How to Hire Remote Employees In 

Costa Rica

The Basics

Currency
Costa Rican Colón (CRC)
Employer Taxes
26.5%
Payroll Frequency
Monthly
Official Language
Spanish

Employment in 

Costa Rica

Hire Independent Contractors

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.

Benefits of Hiring Independent Contractors
Reduced overhead: Lower cost in expenses, payroll, benefits, and more.
Greater flexibility: Contractors can be brought on as-needed. If not a good fit, you simply don’t have to move forward with the contract.
Reduced legal risk: Contractors aren’t usually protected by employment anti-discrimination and workplace safety laws.
Disadvantages of Hiring Independent Contractors
Risk of Misclassification: Not only does this deny workers their proper protections, it can also result in steep penalties and damage to your company. If the IRS determines that employee misclassification has occurred, you will be liable for a percentage of the employees wages, FICA contributions, penalty fines, unpaid taxes, up to a year in prison, and more.
Lack of Control: Contractors are drawn to being independent because it gives them greater control over the work they perform and who they work with. Because they’re not employees, you can’t tell them what to work on and how it should be done.
Lack of Loyalty: Contractors come and go as-needed. Many companies hire contractors for short-term work, which makes it difficult to cultivate loyalty.
Increased Scrutiny: Using Independent Contractors typically leads to an increased risk of being audited.

Set up a subsidiary in 

Costa Rica

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:

  1. Register your business name and file articles of incorporation
  2. File for local bank accounts
  3. Learn and keep track of the local employment laws
  4. Set up local payroll
  5. Hire local accounting, legal, and HR people

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.

Use an Employer-of-Record (EOR)

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:

  • Ability to attract talented and motivated employees from all over the world.
  • Full legal compliance: There is no risk of violating local employment laws.
  • Transparency: Employees are still your employees. All the work, processes, operations and day-to-day business belong to you, the company, just like with any other employee. Panther just takes on all of the responsibilities, obligations and admin work related to your team's employment.
  • No risk of misclassification

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 Remote Employees

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:

Pay through a local entity

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.

Work with an EOR

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.

Costa Rica

 Specific Information

Working Hours

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.

Overtime

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.

Payroll Tax

Employer

Employer

  • Health and Maternity
  • Basic Pension Scheme
  • Banco Popular Employer Fee
  • Family Assignations
  • Social Aid (IMAS)
  • INA
  • Contribution from Banco Popular Employer
  • Labor Capitalization Fund
  • Complementary Pension Fund
  • National Insurance Institute (INS)

Minimum Wage

The minimum wage ranges from 10,652.48 – 682,607.00 (CRC) per month depending on the employee’s skill and education level.

Payroll

Pay Cycle

Employees in Costa Rica receive their salary once a month.

13th Salary

The 13th salary is equal to a month’s pay and should be paid to the employee no later than the 20th of December.  

Leave

Paid Time Off (PTO)

PTO is calculated by the:

  • All employees who have 50 weeks of continuous employment have the right to 2 weeks’ vacation (12 days) plus 2 days of rest.

Public Holidays

There are 11 public holidays.

Sick Days

The duration of sick leave entitlement provided to workers is dependent on how long they have been employed by their employer:

  • The employer and social security each must pay the employee 50% of their salary for the first 3 days of sick leave.  
  • From the 4th day on, social security pays the employee 60% of their salary, and the employer is no longer obligated to pay.

Maternity Leave

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).

Paternity Leave

Private sector employees are not entitled to receive paternity leave.  

Parental Leave

Private sector employees are not entitled to receive parental leave.

Other Leave

None.

Marriage Leave

None.

Bereavement Leave

None.

Termination

Termination Process

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. 

Notice Period

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

Severance Pay

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

Probation period is 3 months.