Employment Law in Costa Rica

Labor laws in Costa Rica

Employment relationships in Costa Rica are governed by its Constitution, the Labor Code (Código de Trabajo), international treaties, and judicial precedents, as well as collective and individual contracts. The Código de Trabajo serves as the primary legal framework and outlines workers’ rights, employer obligations, and the procedures for labor disputes.

Additionally, Costa Rican law places strict regulations on the use of temporary and subcontracted workers. Employers must provide written employment contracts and register workers with the social security system. Any outsourcing arrangement must still comply with all applicable labor protections and benefits.

Contracts

In Costa Rica, employment contracts can be fixed-term or indefinite, depending on the nature of the job and the agreement between the employer and employee. Indefinite employment contracts must include benefits such as enrollment in the Costa Rican Social Security Fund (CCSS), paid vacation, the 13th-month bonus (Aguinaldo), and severance pay.

Fixed-term employees are entitled to the same benefits as indefinite employees if the employee works beyond the duration of the fixed-term contract. Fixed-term contracts typically do not exceed one year unless justified by specific circumstances.

Termination and notice periods

Costa Rica does not have employment “at will,” so termination must be justified by law. Just cause for immediate dismissal include misconduct, negligence, dishonesty, and absence.

The country’s labor laws generally require written notice for termination, with periods varying based on the employee's length of service.

• Less than three months: no notice required
• Three to six months: one week’s notice required
• Six to 12 months: two weeks’ notice required
• More than one year: one month’s notice required

Employees terminated without just cause are entitled to severance pay (known as Cesantia), calculated based on their length of service and salary.

As your Employer of Record (EOR) in Costa Rica, we can assist you in managing employee terminations by providing legal guidance and a personalized process to ensure compliance with labor laws and minimize legal risks.

Probation periods

In Costa Rica, probation periods are indirectly addressed in local law. The period is generally limited to three months in the private sector, with similar durations applicable in government employment, as specified in employment contracts.

Working hours and overtime

The standard workweek in Costa Rica is 48 hours, typically structured as eight hours per day, Monday through Saturday. Day shifts cannot exceed eight hours per day or 48 hours per week. For night shifts, the limit is six hours per day and 36 hours per week. Mixed shifts that combine day and night hours must not exceed seven hours per day.

Any time worked beyond these legal limits is considered overtime. Overtime must be compensated at 150% of the regular hourly wage. For work on Sundays or public holidays, employees are entitled to double pay, unless Sunday is their usual day of work.

Taxes

In Costa Rica, withholding tax is known as Retención en la Fuente and is deducted by employers before paying salaries to employees. Employers must deduct income tax from employee salaries based on applicable income tax brackets and submit it to the Dirección General de Tributación.

Employer payroll contributions

Costa Rica's social security system requires employer contributions that are dependent on the total number of employees, and these contributions cover pensions, medical care, disability insurance, and gratuity payments. In addition, workers' compensation is financed by contributions from state governments, employers, and employees.