Independent contractors or freelancers are self-employed individuals who provide services to companies as a non-employee. This is one of the most common ways companies tend to hire non-local designers, engineers, support reps, etc.
For legal and tax purposes, independent contractors are not classified as employees. They may work for multiple clients, set their own work hours, negotiate their pay rate, and decide how a job gets done.
For example, the IRS says that if an independent contractor or freelancer does work that can be controlled (what will be done and how it will be done) by an employer then they are, in fact, classified as an employee.
As you can imagine, hiring someone as an independent contractor versus an employee is a fine line to tread.
While there are benefits when you choose the contractor route, there are quite a few drawbacks to consider and you’ll need to weigh them carefully to determine the best fit for your company.
A foreign subsidiary is a company that operates overseas as part of a larger company who’s HQ is in another country.
Establishing a foreign entity is great for having an international presence and accessing new markets. Though, setting up a subsidiary in Costa Rica can be expensive, stressful, and time-consuming. It's not for the faint of heart.
To set up a subsidiary in Costa Rica, you have to:
If you're lucky, this process can take months. If you're not so lucky, it can take up to a year. And on average, it costs about $50k-$80k, all-in-all, to get setup. And that's just for Costa Rica.
An employer-of-record (EOR) is a company that hires and pays an employee on behalf of another company.
An EOR is typically used to overcome the financial and regulatory hurdles that often come with employing remote workers.
Each country has its own payroll, employment, and work permit requirements for non-resident companies doing business in their jurisdiction. Meeting those demands can be a huge obstacle when it comes to hiring remotely.
At Panther, we help companies employ and pay people in over 160 countries, without having to set up a foreign subsidiary. Payroll, benefits, taxes, compliance, and more are all handled by us, at a fraction of the cost.
Outside of saving you months and tens of thousands of dollars, other advantages of using Panther are:
Because you no longer have to set up your own subsidiary, you’ll save a ton of time and tens of thousands of dollars using Panther.
Paying employees in Costa Rica is not the same as paying workers in your own country. Employees have to be paid using Costa Rica’s employment and payroll standards.
This means that you have to know, understand, and keep up with 1) fluctuating currency changes, and 2) local payroll and tax laws in the countries you’re looking to hire in.
Outside of the laws and regulations around payroll, there may be different conditions surrounding leave, overtime, termination, and more. As you can imagine, maintaining this kind of regulatory knowledge can be challenging. But it is crucial and necessary to follow local legislation.
After, you’ll have to determine the best way to pay your international employees. This can be done in a number of ways, including but not limited to:
One of the most challenging (and expensive) parts of paying international employees is setting up the infrastructure to do so.
Before you start to run payroll, you have to register your company as the local employer in the country the worker resides in. As you can see in the “Set up a subsidiary” section, this is a multi-step process that can take up to a year and put you on your way to bankruptcy.
Outside of EORs acting as the full admin employer, many also provide remote payroll.
For example, at Panther, in just 1-click, you’re able to pay your entire global team, anywhere in the world. We send you an invoice each month, charge you in US Dollars, and pay your employees the same amount in their local currency.
We factor in currency fluctuations and use the mid-market rate plus any applicable fee passed on by our provider at cost at the time of billing.
The maximum number of hours an employee can work is 48 hours per week.
Nighttime workers, 7p.m.-5a.m., may only work a maximum of 36 weekly hours.
Over 48 hours in a week is considered overtime and is paid at 150% regular wages.
Pay for work on holidays is at 200%.
The maximum overtime allowed to perform daily is 4 hours.
Employees in Costa Rica receive their salary once a month.
The 13th salary is equal to a month’s pay and should be paid to the employee no later than the 20th of December.
PTO is calculated by the:
There are 11 public holidays.
The duration of sick leave entitlement provided to workers is dependent on how long they have been employed by their employer:
Pregnant employees receive 4 months of paid maternity leave; 1 month of prenatal leave and 3 months of postpartum leave. 50% of the payments are paid by the employer and the other 50% is paid by the CCSS (Costa Rican Social Security Fund).
Private sector employees are not entitled to receive paternity leave.
Private sector employees are not entitled to receive parental leave.
In order to terminate an employee just cause must be given.
If the employer requests a dismissal letter, the employer is obligated to present one, whatever the cause of termination was.
The notice period in Costa Rica is:
0 – 3 months: No notice required
3 – 6 months: 1 week
6 months – 1 year:15 days
More than 1 year: 1 month
The Severance Pay in Costa Rica depends on the Duration of Employment:
3 – Less than 6 months: 7 days
More than 6 months – Less than 1 year: 14 days
1 year: 19.5 days
2 year: 20 days
3 years: 20.5 days
4 years: 21 days
5 years: 21.24 days
6 years: 21.5 days
7-9 years: 22 days
10 years: 21.5 days
11 years: 21 days
12 days: 20.5 days
13 years and on: 20 days
Probation period is 3 months.