Employment & HR in Costa Rica

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Starting a business in Costa Rica has its own pros and cons. While the economy here is stable, growing steadily every year, and the crime rate is extremely low, the country also suffers a little in terms of unemployment, poor infrastructure, and efficiency of the public sector. However, Costa Rica is one of the most popular countries among investors and business owners. 

This is because, for the longest time, Costa Rica relied solely on agriculture as its primary trade and source of income. However, there has been a massive expansion in the types of trades carried out in Costa Rica. Tourism, IT, and exports of medical equipment and electronics are some of the industries that have emerged over the past few years. As these industries continue to grow and new industries emerge, Costa Rica poses various developmental and growth opportunities to new businesses. 

Costa Rica is also quite pro foreign investments, and as such, the government is working to revolutionize its policies to make them more favorable and attractive to foreign investors. Since the unemployment rate is nearly 12%, there is also the advantage of finding labor easily for the business, which is quite an important factor contributing to the popularity of this country.

Quick Overview

Costa Rica is known for having a business-enabling environment, which makes it a wonderful place to start a business. The policies are quite inclusive and free, which is great for foreign investors. Foreign nationals looking forward to starting a business in Costa Rica do not even have to be residents of the country. There are almost no restrictions on conducting trade here. However, this does not mean that setting up business in Costa Rica is a cakewalk. There are several steps that need to be followed to the T so as to successfully start a business here. 

Process of setting up a business in Costa Rica

The process of starting a business in Costa Rica, like every other country, consists of multiple steps starting from planning to research and actual execution. With the multitude of processes to undertake, it is better to come up with a checklist and tick off each task. 

The first step would be to understand the region. Costa Rica is a unique region with its own customs, laws, and regulations, which translate into its commercial laws and labor laws. For foreign investors and business owners, it is important to get rid of the language barrier either by learning the local language or by hiring a higher-up who is a local in this region. There is also the need to conduct thorough market research and find out the gaps between demand and availability of services or products. This will help in coming up with a creative business idea. 

The business idea you come up with for starting a business in Costa Rica must be such that it can actually be profitable in this region. The business idea can be something you have in mind for some time, in which case you can test it out in the market before deciding to start a full-fledged business. Alternatively, it can be something that you find the need for while conducting research about the area. In either case, entrepreneurs need to determine whether that business can be viable in the market and how it can grow over the years. 

Creating a business plan is the third step to starting a business in Costa Rica. A business plan is useful for several reasons. Firstly, it would help determine the viability, growth prospects, and profitability of your business idea, and secondly, it would help when looking for investors or trying to get credit from banks. The business plan must contain the intention and vision behind the business, the relevance in the market, whether or not there is an audience, whether there is any competition, how the competitors are performing, how you plan on overtaking the competition, and future plans. 

Deciding on the legal structure of the company is the next step when starting a business in Costa Rica. There are different types of legal structures identified in Costa Rica, all of which place different types and levels of responsibilities on the partners and shareholders. The three types of business structures identified in Costa Rica are Limited Liability Company, Joint Stock Company, and Branches of Companies. There are different requirements for the creation of each of these companies, and there are different levels of liabilities placed on the members. 

Company Naming is an essential step to starting a business in Costa Rica. Businesses may also need to translate their company name into Spanish if needed. After coming up with a business name, you are one step closer to getting your company registered and up and running. To complete the registration of the company, you would also need to arrange documents, including Power of Attorney documentation and Articles of Incorporation. These documents need to be notarized before submission. 

A premise or company address is also required for starting a business in Costa Rica. When setting up an office in Costa Rica, you can choose to either do so on the mainland or in the Free Economic Zones. A company address is required to become eligible for registering as a taxpayer in Costa Rica. Other details like company name and business owner’s name would also be required for the same purpose. Thereafter, the business also needs to be registered for Social Security. This registration is a must for all employers and must be done with the CCSS or Caja Costarricense de Seguro Social. 

Upon completing all of these steps, you can start hiring employees for your business as per your needs in the beginning. 

Hiring Employees in Costa Rica 

Costa Rica surely does have a considerably high unemployment rate. However, despite this, the standard of living here is the highest compared to other South American countries. Employee hiring processes and formalities in Costa Rica have been designed to promote the benefit of both employers and employees. They are in line with the customs of business conduction and the prevailing standard of living of the citizens. With the help of experienced consultants at Zimyo, all local guidelines regarding hiring employees are efficiently taken care of. Thus, to hire employees while keeping in line with the Labor Laws of Costa Rica, employers must observe the following rules, among other criteria:

  • Trial Period/Probation Period: The trial period or probation period refers to the duration in which an employee is hired and taught about the job. During this time, the employee’s progress and performance are assessed by the employer to determine whether the employee can be hired full-time or not. During the probation period, employees get several benefits but not all. The probationary period in Costa Rica is set at 3 months.
  • Leave and Holidays: Leave and Holidays are another very important aspect of employment. No employee can work throughout the year without leave and holidays. As such, employers must allow a certain number of paid vacation days, sick leaves as well as public holidays. Every country has its own minimum set limit for these. 

