Costa Rica Labor Law
The Costa Rican Labor Code (Código de Trabajo) is the legal reference
for all labor regulations. According to the Code, “... an employer-employee
relationship exists when there is an exchange of services for money and
the employer exerts direction and control over the employee's Duties...”
The Internal Work Regulations, prepared by the employer and registered
and approved by the Ministry of Labor and Social Security, constitute in
practice the main regulatory instrument. The Internal Work Regulations,
which is mandatory for companies employing large number of employees, incorporate
terms and conditions related to almost all labor relationship issues.
The following are some of the main topics covered by law, some of which
would be included in the Internal Work Regulations.
Work Schedule
In general terms, the work day or work period shall not exceed 8 hours
if the work is executed during the day (5:00 A.M. to 7:00 P.M.), 6 hours
if the work is executed during the night (7:00 P.M. to 5:00 A.M.), and
7 hours if the work is executed before 10:30 P.M. The total weekly period
shall not exceed 48 hours. Nevertheless, exceptions do apply. For example
if the work to be performed is not dangerous or unhealthy, the work period
could be of 10 hours during the day and of 8 hours during the night, not
exceeding 48 hours per week. Different work periods could be applied under
special conditions.
Effective work time will be considered the time in which the employees
remain under the immediate or delegated orders or direction of the employer.
Two 10-15 minute rest periods per workday are customary. If the working
day is continuous and the lunch break does not exceed 30 minutes, it will
be considered part of the work period and thus a paid rest.
Administrative workers, general managers, etc. (white collar workers)
are excluded of this limitation of shifts. But they cannot be forced to
work more than 12 hours a day.
Employees have the right to enjoy at least one fixed day of absolute
rest during each week, or following six days of continuous work.
Overtime is paid at time-and-a-half, and the work day
can not exceed 12 hours.
Holidays and Sundays are paid at double-time.
A Christmas bonus is paid in December, in proportion
to the months worked during the year, or a maximum equivalent to one month's
salary.
Two week vacations are given for every 50 weeks of continuos
work.
Overtime
Payable as time-and-a-half, and the workday cannot exceed 12 hours.
Overtime is not permitted when the working conditions are dangerous or
unhealthy.
Holidays
There are nine legal or payable official holidays. The company can
also designate holidays at its discretion. If a worker works on a Holiday
or on his day off, the employer will have to pay him double-time. The holidays
with mandatory payment are: January 1, April 11, Thursday and Friday of
Holy Week, May 1, July 25, August 15, September 15 and December 25.
The days August 2nd and October 12th are also holidays, but payment
is not mandatory. If they fall on Tuesday, Wednesday, Thursday or Friday,
the holiday may be enjoyed on the next Monday.
Wages / Payment
Minimum wages are adjusted by the National Salary Council (made up
of representatives from the labor force, of employers and of the Government)
twice a year based on the inflation index. Payment is by time period or
unit/piece work. The company is free to determine method and timing of
payment. Blue collar workers are paid weekly or twice a month; white collar
and domestic workers, monthly.
Paid Vacations
The worker is entitled to a minimum of two weeks of paid vacations
for every 50 weeks of continuous activity under the same employer. If terminated
prior to accumulating those 50 weeks of employment, the employee is entitled
to one vacation day per each month worked. If a worker has acquired a right
to vacations and he ceases in his work for any cause before enjoying them,
he will be paid the corresponding amount. This is the only case in which
vacations are allowed to be compensated with money.
The employer has the capacity to change the two weeks to a scaling system
of vacations according to the time worked by the employee or any other
system that results in higher benefits for the employees. The employer
will establish the season in which the employee can enjoy his vacation,
but this must be done within the fifteen weeks following the day in which
fifty weeks of continuous service are reached.
The employees will have an uninterrupted vacation period. Eventually,
it may be divided into a maximum of two periods, provided there is an agreement
between the parties. As a rule, the Labor Code does not allow employees
to accumulate vacation time, except in cases when the employee carries
out technical or confidential tasks that make his replacement difficult.
Trial period
In every labor contract or relation for an indefinite term, there will
be a three month trial period. The company can decide not to hire the individual
during those three months and not incur in any responsibility other than
the payment of vacations (one day per month) and the Christmas bonus. After
the three month trial period, it is assumed that the company has hired
the individual and all provisions of the Labor Code are in force, both
for the company and the employee.
Social Security benefits
Costa Rica has a mandatory social security system that provides all
citizens with medical care, disability payments, and retirement benefits.
