Labor laws in Costa Rica. ☎️ A legal overview.
The essence of Costa Rica’s labor laws is deeply embedded in both its Constitution and the foundational Labor Code of 1943. The nation has also embraced various international labor standards, primarily by ratifying conventions from the International Labor Organization (OIT). These regulations prohibit discrimination based on various factors, including race, religion, gender, age, disability, and sexual orientation. Article 68 of the Constitution firmly prohibits discrimination in the workplace, while Article 57 enshrines the principle of equal pay for equal work.
In a significant move towards enhancing worker rights, the Labor Code was revised in 2016 to expand protections against discrimination, incorporating provisions for union affiliation and other analogous categories of discrimination, such as discrimination based on political beliefs or social status.
Several regulatory bodies oversee labor practices in Costa Rica to ensure these laws are consistently upheld, including the Ministry of Labor and the Costa Rican Social Security or “Caja Costarricense del Seguro Social” (CCSS). These institutions play a vital role in enforcing compliance with labor standards and holding local and expatriate employers accountable. In cases where workers´ rights are violated, the Court grants indemnification, which is a form of compensation or payment, to the affected workers.
Understanding the Employment Relationship
Costa Rican labor law emphasizes the concept of a ‘Reality Contract’ (Contrato Realidad). This means that a work relationship is considered to exist when an individual begins working, even if no formal contract is signed. Section 18 of the Labor Code states that the actual conditions of the employment arrangement – such as consistent work hours (horario), subordination, and service compensation – define the relationship more than any formal designation. This reality-based approach ensures that workers receive complete protection regardless of their contract status. Employers should be cautious of misclassification, as mislabeling workers as ‘independent contractors’ will not hold water under the law.
To avoid misclassification issues:
- Clearly define the role: Outline tasks that require direct supervision or set hours, which may indicate an employee relationship.
- Understand compensation guidelines: Regular wages, benefits, and rights under the law will apply if the individual’s duties resemble those of an employee.
Costa Rican labor courts consistently rule based on the reality of the employment arrangement, providing solid protections to workers under this principle.
Employment Contracts: Requirements and Best Practices:
While written contracts are not mandatory in all cases, employers should establish one to clarify terms and conditions. Written contracts are primarily required for ongoing work, such as a long-term housekeeping or property management role; technical, like a specialized IT position; or administrative, such as a personal assistant role. The contract should detail the employee’s name, nationality, age, role, work hours, salary, location of work, and any additional benefits or allowances. Employment contracts may be fixed or indefinite, with fixed-term contracts typically limited to one year. If the employment continues beyond the contract’s end date, the arrangement is presumed to become indefinite, providing additional protections to the employee.
Labor laws on Wages, Work Hours and Overtime:
Costa Rican labor law stipulates minimum wage rates across different job categories, set biannually by the Ministry of Labor (Ministerio de Trabajo). These rates are published in La Gaceta, Costa Rica’s official government gazette, and employers must meet or exceed these minimums. Wages may be paid hourly, daily, or monthly, allowing flexibility for employers and employees to agree on a preferred schedule.
The Labor Code establishes maximum work hours based on three main shift types:
Day Shift: Up to 8 hours per day and 48 hours per week.
Night Shift: Limited to 6 hours per day and 36 hours per week.
Mixed Shift: Up to 7 hours daily and 42 hours weekly, covering both day and night.
Overtime is any time worked beyond these limits and must be compensated at 1.5 times the standard hourly rate. Working on designated rest days. Usually, Sundays or national holidays require double pay. Employers should implement clear policies and track work hours carefully to avoid unplanned overtime and maintain compliance. This proactive approach allows employers to feel in control of their compliance with labor laws, ensuring they meet their obligations and avoid penalties.
Mandatory Benefits: Vacations, Holidays and Aguinaldo:
Costa Rican labor law mandates several benefits designed to provide both financial stability and personal time for workers:
Vacation: After 50 weeks of continuous employment, employees earn two weeks of paid vacation. For contracts shorter than 50 weeks, vacation is prorated based on the duration of employment.
Public Holidays: 11 official holidays in Costa Rica are observed nationwide. Employees who work on any of these days must be compensated at double their regular rate.
All employees, regardless of contract type or length of service, are entitled to an annual “Aguinaldo,” a unique aspect of Costa Rican labor laws. This is a Christmas Bonus equivalent to one month’s salary, paid between December 1 and 20. It is calculated by dividing the total wages earned over the previous year by 12. Understanding this bonus is essential for expats, as it is a significant part of the annual compensation for their local staff. In addition, employers commonly offer benefits that cover transportation costs, meal allowances, or health benefits, though these are not mandatory. Such perks can make a position more attractive and may help reduce turnover.
