Employer of Record in Costa Rica

Hiring independent contractors has boomed in popularity because of the cost savings and flexibility they offer. It can be a great option if you require niche skills or short-term project support. Contractors allow businesses to access specialized skills quickly, without the time and cost of setting up a local entity.

However, it’s important to know the limits of this model: contractors are not a substitute for full-time employees. Relying on them for ongoing, long-term roles can create serious compliance risks, including employee misclassification, which can lead to fines, back taxes, and reputational damage.

Playroll’s contractor management solutions make it simple to compliantly engage, onboard, and pay contractors around the world. We provide clear visibility into agreements, streamline payments, and reduce compliance risks – so you can focus on getting the work done. And when you’re ready to take the next step, we can help seamlessly convert contractors into full-time employees through our global Employer of Record service.

Businesses can only operate smoothly in Costa Rica if they comply with local labor laws including drafting compliant employment contract agreements and meeting taxation and payroll obligations. Learn more about the employment laws and regulations in Costa Rica below, to avoid any compliance issues.

Employment Contract Requirements

In Costa Rica, verbal agreements are acceptable for short-term agricultural tasks lasting up to 90 days, but written contracts are mandatory for other situations. Contracts must be in Spanish or English and provided within a month of starting work. They should include:

• Identification of both parties
• Job responsibilities and duties
• Workplace(s)
• Employee's salary and other benefits

Onboarding Process

We can help you get a new employee started in Costa Rica quickly, with a minimum onboarding time of just 1-2 working days. The timeline starts once the employee submits all required information onto the Playroll platform and completes any necessary local authority registrations. For non-nationals, the Right to Work assessment (if applicable) may add up to three extra days.

Additional time may be needed for follow-ups on this assessment. Please note, payroll cut-off dates can impact the actual start date. Playroll's payroll cut-off date is the 10th of each month unless otherwise specified.

In Costa Rica, employers need to follow clear rules around working hours and overtime to protect employee rights and stay compliant with the law. For regular daytime shifts, employees can work up to 8 hours a day or 48 hours a week. Night shifts are shorter, capped at 6 hours a day or 36 hours a week, while mixed shifts (a blend of day and night work) are limited to 7 hours a day or 42 hours a week.

Some industries, like healthcare and transportation, have special exceptions because of the nature of their work. Managers and exempt employees may also be outside these limits, but their roles must be clearly outlined in the employment contract.

Overtime is tightly regulated. Employees can work a maximum of 4 extra hours a day, and those hours must be paid at 150% of the regular wage. If someone works on a public holiday, the rate goes up to 200%. Workers are also entitled to proper rest, including a 30-minute meal break for shifts longer than six hours.

Sticking to these rules isn’t just about avoiding fines, suspensions, or legal trouble—it’s also about creating a fair and healthy workplace where employees can be productive and supported.

The minimum wage for employees in Costa Rica varies based on job categories and skill levels. For unskilled workers, the daily rate is CRC 12,236.95, amounting to CRC 367,108.56 per month.

As of January 1, 2025, Costa Rica has implemented a 2.37% increase in minimum wages for the private sector. The specific rates vary based on job categories and skill levels. For instance, an unskilled worker earns CRC 12,236.95 per day, while a specialized worker receives CRC 15,983.95 per day. In monthly terms, a generic unskilled worker earns CRC 367,108.56, and a generic skilled worker earns CRC 413,023.56.

Employers must ensure compliance with these updated rates to avoid legal penalties. It's also essential to consider that while the statutory minimum wage sets the legal baseline, studies suggest that the living wage—what is necessary for a decent standard of living—may be higher, particularly in rural areas. Therefore, employers should consider these factors when determining compensation packages to ensure fair and adequate remuneration for all employees.

Growing your team in Costa Rica is exciting, but it’s not without challenges. Local labor laws are often nuanced, and hiring without the right legal structure or processes can lead to misclassification, non-compliance penalties, or disputes. An Employer of Record removes that risk by acting as the legal employer on your behalf, taking full responsibility for compliance, contracts, payroll, and employee benefits.

This gives you the freedom to scale at your own pace, whether you're adding one employee or building out an entire function, without the burden of setting up and managing a local entity. You remain in control of day-to-day responsibilities and performance, while the EOR ensures every hire is legally protected and properly supported. It's a strategic way to expand globally without spreading your internal team too thin or exposing your business to legal liabilities in unfamiliar markets.

Employers in Costa Rica must navigate a range of payroll and employment tax obligations, including income tax withholding, social security contributions, and labor risk insurance. These taxes are calculated based on progressive income tax rates and specific contribution percentages, with deadlines varying by tax type.

Additionally, mandatory benefits such as the 13th-month bonus (Aguinaldo), paid vacation, paid public holidays, severance pay, and overtime compensation must be accounted for. Failure to comply with these requirements can result in significant penalties and strained employee relations.

