Costa Rica is a small country located on the Central American Isthmus. It has Nicaragua to its north and Panama to the south allowing companies to enter these markets easily.
The country’s stable economy provides companies with balance payments, price stability, and sustainable economic growth. For a period, Costa Rica was dependent on agriculture. But tourism, IT services, and exporting electronics and medical components have become prevalent.
Foreign companies often look to hire a workforce from Costa Rica. However, hiring from the country can become hazardous if you are not entirely acquainted with the payroll policies in Costa Rica. Here, we will discuss all the payroll process in Costa Rica.
How Is Payroll Calculated in Costa Rica
The payroll in Costa Rica is calculated by deducting contributions to the social security funds from the gross salary. The payroll calculation can look like
Gross salary – Total deduction = Net Salary
Income tax is applicable to the gross salary. The table below contains the rate of income tax for various annual thresholds.
Annual Threshold ( in Costa Rican Colon)
Income Tax (%)
863,001 – 1,267,000
1,267,001 – 2,223,000
2,223,000 – 4,445,000
Important Elements of Salary Structure in Costa Rica
The various elements of the salary are a crucial part of the payroll requirements in Costa Rica. These elements include the following.
The labor code of Costa Rica prescribed different minimum wages based on skill and education level. It is mandatory for employers to pay a specified minimum wage to all employees.
The gross salary is calculated by adding various allowances to the basic salary. The gross pay does not include taxes and other deductions.
The net salary or net pay is a crucial element of the payroll in Costa Rica. It is the amount the employee receives after adjusting the tax and other deductions with the gross salary.
Overtime allowance is another significant part of the payroll process in Costa Rica. The overtime pay is 150% of the regular wage for overtime on work days. However, employees will receive 200% of the regular wage for working on holidays.
There is a mandatory requirement for 13th-month pay in Costa Rican labor code. The employers must pay the salary for one month between 1st and 20th December every year.
How to Setup a Payroll in Costa Rica
Follow the steps given below to understand how to set up a payroll in Costa Rica:
Register your company
You can register your company as a corporation or a limited liability company in Costa Rica. The accreditation authority in Costa Rica is the Costa Rican Registry of Companies.
Compliance with labor law
You need to know the labor law to understand every aspect of the payroll regulation in Costa Rica. The labor law generally has all the crucial elements of an employment contract, like minimum wage, overtime pay, and various employee benefits.
Collect employee information
The employment contract must have all the employee information that you may require. The crucial information includes
- Employee name
- Employee’s address
- Agreed working hours
- Work location
Draft payroll policy
Create a payroll policy that spells out the guidelines to manage business payroll. It includes the payroll schedule, employee benefits, and the payroll method.
Set up bank account
You need to ensure your employees receive their salaries on time. For that, you need to set up a local bank account to pay salaries, taxes, and social security contributions.
A Step-by-step Process of Payroll Processing in Costa Rica
The first step in payroll processing is to set up a subsidiary of your business in Costa Rica. Next, you must register your business in Costa Rica, which allows legal operation. You will receive a corporate identification card. It allows you to submit payroll slips and tax forms.
After completing the previous steps, you can start the payroll process in Costa Rica by following the steps mentioned below:
Salary and statutory components identification
- In this step in the payroll procedure in Costa Rica, you need to identify the salary and statutory components.
- The salary components include the minimum wage, overtime payments, social security, and others.
Creating a payment schedule
- The next step requires you to set up a payment schedule that suits you the best.
- According to the Labor Code of Costa Rica, the employees must be paid once per month.
Employers should consider factors such as working hours, unpaid leaves, overtime compensation, allowances, and bonus. You can also refer to the employment contracts for each employee to check if they are eligible for any other benefit or deduction to calculate accurate payroll in Costa Rica.
After completing the calculation, you can either send advice on disbursement to the bank or use any payroll processing software.
Performing payroll accounting
Payroll accounting is an essential part of the payroll process in Costa Rica. It keeps track of the payments you have made. You can do payment accounting on your own, or you can outsource it.
The final step is to ensure compliance with the rules. Make the necessary contribution to the Social Security Fund and National Insurance Institute for workers’ compensation on the due dates.