The employer acts as a collector of deductions made on the employees’ salary.
Costs are calculated as a percentage of the worker’s salary.
The employer must pay the following as a percentage of the payroll (Detailed
info):
| Health and Maternity |
9.25 %
|
| Disability, old age and death benefits |
4.75 %
|
| Family Allowances (Welfare benefits) |
5.00 %
|
| INA -National Training Institute Tax |
2.00 % |
| IMAS -Social Assistance Tax |
0.50 %
|
| Workmen's Savings Bank |
0.50 %
|
| Labor Accident Insurance |
1.9 % to 5 %
|
|
Total employer contribution:
|
23.9 % to 27 %
|
Sick Leave
The sick leave is payable by the employer at 50% of salary for the
first 3 days. From the 4th day on, Social Security pays 60%. Maternity
leave is payable at the same 50% rate for 4 months (120 days: 30 days before
and 90 days after birth), while Social Security covers the remaining 50%.
In case of absence by injury or accident, the National Insurance Institute
covers 75% of the injured worker’s salary without time limitation from
the 1st day.
Christmas Bonus
It is mandatory to pay a “Christmas Bonus”, which equals one twelfth
of the ordinary and extraordinary salaries received during the twelve months
prior to November 30 of each year (or during the months worked). It has
to be paid within the first 20 days of December. In case of a termination
of the work agreement before the end of the corresponding term, the bonus
must be paid proportionally and immediately.
Reserve Provisions
The Law suggests that employers should keep reserves for the payment
of:
| Vacations |
3.85 %
|
| Christmas Bonus |
8.33 %
|
| Holidays |
2.47 %
|
| Severance |
8.33 %
|
Termination of work relationship
If an employee’s dismissal is due to a justified cause (as set forth
in the Labor Code) then the employer will only be liable for the payment
of wages, proportional vacation time and Christmas Bonus. The dismissal
must be well substantiated in case the employee should file a complaint.
All disciplinary actions must be taken within 30 days of the action.
The following are “just causes” for terminating an employer-employee
relationship:
-
Physical or moral acts or libel committed against another worker; or employer
during working hours and outside working hours.
-
Criminal acts or property damage.
-
Acts that endanger security and working conditions.
-
Release of confidential information.
-
Unjustified absence for 2 consecutive days or 3 or more days.
-
Disobeying instructions or orders.
In case of dismissal without “just cause”, the employer must give dismissal
notice and severance payment, proportional to the total time worked by
the employee.
On the other hand, there are some reasons that justify employees to
resign while retaining their right to demand severance payments. These
reasons are:
-
Nonpayment of agreed salary.
-
Dangerous working conditions or contagious diseases in the work place.
-
Moral or physical damage, or defamation against worker by the employer
or his representatives during or after working hours.
-
On purpose damage to worker's tools by employer.
The following are a set of financial obligations that the employer must
fulfill if the employee is dismissed without mediating a “just cause” or
if he resigns for one of the reasons stated above:
1. Pre Termination Notice (Pre Aviso)
Before an employer can dismiss an employee without cause he/she must
notify the individual. Failure to do so will trigger additional obligations.
The amount of notice required depends on the length of time that the employee
has worked for that particular employer. If the period is greater than
three months but less than six months, he is entitled to one week notice
of termination; six months to one year: two weeks notice; more than one
year: one month prior notice. Instead of written notice, the employer can
pay the employee a sum of money equivalent to the salary that would have
been earned during the notice period. (The same is effective if the employee
decides to leave voluntarily. If previous notice is not given, the same
time frame will be deducted from the vacations and Christmas bonus).
2. Severance Pay (Cesantia)
If an employee is dismissed without cause by the employer or if the
employee quits for a cause attributable to the employer, he/she is entitled
to severance pay. This payment works as a built-in unemployment compensation
system. The employer is to subsidize the employee while he/she searches
for another employment. The Code states that severance pay should be calculated
according to the average salary of the previous six months and in accordance
to the period of time labored as follows:
-
More than three months but less than six months: ten days’ wage.
-
Six months to one year: twenty (20) days' wage.
-
More than one year: thirty days’ wage for every year labored up to a maximum
of 8 months.
3. Accumulated Vacation Pay
When an employee is dismissed, any unused vacation time must be paid.
The amount is determined by multiplying the employees daily (gross) wage
by the unused vacation days.
Injuries on the job / workers compensation insurance
The Labor Code establishes guidelines to provide workers with occupational
health and safety. Laws that cover worker compensation were expanded in
1982 and incorporated into the Labor Code.
