Costa Rica’s welcoming business environment and stable economy make it an ideal destination for expansion. Effective payroll management is crucial due to its diverse labor laws. Gloroots streamlines payroll processes, ensuring compliance. Employers hiring in Costa Rica or through an Employer of Record (EOR) in Costa Rica must navigate these regulations carefully for efficient payroll administration.

How is payroll calculated in Costa Rica?

In Costa Rica, calculating payroll involves determining the gross salary and then subtracting necessary deductions like social security contributions and taxes to find the net salary. Here’s a breakdown of the process:

• Gross Salary: This includes the base pay plus any allowances.
• Deductions: Social security contributions are subtracted from the gross salary.
• Net Salary: What remains after deductions is the employee's take-home pay.

Discover the latest insights on Global Payroll Trends for 2024.

How to set up payroll in Costa Rica 

Step 1: Company Registration

In Costa Rica, businesses must first register as either a corporation or a limited liability company. The Costa Rican Registry of Companies oversees this accreditation process.

Step 2: Labor Law Compliance

A thorough understanding of Costa Rican labor laws is essential for payroll setup. These laws encompass key elements of employment contracts, including minimum wage, overtime pay, and various employee benefits.

Step 3: Gather Employee Information

It is crucial to gather comprehensive employee information to complete employment contracts. 

Essential details include:

Employee's full name

Residential address

Gender

Agreed working hours

Wage details

Work location

Step 4: Draft a Payroll Policy

Developing a clear payroll policy is necessary to manage business payroll efficiently. This policy should outline the payroll schedule, employee benefits, and payment methods.

Step 5: Set Up a Bank Account

To ensure timely salary disbursements, taxes, and social security contributions, a local bank account must be established. This facilitates seamless financial transactions and compliance with local regulations.

Payroll Process in Costa Rica

Step 1: Establish a Subsidiary

To begin payroll processing in Costa Rica, businesses must first establish a subsidiary within the country. This legal step is essential for operating a business in Costa Rica and obtaining a corporate identification card. This card enables the submission of payroll slips and tax forms.

Step 2: Register the Business

Following the establishment of the subsidiary, the business must be registered with the appropriate Costa Rican authorities. This registration is crucial for legal operation in the country.

Steps to Begin Payroll Processing

Identify Salary and Statutory Components

Identifying salary components and statutory requirements is a critical step in the payroll process. These components include the minimum wage, overtime payments, social security contributions, and other relevant factors.

Create a Payment Schedule

Setting up an appropriate payment schedule is the next step. According to Costa Rica's Labor Code, employees must be paid at least once per month.

Calculate Payroll

Calculating payroll involves considering various factors such as working hours, unpaid leaves, overtime compensation, allowances, and bonuses. Employment contracts should be reviewed to ensure all benefits and deductions are accurately accounted for.

Make Payments

Once payroll calculations are complete, disbursements can be made either through a bank or by using payroll processing software.

Perform Payroll Accounting

Tracking payments through payroll accounting is an essential aspect of the payroll process. This can be managed internally or outsourced to ensure accuracy and compliance.

Ensure Payroll Compliance

Ensuring compliance with Costa Rican regulations involves making necessary contributions to the Social Security Fund and the National Insurance Institute for workers’ compensation by the due dates.

Payroll Cycle

In Costa Rica, the payroll cycle typically operates on a monthly basis, with payments issued once per month.

Payroll Processing

Achieving maximum ROI in Costa Rica requires a thorough understanding of payroll processing compliance, which can be time-consuming and resource-intensive for many companies. Gloroots offers a cutting-edge payroll software platform equipped with built-in compliance features, perfectly suited to meet the needs of global businesses.

Payroll Management

In Costa Rica, managing payroll involves meticulous record-keeping of employee payments, including both gross and net amounts, as well as benefits. It also necessitates strict adherence to the Costa Rica Labor Code and various employer-employee statutes. Gloroots ensures this complex process is handled with precision and compliance. 

Explore our  A Complete Guide to Payroll Management | Gloroots for in-depth insights

Payroll Components

Minimum Wage

In 2023, the minimum wage in Costa Rica ranges from CRC 11,738.83 per day for unskilled workers to CRC 15,333.31 per day for specialized employees.

Working Hours

In Costa Rica, the standard workweek consists of 8-hour days, totaling 48 hours per week. For those working night shifts, from 7 p.m. to 5 a.m., the maximum allowable workweek is reduced to 36 hours.

Overtime

In Costa Rica, any work exceeding 48 hours in a week is classified as overtime and is compensated at 150% of the regular wage rate. Work performed on holidays is paid at double the regular rate, or 200%. Additionally, the maximum allowable daily overtime is restricted to 4 hours.

Social Security 

In Costa Rica, social security contributions are a crucial aspect of the employment landscape, benefiting both employees and employers. Here's a breakdown of the various components involved in social security contributions:

Employer Payroll Contributions:

• Healthcare & Maternity (SEM): 9.25%
• Basic Pension Scheme (IBM): 5.42%
• Banco Popular Employer Fee: 0.25%
• Family Assignations: 5.00%
• Social Aid (IMAS): 0.50%
• Training Fund (INA): 1.50%
• Contribution from Banco Popular: 0.25%
• Labor Capitalization Fund: 1.50%
• Complementary Pension Fund: 2.00%
• National Insurance Institute (INS): 1.00%

Total Employment Cost: Sum of all employer contributions.

Note: Solidarity Association is optional and not included in the total cost.

Employee Payroll Contributions:

• Healthcare & Maternity (SEM): 5.50%
• Disability, Old Age & Death Benefits (IVM): 4.17%
• Contribution from Banco Popular: 1.00%

Total Employee Cost: Sum of all employee contributions.

Sick Days

In Costa Rica, employees are granted fully compensated sick leave for the initial three days of illness. During this period, the employer covers half of the employee's regular salary, while social security funds cover the remaining half. Once the sickness extends beyond the third day, social security steps in to pay 60% of the standard daily wage, relieving the employer of any further obligation to compensate the employee.

To avail themselves of this benefit, the employee must promptly furnish a medical certificate to the social security administration within 48 hours of commencing sick leave. This document serves as the basis for the timely disbursement of sick leave payments.

Parental Leave

Parental leave is not mandated for employees in the private sector. 

Discover the latest insights on Global Payroll Trends for 2024.

Employee Income Tax Rates

Find the Best Costa Rican Talent for Your Business Today

To discover the top talent in Costa Rica, Gloroots streamlines hiring and payroll processes by offering comprehensive payroll management and ensuring adherence to local labor laws. Our proficiency in risk management, efficient onboarding, and payroll integration allows businesses to focus on growth while we handle payroll complexities. Rely on Gloroots to expertly manage payroll and talent acquisition in Costa Rica, ensuring a seamless and effective process.