How to run international payroll for employees in Costa Rica (Updated 2023)


Apr 6, 2023

With its diverse talent pool and low cost of living, Costa Rica is an attractive place for global businesses to expand their operations. But hiring employees in Costa Rica can be complex—and running payroll for employees for Costa Rica is one part of the process you can't afford to get wrong.

It's crucial to follow Costa Rican labor and tax laws when paying employees, but staying compliant with an unfamiliar set of rules and laws can be a challenge. That's where this guide comes in. Read on for a step-by-step guide to paying employees in Costa Rica.

Table of Contents

  • Step 1: Decide whether or not to create your own entity in Costa Rica or use an Employer of Record (EOR)
  • Step 2: Choose a global payroll software solution
  • Step 3: Determine your workers’ employment status
  • Step 4: Capture your new hires’ Costa Rican payroll information
  • Step 5: Run payroll
  • Step 6: Document and store your payroll records
  • Frequently asked questions about running payroll in Costa Rica

Step 1: Decide whether or not to create your own entity in Costa Rica or use an Employer of Record (EOR)

In order to be able to hire and pay employees in Costa Rica, you need a business entity in Costa Rica. There are two main ways to achieve this: You can establish your own legal business entity, or you can use an Employer of Record (EOR). 

When, why, and how do companies use an EOR?

An EOR exists as a legal entity through which foreign companies can hire and pay employees. They shoulder the responsibility for calculating and withholding taxes and for paying your taxes to the correct tax authorities. That's why EORs are a popular choice for smaller companies looking to expand their operations into new countries—an EOR can run payroll, manage employee benefits, and ensure your company is compliant with all the local laws and regulations in a new country.

Setting up a legal business entity is time and labor intensive. It requires a significant administrative load, and many small businesses simply don't have the time or resources to manage it. That's why they use an EOR, which allows them to get up and running in a new country much more quickly.

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When, why, and how do companies create their own entity?

If your business expands into a new country and decides to scale up operations there, it may eventually become more cost-effective to create a legal business entity. When you establish your own entity, that replaces the EOR as the legal entity for global hiring, running payroll, and ensuring local compliance.

Here's how to set up your own legal entity in Costa Rica:

  • Choose a power of attorney or incorporation agent. Setting up a business entity is easier in Costa Rica than in many countries, but you'll still need local help from someone fluent in Spanish and familiar with Costa Rican labor laws.
  • Choose and translate your company name, then register it through the Costa Rica Registrar of Companies.
  • Open a corporate bank account and deposit your starting capital.
  • File your incorporation charter, also known as an M&AA, with the mercantile section of the public registry in Costa Rica.
  • Register as a taxpayer by filing form D-140 with the Costa Rican Tax Administration.
  • Apply for labor risk insurance through the National Insurance Institute. This is required once you hire employees.
  • Register with social security. Your company will need to register as an employer with the Caja Costarricense de Seguro Social (CCSS).

Step 2: Choose a global payroll software solution

For most companies, having a software solution simplifies and streamlines the payroll process. When you need a software solution for managing global payroll, you have two options:

  • Global payroll processors use their own software to process your payroll, transmit funds, and calculate and file taxes in different countries. They allow you to pay local and international employees the same way: quickly, easily, and together in a single pay run.
  • Global payroll aggregators aggregate local payroll providers in different countries and manually transmit payroll files to them.

Learn more about the differences between global payroll processors and global payroll aggregators.

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Step 3: Determine your workers’ employment status

Costa Rica has different legal classifications for employees and self-employed individuals, or contractors. It's crucial to understand the difference and to know who you're paying in the eyes of the law. Misclassifying a worker in Costa Rica could result in legal, financial, and other penalties.

Under Costa Rican law, independent contractors do not have the same statutory entitlements and rights as employees, and any benefits they receive must be negotiated and included in their contractor agreement with their employers. 

While there are no laws surrounding payment methods for contractors, method and frequency of pay should be outlined in the contractor agreement. Employers do not need to withhold and pay taxes on contractors' behalf—contractors are responsible for paying their own social security contributions and income taxes.

