How to hire employees in Costa Rica through an Employer of Record (EOR) [2024 Guide]

Are you looking for talent in Costa Rica? As a company, your best bet is to start by hiring and onboarding contractors to different projects as you learn more about working in the country. But what if you find a few contractors you’d like to hire full-time?

To hire full-time employees in Costa Rica, you must create a legal entity in the country and stay compliant with benefits and payroll. Unfortunately, registering a legal entity can take months, including setting up bank accounts, registering the business, registering with the Costa Rican Social Security fund, and compliance with employment laws. If you miss one detail, your company can incur penalties and fees.

You can skip the wait by hiring through an “Employer of Record” (EOR) to handle the payroll, tax, and employee classification compliance for your full-time employees and contractors.

Here’s a step-by-step guide for hiring through an EOR in Costa Rica.

Step by step: How to hire through an Employer of Record in Costa Rica

Step #1: Decide between a Costa Rican EOR and a legal entity

Should you hire Costa Rican employees through an EOR or set up your own local entity? Your choice will come down to financial and time resources to commit to a long, often complex, timeline.

• Legal entity in Costa Rica. Setting up a legal entity from scratch usually requires registration with the National Registry, opening a local bank account, and consulting with local experts to ensure compliance with tax, required benefits, and labor laws. You’ll also need a local or foreign national legal representative to handle the process in Costa Rica and give them power of attorney to do so. Plus, all documents will need to be in Spanish.
• Costa Rican EOR. An EOR is a third-party service that operates as an employer on a company’s behalf—meaning you don’t need to set up your own local entity. As well as allowing you to hire full-time Costa Rican employees, EORs handle all the legal requirements for complying with Costa Rican labor code for payroll, contracts, and benefits. EOR services include calculating and withholding income taxes, onboarding and managing employees, and running payroll in Costa Rican Colón (CRC) or USD.

Step #2: How to choose the best EOR for your business

Before you choose a platform, you should consider the services you will need, and how much you plan to grow your global hiring presence.

• Is the EOR active in the countries in which you need to hire? The first, and perhaps most obvious consideration when choosing an EOR for global expansion.
• Does the EOR own its own entities in the countries it services? If the EOR does not own the entities, it means they are partnering with a local or third-party provider.
• How does the EOR protect your sensitive and confidential information? It is vital that your EOR has the appropriate data protections in place, as well as secure technology that eliminates potential disclosures of private information.
• Does the EOR offer automated solutions? You may want to look for an EOR that automates the busy work like onboarding and benefits enrollment and other common HR and IT tasks.
• What is the EOR’s support model? It’s essential that your EOR has support staff that is both easy to contact and experts in the regulations of the countries in which you are hiring.

Get the full checklist in our guide: What is an EOR?

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With Rippling, you can manage your global team in one system, easily localize onboarding flows, and manage compliance policies for your international employees. See Rippling. 

Step #3: How to hire and onboard your Costa Rican employees

Once you've picked an EOR that works in Costa Rica, you can begin the onboarding process by collecting the following information from your new employees:

• The employee's name, nationality, age, sex, and marital status
• Date of birth and date of hire
• Contact information, including their exact mailing address in Costa Rica
• Costa Rican identification or cédula
• Bank account information
• Amount to be paid in Costa Rican Colón (CRC)

Next, you must send out employment contracts outlining key working conditions, location, terms of the contract, and applicable non-compete and non-solicit agreements. An EOR can automatically localize and distribute employment contracts. 

Every Costa Rican hire will have a legally compliant contract offering statutory requirements for probation periods, working hours and working days, minimum wage, payment frequency, benefits, and termination policies like severance pay and notice periods. 

Costa Rica has mandatory benefits to comply with local laws, including:

• Maternity leave
• Paternity leave
• Sick leave
• Worker's compensation
• Overtime pay
• Vacation leave
• 13th-month salary or Aguinaldo
• Recognition of public holidays
• Social Security Administration, or Caja Costarricense de Seguro Social (CCSS), contributions

You can onboard new hires anywhere, end to end, with Rippling. Request a demo today.