Vacation time in Costa Rica is set at a minimum of 14 days for every 50 working weeks with the same employer. This number can be increased upon agreement between parties. However, unlike in many other countries, these cannot be carried forward to the next year or exchanged for money. There are 9 paid public holidays every year in Costa Rica. As far as sick leaves are concerned, employees are paid for sick leaves by the employer and the social security fund. 

  • Maternity Leave: Maternity leave is granted for 4 months, 1 month prior to the childbirth and three months after it. The pay for maternity leave is contributed by the employer and the social security fund. Both pay 50-50 percent of the employee’s salary.
  • Termination of Services: If the services of an employee are being terminated, the employers must give them due to notice. The notice period depends on the length of employment of an employee. If an employee has been working for less than three months, there is no need to give notice. If they have worked over 3 months but less than six months, then 1 week of notice must be given. Between 6-12 months 2 weeks of the notice period, and over 1 year of service, one month of notice must be provided to the employee. During the notice period, employees are also entitled to receive one day off per week to find other employment opportunities.
  • Pension: The pension system in Costa Rica is multi-tiered. There is basic coverage and supplemental coverage, which are both provided to the employees. Whether the employee receives both or either one depends upon various factors and terms of employment.
  • Work Hour Norms: Working hour norms in Costa Rica only allow employers to have their employees work for a maximum of 48 hours per week. Any duration spent working over this limit would entitle the employee to overtime pay which is set at 150  percent of their regular pay. If employees are asked to work on rest days, then the employer is liable to pay double that amount. 

How easy is it to conduct business in Costa Rica?

To help determine how easy or difficult it is to conduct business in Costa Rica, the Doing business index created by the world bank comes in handy. This index compares 190 countries in various aspects of starting and conducting business. While there are a lot of factors that contribute to the ease or complexity of conducting business in any region, here are some very important factors that new businesses must look into before investing in costa Rica

  • Starting a Business: On the parameter of starting a business, Costa Rica ranked 144. This rank is awarded based on the number of procedures, the duration to start a business, and the estimated costs of starting a limited liability company. This is so because an LLC is the most common type of legal structure across countries. It takes 10 procedures and about 23 days to start a business in Costa Rica, which led to its scoring of 79.9 out of 100, hence the low rank.
  • Managing Permits: Dealing with construction permits is relatively easier in Costa Rica, and thus, in this area, the country was able to rank 78. There are 17 procedures and estimated duration of 135 days which is why it could not score any better. However, the country is attempting to rejuvenate the economy by making such processes simpler and the country more attractive to foreign investment.
  • Getting Electricity: On the parameter of getting electricity, Costa Rica has improved quite a lot and acquired the 25th rank. There are merely 5 procedures to get an electricity connection, and it takes roughly 39 days to start and finish the procedure and get the connection completed. Electricity is an extremely important aspect of any business, and it is impossible to have a business without an electricity connection. Thus, it is a major benefit that the electricity getting aspect is sorted out and simple.
  • Getting Credit: Credit is another essential aspect of starting a business in Costa Rica. Luckily, the country scored extremely well and ranked 15 in a pool of 190 countries in terms of getting credit. This ease of getting credit has been possible due to the many efforts of the government to make a trade and business simpler to start in Costa Rica.
  • Managing Payroll: Managing Payroll is important, and it gets more and more complex as your company grows. Costa Rica requires all employers to be registered with the Social Security Administration. The government and commercial laws also require the businesses to maintain Records of Employment so that there is no disparity or chaos in records for every employee. With professional payroll management services, Zimyo is the best partner for your payroll-related requirements.
  • Paying Taxes: The procedures for paying taxes must be simple in order to save precious time. In this aspect, Costa Rica ranked 66 as there are 10 types of taxes to be paid annually, and it can take about 151 hours to file these.
  • Enforcing Contracts: In terms of Enforcing contracts, Costa Rica has improved quite a lot but still retains a lot of scope for improvement. Currently, the country ranks 111 as the procedure is extremely long, and the total duration can stretch a little over 852 days.
  • Resolving Insolvency: On the parameter of resolving insolvency, Costa Rica ranked 137 as the recovery rate is extremely low, set currently at 29.5, and it takes about 3 years to get any resolutions. 

There are a lot of business conducting aspects that have been revolutionized and improved in Costa Rica and a lot more that needs to be fixed. The government and all the related agencies are working hard to improve the aspects where it’s lacking. With all its pros and cons, Costa Rica affords a lot of opportunities to new ventures, business owners, and investors to start a marketable and profitable business. Thus, it is one of the best countries to start a business in and one which must be seriously considered by investors, both domestic and foreign.

Zimyo is a leading HR and Payroll management services provider in Costa Rica with multiple years of experience. The company helps businesses hire the best talent and takes care of the financial requirements of employees, such as advances or credit for a hassle-free work experience.