10 things employers need to know about Costa Rican labor and employment laws

Costa Rica's labor and employment laws can be complicated, navigating cultural differences, a different language, and changing labor code regulations. As a company with a global workforce, you must stay on top of local labor laws. In Costa Rica, this means staying compliant with labor standards by the Employment Bureau of the Ministry of Labor and Social Security.

It is important for your company's success to prioritize the employment relationship and confirm compliance with all regulations in Costa Rica, including employee benefits and lawful termination procedures. This guide will help you understand how to navigate it all so you can easily hire and onboard Costa Rican talent.

1. Don’t skip the employment contract

Verbal offers are only allowed for agricultural jobs and temporary work in Costa Rica. You must accompany your job offer for full-time employees with a legally compliant, written employment contract that closely follows the Employment Bureau of the Ministry of Labor and Social Security’s regulations. You’ll need to send a copy to the ministry and the employee. Check out our Costa Rica job offer letter checklist to make sure your contract includes all requirements.

2. Misclassifying employees leads to expensive penalties

Misclassification of workers in Costa Rica can lead to expensive lawsuits and harsh penalties, as Uber found out in 2020 when they misclassified employees as contractors. The court in San José ruled in March 2023 that Uber needed to pay retroactively for labor benefits.

Getting the correct classification starts the employment relationship in a good place. The employees have agreed to an employment contract establishing their subordination and guaranteeing their entitled benefits and salary. A contractor provides services to a company for a limited period of time, completed on their own time.

3. Work permit processes are notoriously slow

If you are considering hiring a foreign national or transferring an employee within your organization to Costa Rica, understand their visa and work permit needs so they can live and work there legally. The work permit process is extremely slow, taking up to eight months, sometimes longer, so be ready for a longer timeline than usual. Be transparent with the employee that their offer letter is contingent on them receiving their paperwork to work and live in the country legally.

4. Costa Rica has mandatory employee benefits you can’t skip

Under Costa Rican law, an employer must provide certain mandatory benefits to their employees. Employers are required to contribute to social security and labor risk insurance and offer parental leave, vacation leave, Christmas bonus, sick leave, overtime pay, and public holidays. Failure to do so will result in government penalties and hefty fines.

5. There’s no at-will employment

In Costa Rica, you can terminate an employee without just cause as long as you pay them severance pay per their employment agreement. Don’t forget to add the aguinaldo to the severance package. There are also pre-determined notice periods based on how long an employee has been in the company. If the employee takes you to court, be ready for a lengthy process of two years or more as the courts continue to be backlogged.

6. Costa Rica has one of the most robust data privacy laws

Following the hiring and onboarding of an employee, the employer must prioritize protecting their personal information and use the information gathered in the background check only for legitimate purposes. Informed consent, in writing, is required before personal data can be collected, including background checks under Costa Rican law.

7. Discrimination is illegal under the Equal Opportunities Law

Under the Costa Rica Equal Opportunities Law for People with Disabilities, no person can be discriminated against because they have a disability if they have the same qualifications as another person. You also cannot discriminate against a person with disabilities and not offer them a job based on their medical history. The employer must provide reasonable accommodations as well.

8. Non- disclosure agreements are enforceable in Costa Rica

Non-disclosure agreements are enforceable in Costa Rica, but to be valid, they must be in writing and clearly state the confidential information in question. The NDA will need to be signed by all parties involved—usually the employee and employer—without coercion, per Costa Rican labor code.

Frequently asked questions about Costa Rican labor laws

What are the minimum wages in Costa Rica?

Costa Rica does not have an official minimum wage. However, there are recommended informal pay ranges based on the employee’s experience level. You can view those salary ranges in our guide.

What are the overtime laws in Costa Rica?

Per Costa Rica labor laws, any work week exceeding 48 hours is considered overtime. Employees can work up to four overtime hours a day, for a total of 12 hours in a shift.

Employers must be paid overtime at 150% of the employee's regular wages. On holidays, the pay rate goes up to 300% of their regular wages.

What are the required benefits in Costa Rica?

Per Costa Rica labor laws, employers must offer minimum required benefits to full-time employees. These include:

• Social Security. All Costa Rican employers are required to contribute to the Caja Costarricense de Seguro Social (CCSS), or social security administration, for all of their employees. The typical employer contribution is around 26.67% of the employee's salary.
• Worker's compensation. Employers are required to provide labor risk insurance for all their employees and pay into the National Insurance Institute (INS), which handles labor risk insurance claims and payouts.
• Overtime pay. Employers must pay for any overtime over 48 hours in one week per Costa Rican law.
• Vacation leave. Employers must offer a minimum paid vacation time of 12 working days for employees that have worked at the company for a year or more. Employees with less time at the company will receive pro-rated vacation time.
• 13th-month salary. Costa Rican employees are entitled to a 13th-month salary payment, sometimes called a Christmas bonus or aguinaldo. These payments are made just before Christmas and are equal to the average monthly salary of the previous 12 months.
• Recognized national holidays. Costa Rican employees are entitled to several national public holidays, including Christmas, Labor Day, New Year's Day, Independence Day, and others.
• Parental leave. Employers must offer parental leave, including maternity leave and paternity leave. Pregnant employees receive four months of maternity leave at 100% of their salary, one month before their due date and three months after birth. As of 2022, fathers in Costa Rica are entitled to eight paid days of paternity leave — two days a week for the first month after their child is born.
• Sick leave. Employers must offer sick leave in conjunction with social security and follow the required payment amounts for the length of sickness.

How do I terminate employees in Costa Rica?

In Costa Rica, you do not need a reason to terminate an employee if you pay them severance pay. There are acceptable grounds for termination of employment in Article 81 of the Costa Rican Labor Code:

• Involved in legal issues, including committing slander or a crime
• Deliberately misleading an employer about professional qualifications, including falsifying resume data
• Breaking confidentiality agreements and other clauses as set forth by the employment contract
• Working under the influence, including drunk or using drugs
• Excessive absenteeism, including not working during work hours without a valid reason or checking in with a manager for more than 48 consecutive hours during working days
• Serious misconduct, including harming other employees or the company in any way

If you end the employment contract without just reason and terminate the employee, they have the right to the following as severance payment:

• Compensation for unused vacation and sick leave
• Any remaining salary they’re owed from the employment agreement
• A lump-sum payment that equates to around 20 days of pay for each year of service
• A portion of their aguinaldo, or thirteenth month’s salary (also called Christmas bonus)

Although it is possible to terminate an employee without a valid reason, the Costa Rican legal system may still require you to provide evidence of a just cause for ending the contract if the employee decides to take legal action.

Make sure you take note of mandatory notice periods based on the period of time worked and other essential steps to stay compliant in Costa Rica by reading our guide.

Hire and onboard Costa Rican employees with Rippling

If you're hiring employees, independent contractors, or remote workers in Costa Rica, you need Rippling. Rippling makes it easy to onboard and manage employees and contractors around the world.

Rippling and its affiliates do not provide tax, accounting, or legal 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.