Carranza said. .
“Paperwork here is over the top. We have cases that are 20 years old.” – Catherine Zamora
Additionally, employees must receive compensation for notice — up to one month’s salary depending on the employee’s seniority — as well. The unemployment , or a termination package. She added that this would range between 19.5 and 22 working days per year for each year depending on seniority, and be shortened to eight years in the private sector.
“These are all absolutely non-negotiable,” Zamora said. “But even when contracts are terminated without a justified training course, the employer must have an objective reason to prove it should a legal case arise.”
It is suggested that each step in the move towards termination be documented. The burden of proof, if a legal action is brought against dismissal by the employer, falls on the employing company.
When the employee initiates legal proceedings
Both lawyers say that legal procedures related to dismissal are common in Costa Rica, and that when one case is brought, others often follow.
Legal proceedings can be slow.
“It takes at least two years,” Hernandez Carranza said.
Although amendments were made in 2017 to the Labor Code that will make the process more efficient, these changes are still two years away from becoming effective. Covid-19, as in all other aspects of life, has prolonged these measures. It could be two years toward the conservative range of estimates.
“The papers here are out,” Zamora said. “We have cases that are 20 years old.”
Work from home considerations
Workers who work from home must receive subsidies from their employer for their electricity bill. This came about two months before Covid.
But there is no set amount in law. “What usually happens is the employer and employee come to an agreement and it is added to the employee’s monthly salary,” Zamora said.
“Discussions about this are still about these payments. If the system is changed and requires electricity bills to be billed, that could be difficult for large companies because it adds an additional cost to billing and processing for hundreds or thousands of workers.”