Step #4: Run payroll

For the A-to-Z on global payroll, read our comprehensive guide to running international payroll for employees in Costa Rica.

Once you’ve collected a new hire’s information and both parties have signed employment contracts, an EOR will pay your Costa Rican employees in CRC or USD while withholding legally required income taxes and contributions. Employers must also pay into Costa Rica’s Caja or social security—around 34.5%— and employer taxes. 

Like many countries in Latin America, Costa Rica mandates a 13th-month salary payment for employees, also called a Christmas bonus or Aguinaldo, so keep that in mind.

Frequently asked questions about hiring through an EOR in Costa Rica

How much does an EOR cost?

EORs typically use one of two pricing structures:

• Fixed monthly fee per employee
• Percentage of payroll plus applicable taxes

Both methods can also come with various administrative fees, onboarding charges, and other costs for supplemental features. As opposed to doing manual payroll, while saving money in the short-term, opens up your company to both security and compliance risks. 

Keep in mind that you don’t need to use an EOR for your entire workforce. If you want to segment its use, you’ll only be charged for the employees you employ through the EOR.

What is the difference between an EOR and PEO?

A Professional Employer Organization (PEO) co-employs a company’s workforce and provides administrative services like paying employees, handling compliance, and filing payroll taxes. The company and PEO are jointly responsible for the workforce. A PEO does not, however, allow you to hire in other countries where you haven’t set up a local entity. 

An EOR, on the other hand, is the sole employer of the portion of your workforce you use it for, assuming all the associated liabilities. Employer of record services allow companies to work with employees in other countries without setting up a legal entity.

A legal entity in Costa Rica can take months with language barriers, endless paperwork, and costly fees, but an EOR gets you up and running in a new country much more quickly.

Does an EOR protect your sensitive and confidential information?

While outsourcing your payroll management to an EOR can spare you time and compliance risk, sharing your data with companies who use third-party vendors leaves you exposed to data breaches from manual uploads. 

You should seek out EORs that prioritize data protection, including:

• Compliance with industry-standard privacy regulations in different countries.
• Secure infrastructure with around-the-clock maintenance.
• Carefully vetted personnel.

You can also establish a Data Processing Agreement (DPA) with a payroll service that mandates sound privacy practices and provides legal protection. 

Does an EOR help with Costa Rican tax filings?

An EOR can automatically calculate the tax rate and file your taxes in Costa Rica. Rippling, for instance, is an authorized payroll provider in Costa Rica. While there’s no equivalent form to the W-2 in the country, employers must provide employees with a comprobante de pago, or pay stub. Currently, it is required to open or maintain an existing bank account. 

An EOR can help provide pay stubs and file the required, per Costa Rican labor laws, periodic tax and social security reports with the government, including salaries, social security contributions, and income tax withheld. On your company’s behalf, the pay stub lists:

• Gross pay 
• Net pay
• Social security contribution
• Employer payroll tax
• Employee payroll and income tax deductions

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, depending on the infraction.

What are the mandatory benefits for Costa Rican employees?

Costa Rica labor law requires the following mandatory employee benefits to comply with Costa Rican labor law:

• Contributions to social security
• Overtime pay
• Notice periods and severance pay
• 13th month salary or Aguinaldo
• Sick leave
• Parental leave (including paternity and maternity leave)
• Vacation entitlements (which vary depending on years of service)
• Public holidays, like Mother’s Day, Labor Day, and New Year’s Day
• Workers’ compensation

Health insurance is not mandatory but recommended.

For more information on mandatory benefits in Costa Rica, read our complete guide.

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

Employers are responsible for deducting the following from their full-time employees’ salaries, along with social security contributions. Find the details below:

Rippling helps you hire, pay, and manage people worldwide. Request a demo today.

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.