Costa Rica Payroll Taxes & Employee Benefits
Costa Rica operates a social security system, which guarantees adequate medical care and a retirement fund to any individual that has contributed to the system.
Taxes have been structured in such a way since 1948 to finance and maintain that system and under certain circumstances, will pay monetary benefits to the employees.
That it is the reason why an additional financial charge must be budgeted regarding payroll, and depending on the circumstances, this could add 43.82% to your payroll and is divided as follows:
- Payroll Taxes: This is a monthly tax up to 26%, depending on the commercial activity of the company, and that should be paid based on the total gross salaries paid to all the employees during the month.
The payment of this tax is carried out directly to the Caja Costarricense del Seguro Social (known by its initials CCSS or as La Caja) and this is distributed among other government institutions including the Bank that the worker has chosen so the retirement fund can be administered.
- Christmas Bonus: This is a right that the employee acquires from the first day of work, and it is equal to 1/12 of the total gross salary paid to the employee within December 1 and November 30 of the previous year.
If the employee resigns or the company decides to let the employee go before reaching that period, this right should be paid.
- Vacations: every worker has the right to 2 weeks vacation after a continuous work of 50 weeks, this vacation is paid and it is mandatory. The worker cannot accumulate its vacations beyond 6 months after 1 year of continuous work; neither can request the payment in cash of the vacations, unless the specialty of its position thus requires it.
In the same way as the Christmas bonus, this right is acquired from the very first day of work, and if the worker resigns or the company decides to let the employee go, this benefit should be paid at the equivalent of 1 day of average gross salary per each month of work, if this benefit has not be taken already by the employee.
- Severance Payment: This is a benefit that is paid exclusively when the company decides to let the employee go, without just cause, and the payment can go from the equivalent of 7 to 22 days of average gross salary, according to the time that the employee has worked for the company.
- Notice: This right is paid alone when the company decides to let the employee go and is required that the employee leaves the facilities immediately.
This ranges from the equivalent of 7 to 30 days of average gross salary, if the worker is allowed to stay in the facilities, the notification should be given within the same parameters according to the time that the employee has worked for the company, but this time has to be paid as regular salary, in addition, the employee has the right to take one day off per week to find a new job.
An employee can not be denied these benefits. If an employer under pays or does not pay all the specifics payroll taxes or employee’s benefits, the employer can be sanctioned with high fines and, it should be noted that in severe cases, the company could even be forced to close by the Costa Rican government.
Randall Zamora, President and CEO of Costa Rica ABC, a former CFO of multinational companies like Health Care Merger Inc and Four Seasons Resort Costa Rica, with twelve years of experience in accounting, management and tax advisory. Randall is fluent in English and is our Preferred Professional for Costa Rican tax matters.
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Written by Randall Zamora who is the President and CEO of CostaRicaABC.com, former CFO and Head of Accounting Department of multinational companies like Four Seasons Resort Costa Rica, active member of the Interamerican Accounting Association, Pro Bono Local Partner of The World Bank and contributor to their yearly publication “Doing Business Report.”
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