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Spotlight on Costa Rica

Costa Rica, the oldest democracy in Latin America (LATAM), has earned a reputation as one of the most favored investment destinations in the Americas. Apart from its longstanding tradition of democracy, peace and economic stability, Costa Rica also attracts investors from abroad due to its low levels of corruption, geographic location in Central America, high quality of life and developed workforce. When it comes to hiring or expanding into Costa Rica, global companies enjoy a lucrative cost to benefit ratio, a friendly business environment and sophisticated infrastructure.

Why Costa Rica? 

  • Recognized as LATAM’s happiest country, Costa Rica also offers global companies a highly-educated and productive talent pool. The Global Innovation Index ranks Costa Rica among the most educated in LATAM.
  • In recent years, the country’s Ministry of Education has invested heavily in technology, research and development. As a result, Costa Rica’s workforce embraces a creative and innovation-oriented mindset and the country’s startup ecosystem is thriving.
  • For companies where real-time collaboration is a requirement of daily operations, Costa Rica allows multinational teams from elsewhere in the Americas to work in the same or adjacent time zone.
  • While Spanish is the native language, Costa Rica is one of the most bilingual countries in all of LATAM. Furthermore, the country has aligned itself with North American culture through its business practices and education, which can make hiring easier. For example, Costa Rica’s technology sector also pursues certifications that are relevant to North American businesses such as PMP, Six Sigma and ITIL.

What do global companies need to know about hiring in Costa Rica?

The HR landscape of Costa Rica is complex and unique, demanding expertise and constant attention to evolving regulations.

The employment process in Costa Rica begins with the employer drafting and issuing a written employment contract for the employee to sign. This document is required to include all terms and conditions of employment such as compensation, benefits, entitlements, leave schedule and overtime policies.

Global companies should note that Costa Rica clearly defines the differences between independent contractors and employees, with employers maintaining control, direction and authority on the employee’s activities. However, an independent contractor completes their defined work independently and autonomously of the client’s control. If a company misclassifies an employee as an independent contractor, there could be harsh legal consequences.

Costa Rica’s standard work week allows for a maximum of 48 hours, which can be spread across five or six days. However, there are slightly different rules in place for different types of work that companies should be aware of. Additionally, overtime must be compensated at a rate of 150% above normal pay.

Employees in Costa Rica accrue one day of paid vacation leave for every month they have worked. After 50 weeks of work, they then receive a total allowance of 15 days. Following this, they may be entitled to further paid vacation days over time. For the first three days of absence for sick leave, employers must cover at least 50% of normal pay. Social security then pays the remaining half. When a sick leave period extends beyond three days, social security compensates the employee at a rate of 60% of normal pay.

Female employees in Costa Rica are entitled to a four-month period of paid maternity leave, taken one month before giving birth and three months after. During this time, the employer must compensate half of the employee’s normal salary and social security covers the remaining half. Some male employees may be entitled to a paternity leave period, depending on the sector.

In most cases, employees in Costa Rica are entitled to 30 days of notice prior to termination. Also, employers must also provide them with one paid day per week to search for another job. If an employee is terminated without proper cause, they are entitled to receive a severance payment. This varies from between seven days and 22 days of pay depending on how long they have worked for the company.

Social security contributions fund public health coverage, so employers are not required to provide private medical insurance. However, some employers do offer it as a customary benefit.

What is driving demand for Employer of Record (EOR) services in Costa Rica?

Despite pandemic-induced setbacks in the global economy, foreign direct investment (FDI) in Costa Rica is rapidly recovering. The rebound is being particularly felt in export-led industries, such as the production of light manufacturing, medical devices, precision equipment, technology, life sciences and food products. As global companies take a fresh look at Costa Rica for investment and expansion, they are discovering the country is a regional leader in quality, efficiency and innovation.

While global companies want to take advantage of Costa Rica’s diversified economy, it should be noted that operating a company and hiring in the country can be cumbersome. Costa Rica’s intricate labor code can make administering payroll complicated, requiring extensive knowledge of the regulations and a strong pulse on evolving updates. For example, labor regulations and guidance have changed several times throughout the pandemic period.

While global companies want to engage talent in Costa Rica, they don’t necessarily want to take on the burden and risks of hiring talent and operating an onshore entity. For many companies, it makes sense to engage a trusted EOR partner to handle hiring and HR needs.

How is GoGlobal’s EOR solution unique?

GoGlobal’s EOR solution has a track record of success in building fully compliant workforces in Costa Rica, enabling our clients to circumvent the typical burdens of establishing an entity, operating, maintaining payroll, paying taxes, etc.

We have engaged dedicated global and local experts to carefully design our EOR solution, ensuring a positive, seamless hiring experience for both our clients and their team members in Cost Rica. First, GoGlobal’s local team works hands-on with the hired employee in Costa Rica to define how the EOR arrangement will work. Once we work with the client company to onboard the employee, this same dedicated team serves as the employee’s point of contact. We are always ready and available to answer questions that arise about payroll, taxation or benefits.

Our goals are agility, efficiency and peace of mind for our clients. By using our tested and proven solution, global companies free their HR teams from having to navigate Costa Rica’s unique, evolving labor laws. Instead, we handle all payroll administration tasks and requirements – from contributions to taxation and benefits – while our clients focus on the core activities that help them grow and fulfill business goals in Costa Rica.

Find additional detail on benefits and hiring in Costa Rica, or contact us to talk with an international HR expert.