Labor Termination Procedures and Severance:
Terminating an employee in Costa Rica requires adherence to specific legal procedures, mainly when dismissal is without cause. Article 81 of the Labor Code outlines various grounds for disciplinary dismissal, including neglect, misconduct, and failure to perform duties. If a worker is terminated without cause, the employer must provide a prior notice (preaviso) or equivalent compensation.
The notice period for termination depends on the length of employment:
- For three to six months of employment: one week’s notice
- For six months to one year: two weeks’ notice
- For over one year: one month’s notice
If no notice is given, equivalent compensation is required. During the notice period, the employee may take one day off weekly to seek new employment.
Severance Payment: Employees terminated without cause after three months are entitled to severance (cesantía). This payment is calculated based on years of service, increasing progressively to a maximum of eight years. For each year worked, the employee receives one month’s salary, using an average of the last six months’ earnings as the base. Severance is capped after eight years. Employees may also claim compensation for unused vacation days and a pro-rated Christmas bonus if terminated before December.
Social Security and Worker´s Compensation:
Employers in Costa Rica must register employees with the Costa Rican Social Security Fund or “Caja Costarricense del Seguro Social (CCSS), which administers healthcare, pensions, and disability benefits. Employers contribute 26.67% of the employee’s salary to Social Security, while employees contribute 10.67%. This system and mandatory worker’s compensation insurance through the National Insurance Institute (INS) protect employees against work-related injuries, illness, and other life events. Notably, failing to provide these benefits leaves employers liable for the total cost of any medical care or compensation required due to workplace incidents.
Data Protection, Background Checks and Medical Exams:
Costa Rica also has laws to protect employee data. Employers must obtain employee consent before gathering or processing personal information and disclose how the data will be used. Additionally, background checks are permitted within specific limits, particularly concerning criminal records related to certain crimes. Medical exams can be required for job roles that pose health risks, although tests for conditions like HIV or pregnancy are prohibited.
The Role of Unions and Worker Representation under Costa Rica´s labor laws:
Costa Rican law allows for freedom of association, giving employees the right to unionize. Trade unions are joint in Costa Rica and are the primary body for negotiating collective agreements with employers. These agreements cover wages, working hours, and workplace conditions. Although non-union representation is not mandated, many companies also recognize workers’ committees, which play a role in labor negotiations and resolving workplace disputes.
Hiring Foreign Workers: Immigration and Work Permits
Costa Rica has specific regulations for hiring foreign workers, which require a work permit or residency status authorizing employment. Temporary residents, including executives or specialized personnel, may be granted work permits under certain conditions. Spouses of foreign workers may also receive work authorization as long as they meet legal criteria. Employers face fines for hiring unauthorized foreign workers, so verifying employees’ work status and securing proper documentation is crucial.
Best practices for labor relationships:
Understanding and respecting local labor laws is essential for expats hiring workers in Costa Rica. Here are several best practices to help navigate the system:
- Use Written Contracts: Even if not legally required, a written contract clarifying job duties, salary, and benefits can prevent misunderstandings and serve as essential documentation.
- Register with Social Security and INS: Fulfilling Social Security with the Caja Costarricense del Seguro Social (CCSS), and insurance obligations with the “Instituto Nacional de Seguros” (INS) is critical, as non-compliance can lead to substantial financial and legal liabilities.
- Observe Wage and Overtime Standards: Paying at least the minimum wage, compensating overtime properly, and adhering to holiday pay regulations help maintain fair practices.
- Provide Notice and Severance When Required: Properly terminating employment involves giving required notice and severance pay. Vacations, Aguinaldo, Cesantía (severance), and Preaviso (prior notice) play a role in the labor termination. The worker can sue if breached, and the Costa Rican courts generally side with employees in disputes.
- Protect Employee Data: Ensure employee privacy by only collecting necessary information, respecting confidentiality, and obtaining consent for data gathering.
Labor laws in Costa Rica are designed to provide robust protections for workers, including guaranteed wages, healthcare benefits, and fair dismissal procedures. Understanding these regulations is vital for expat employers to foster a compliant, harmonious work environment. By aligning with Costa Rica’s labor laws, expat employers can protect their businesses, uphold workers’ rights, and build a positive reputation in their new community.
Dr. Christopher Pirie Gil.
CPG LEGAL