Using payroll management software can help employers streamline payroll processes, consolidate data, and ensure compliance with Costa Rican tax laws and regulations.

Employees expect to be paid accurately, on time, and in full compliance with local standards. When you're hiring in Costa Rica, providing a smooth payroll experience is critical to retention and trust. An Employer of Record ensures that employees receive what they’re owed, without errors, delays, or confusion about taxes or benefits.

Key Ways an EOR Supports Payroll in Costa Rica:

• Reliable Salary Payments: Ensures employees are paid promptly in local currency.
• Clear Payslips & Documentation: Provides employees with compliant, understandable records.
• Correct Benefits & Contributions: Delivers legally mandated contributions and any changes in compensation, like bonuses.
• Payroll Setup & Processing: Handles salary calculations, tax withholdings, and local reporting obligations.
• Boosts Employee Confidence: Builds trust with compliant, consistent payroll operations.

In Costa Rica, work permits and visas are crucial for employers hiring foreign workers or relocating international employees. The process involves meeting specific eligibility criteria, submitting applications, and ensuring compliance with immigration and labor laws.

Key visa types include the Temporary Work Visa, Professional Visa, Investor Visa, Rentista Visa, and Digital Nomad Visa. Each category is tailored to different employment or residency situations, such as short-term employment, specialized professions, business investments, freelance work, or remote work.

Employers must adhere to Costa Rican labor regulations, conduct labor market tests to prove no qualified local candidates are available, and prepare documentation to facilitate a smooth hiring process. As of 2025, employers must ensure compliance with minimum wage requirements, with unskilled workers entitled to at least CRC 12,236.95 per day.

In Costa Rica, employees are entitled to two weeks (14 days) of paid annual leave after completing 50 consecutive weeks of employment. This is in addition to the country's public holidays. For sick leave, employers pay 50% of the employee's salary for the first three days; from the fourth day onward, the Costa Rican Social Security Fund (CCSS) provides 60% of the salary, with no further obligation on the employer.

Pregnant employees receive four months of paid maternity leave – one month before and three months after childbirth – with the employer and CCSS each covering 50% of the salary. Fathers are entitled to eight days of paid paternity leave, taken as two days per week during the first four weeks after the child's birth, also funded equally by the employer and CCSS.

In Costa Rica, employers are legally required to provide a set of core benefits to employees. These include contributions to the national social security system (Caja Costarricense de Seguro Social, or CCSS), which provides healthcare, pensions, disability, and maternity coverage.

Employers must also provide labor risk insurance for work-related injuries, pay overtime at 150% of the regular wage for hours exceeding the standard 48-hour workweek, and grant paid leave for statutory holidays. Additional protections include four months of fully paid maternity leave (funded jointly by the employer and social security), sick leave with shared cost coverage, a minimum of two weeks of paid vacation after 50 weeks of continuous service, and a 13th-month salary known as Aguinaldo, which is paid in December.

Beyond these legal obligations, many employers choose to offer supplemental benefits to attract and retain top talent. These may include private health insurance, voluntary pension plans, life insurance, meal vouchers or transportation stipends, tuition reimbursement, remote work allowances, additional holiday bonuses, and flexible working hours.

It is essential for employers to comply with the mandatory requirements to avoid legal penalties, while also considering supplemental benefits as a way to remain competitive in the labor market.

In Costa Rica, failing to provide the correct employee benefits can have serious consequences. Mistakes in benefits administration may result in fines and harm your reputation as an employer. An Employer of Record ensures statutory benefits and leave are handled correctly, every time, and provides comprehensive options for extra perks to reward your team.

Beyond just avoiding legal issues, a well-managed benefits program builds trust with your employees. An EOR ensures benefits are set up quickly during onboarding, updated when employee status changes, and fully compliant with national regulations. They also manage communication with employees, so there’s no confusion around what’s offered and how to access it. This combination of legal compliance and positive employee experience is hard to replicate without local infrastructure. With an EOR, you can offer peace of mind to your team (and to yourself) knowing that your benefits program in Costa Rica is running as it should.

Costa Rica's labor laws ensure that employment terminations follow fair and legally compliant procedures. Employers can terminate employees with just cause, citing reasons outlined in the Labor Code, such as misconduct, absenteeism, or breaches of contract. If an employer dismisses an employee without just cause, they are required to provide severance pay, known as "cesantía," which is calculated based on the employee's tenure.

Additionally, employees are entitled to compensation for unused vacation days and a proportional Christmas bonus ("aguinaldo").

The termination process involves providing a written notice of dismissal, ensuring compliance with notice period requirements, and settling all final payments. The length of the notice period varies depending on the employee's tenure: no notice required for employment less than three months, one week for employment between three and six months, two weeks for employment between six months and one year, and one month for employment over one year.

Employers must also issue required termination documentation, including a termination letter, final payslip, and employment certificate. If an employee believes they were unfairly dismissed, they can file a complaint with labor courts to seek compensation.