Step 4: Capture your new hires’ Costa Rican payroll information

In order to hire and pay an employee in Costa Rica, you must have a signed employment agreement from them. The employment contract must include:

  • The employee's name, nationality, age, sex, and marital status
  • The addresses of all parties on the contract
  • The employee's identity card number
  • The terms and duration of the contract, if applicable
  • Agreed working hours and working days
  • The employee's salary or wage, plus how and when payments will be made
  • The address where work will be done
  • The place and date where the contract was signed

Step 5: Run payroll

You have an entity (either your own or via an EOR), you’ve set up your global payroll system, and you’ve ensured your employees are correctly classified under Costa Rican law.

Time to run payroll!

Here’s a preview of how Rippling’s global payroll system works:

Frequently asked questions about running payroll in Costa Rica

Can you pay Costa Rican employees in your local currency?

Yes. The Costa Rican labor code doesn't stipulate how employees and contractors must be paid, and many actually prefer to be paid in stable, valuable currencies like USD. However, to avoid tax headaches, it's always worth considering paying foreign employees in their local currency.

What are payroll taxes in Costa Rica?

Employers in Costa Rica are responsible for withholding certain taxes and paying them on their employees' behalf, including income tax and social security contributions. They are also responsible for paying their own employer taxes (outlined in the table below).

What are the employer costs for full-time employees in Costa Rica?

Employers are responsible for deducting the following from their full-time employees’ paychecks:

Healthcare, medical, and maternity leave


Family assignations


Basic pension scheme


Banco Popular Employer Fee




Complementary Pension Fund


Labor Capitalisation Fund


National Insurance Institute (INS)


Social Aid


Contribution from Banco Popular Employer


How much is the minimum wage in Costa Rica?

Costa Rica does not have an official minimum wage. However, there are informal pay thresholds that are generally observed, based on the employee's level of experience. The National Salary Council decreed new pay thresholds at the end of 2023.

Worker's experience

Daily pay rate

Unskilled worker

11,953.65 CRC per day

Skilled worker

13,448.72 CRC per day

Specialized worker

15,613.91 CRC per day

Semi-skilled worker

12,998.72 CRC per day

Keep in mind that, like in many countries in Latin America, Costa Rica mandates a 13th-month salary payment for employees, also called a Christmas bonus or aguinaldo

How much does it cost to run payroll in Costa Rica?

Many payroll software solutions are priced on a per-employee basis, or per pay run. Payroll service pricing varies according to:

  • Payroll frequency
  • The number of employees on your payroll
  • How often you add and remove payees
  • Any additional services you need, such as year-end processing or mailing out pay stubs

Can I manually run payroll for workers in Costa Rica?

If you choose to, you can manually run payroll for employees in Costa Rica. Many small businesses decide to run payroll themselves as a way to save money. But, keep in mind that manual payroll processing is time and labor intensive and will only require more resources as your business grows.

Manual payroll processing also opens you up to certain risks:

  • Compliance. With manual processing, there's always the risk of human error, omissions, or other compliance issues that can result in fines and penalties.
  • Security. Manual processes (especially when they're done using spreadsheets or paper records) are typically far less secure than software solutions, putting your employees' sensitive information at risk of being lost, stolen, or misused.

What are the late tax filing penalties in Costa Rica?

Employers in Costa Rica who are late to file taxes are subject to a penalty of 1% per month on the balance of tax due, up to a maximum penalty of 20%.

In cases of omission or fraud, a penalty of 50-150% of the tax due may be imposed. The amount depends on the severity of the infraction.

How do you pay contractors in Costa Rica?

To pay independent contractors in Costa Rica:

  • Ensure they're correctly classified as a contractor with our free Worker Classification Analyzer.
  • Agree to payment terms with the contractor: hourly or project rate, pay frequency and cadence, and the method of payment.
  • Use your chosen global payroll solution to pay the contractor in Costa Rican Colon or another currency, if specified in their contractor agreement. With Rippling, you can pay contractors in Costa Rica in their local currency, in a single pay run, without waiting on transfers or conversion.

Costa Rican employment laws aren't as strict as in many countries when it comes to employer-contractor relationships. However, it's extremely important to carefully outline all aspects of the contractor agreement in their contract to protect your business in case of any disputes. This can include payment methods, benefits, deliverables, and more.

Ready to learn more? See our full guide to running payroll for contractors in Costa Rica.

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Rippling and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any related activities or transactions.

last edited: March 26, 2024

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The Rippling Team

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