The employer and the employee both make various contributions, which are as follows:
Social Security Fund
Employer Contribution (%)
Health and Maternity
Banco Popular Employer Fee
Contribution from Banco Popular
Labor Capitalization Fund
Complementary Pension Fund
National Insurance Institute
Social Security Fund
Employee Contribution (%)
Medical and Maternity
Disability, Old Age and Death Benefits
Workmen’s Savings Banks
Companies should mention the payroll cycle in their payroll policy to help the employee understand the payroll procedure better. Generally, employees get paid at month’s end.
Costa Rica Payroll Options for Companies
For companies considering expanding their business, there are four options to manage payroll in Costa Rica. The options are
Comparatively larger companies worldwide usually set up their internal payroll service. This form of payroll requires you to set up subsidiaries in the country. In addition, it is necessary to hire personnel on the HR payroll in Costa Rica.
Remote payroll is a system that manages the payroll for out-of-state employees. This form of payroll does not require setting up a subsidiary. Usually, you can utilize your existing payroll in this form. However, you must follow the payroll rules and regulations in Costa Rica while setting up a payroll.
Outsourcing to local payroll service provider
The third option is outsourcing your payroll service to a local payroll processing company. This option is best when you want to remain in the loop by having all the information related to payroll in that country. But you or your company will be responsible for compliance with all the payroll rules of Costa Rica.
Hiring a global payroll service
The fourth option is hiring a global payroll service. The global payroll services have vast experience managing payroll for several multinational companies. Working with us means you do not need to worry about following the labor code regulations while managing payroll in Costa Rica.
Entitlement And Termination Terms
The labor code in Costa Rica makes it mandatory for employment contracts to be in written format. Such agreements should contain benefits entitled to the employees and terms of termination. While discussing payroll policies in Costa Rica, we must look at these entitlement and termination terms.
While discussing the payroll regulations in Costa Rica, the entitlement terms are an integral part that we should not miss. Now, employees in Costa Rica can receive various benefits from their employers. Here are a few of them.
The labor code of Costa Rica has significant rules on paid leaves. The employees will receive one day’s leave for every month of work. After working for 50 weeks, they will receive a leave of 14 days.
The country celebrates a total of 11 public holidays. The list below contains the national holidays in Costa Rica.
- New Year’s Day
- Maundy Thursday
- Good Friday
- Juan Santamaria Day
- Labor Day
- Annexation of Nicoya to Costa Rica Day
- Feast of Our Lady of the Angels Day
- Mother’s Day
- Independence Day
- Army Abolition Day
- Christmas Day
- The labor code of Costa Rica states that pregnant employees are entitled to a maternity leave of four months.
- Of the four months, one is before childbirth, and the rest three are after.
- During this period, the employer will pay half the salary to such employees. The social security fund will pay the other half of it.
- If an employee takes sick leave of three days, the employee will pay half of their wage, and Social Security will cover the rest.
- If the sick leave is of more than three days, then, from the fourth day, the social security fund will pay 60% of the wage.
- The employer does not require to pay any compensation during this period.
Employers can terminate employees for the following reasons:
If the employer terminates an employment contract for a particular reason, they submit the proof of the cause to the appropriate authority. It can be due to poor performance, misconduct, and other reasons.
An employer can also lay off an employee without showing any just cause. In this case, they will pay severance pay according to the length of service. The severance pay ranges from seven days ( for service between three to six months) to a salary of 22 days per year ( for service ranging from 7 to 9 years).
In both cases, there should be a notice period depending on the length of service by the employee. The table below shows the notice period for different service lengths.
Three to six months
Six months to one year
One year or more
Costa Rica Payroll Processing Company
To get the most out of the payroll procedure in Costa Rica, two options are available for you. You can choose to manage payroll yourself by internal or remote payroll processing. You can partner with a global payroll service like Multiplier to outsource your payroll service and keep yourself worry-free.
How Multiplier Can Help with Global Payroll
At Multiplier, we offer global payroll solutions in over 150 countries. Our experienced professionals manage your payroll policies in different countries. We have in-depth knowledge of the local rules and regulations to provide a compliant payroll. We handle your payroll services so you can concentrate on other aspects of your business.