Every employer must have worker's compensation insurance to protect
workers from accidents. The worker’s compensation policy is sold by the
National Insurance Institute (Instituto Nacional de Seguros). The employer
may also be responsible for independent contractors if they are under his
direction. If a worker is injured and the employer does not procure insurance
as required, the employer will be liable for all expenses incurred by the
worker as a result of the injury. Municipal inspectors from the National
Insurance Institute verify that all employers have worker’s compensation
insurance. Any business that violates these provisions may be shut down
by certified inspectors.
Once an injury occurs on the job, the employer is responsible for filing
a Notice of Injury Form at the National Insurance Institute, within eight
days of occurrence. The injured worker has a right to claim a benefit for
all medical services and rehabilitation incurred as a result of the injury,
as well as the payment of 75% of his/her salary.
Foreign employees
Costa Rican law provides that foreign workers can be hired, but they
are limited to no more than 10% of their staff. Their salaries can not
exceed 15% of the company’s total annual payroll. Both percentages can
be increased by 10% for 5 year periods by consultation and decision of
the Ministry of Labor. These regulations do not apply to managers, general
managers, directors or administrators.
A migratory system (company visa) has been created for those companies
operating under the Free Zone System. This allows managerial and/or technical
staff to work in the plant for determined periods of time.
a. The Right of Association: The law specifies the right of workers
to join labor unions of their choosing without prior authorization,
although some barriers exist in practice. Unions operate independently
of government control and may form federations and confederations
and affiliate internationally. Costa Rica has no restrictions
on the right of private sector employees to strike. The constitution
and labor code formally restrict the right of public sector workers
to engage in strikes, but the legislative assembly recently repealed
penalties against labor leaders who initiate such strikes. Many
workers in Costa Rica join solidarity associations, under which
employers provide easy access to savings plans, loans, recreation
centers, and other benefits in return for their agreement to employ
non-confrontational methods to settle disputes. Both solidarity
associations and labor unions coexist at some workplaces, primarily
in the public sector.
b. The Right to Organize and Bargain Collectively: The constitution
protects the right to organize. Reforms to the labor code enacted
in 1993 provide protection from dismissal for union organizers
and members during union formation and require employers found
guilty of discrimination to reinstate workers fired for union
activities. Unions in the private sector have the right to engage
in collective bargaining. Nonetheless, workers in the public sector
cannot engage in collective bargaining because the 1978 Public
Administration Act makes labor law inapplicable in relations between
the government and its employees.
c. Prohibition of Forced or Compulsory Labor: The constitution
prohibits forced or compulsory labor and requires employers to
provide adequate wages to workers in accordance with minimum wage
standards. Laws prohibit forced and bonded labor by children.
The government enforces this prohibition effectively.
d. Minimum Age For Employment of Children: The constitution provides
special employment protection for women and children and establishes
the minimum working age at 12 years, with special regulations
in force for workers under 15. Children between 15 and 18 can
work a maximum of seven hours daily and 42 hours weekly, while
children between 12 and 15 can work a maximum of five hours daily
and 30 hours weekly. Authorities prohibit the employment of youth
under 18 in the banana industry. The National Children's Institute,
in cooperation with the Labor Ministry, enforces these regulations
in the formal sector, but child labor remains an integral part
of the informal economy.
e. Acceptable Conditions of Work: The constitution provides for
a minimum wage, and a national wage council sets minimum wage
and salary levels of the private and public sectors every six
months. Workers may work a maximum of eight hours during the day
and six at night, up to weekly totals of 48 and 36 hours, respectively.
Industrial, agricultural, and commercial firms with ten or more
workers must establish management-labor committees and allow government
workplace inspections. Workplace enforcement is less effective
outside the San Jose area.
f. Rights in Sectors with U.S. Investment: All labor regulations
apply throughout Costa Rica, including in the country's export
processing zones. Companies in sectors with significant U.S. investment
generally respect worker rights, especially at plants under U.S.
management and ownership. Abuses occur more frequently at plants
operated by investors based outside the United States.
Costa Rica Environmental Law
Investment Oportunities in Environmental Projects Invest against global warming caused by carbon dioxide emissions.
Ministry of the Environment and Energy (Spanish only)
Costa Rica's Banking and Finance System
Capital markets and portfolio investment
In Costa Rica there are three state-owned banks (Banco de Costa Rica, Banco
Nacional and Banco Crédito Agrícola) and 25 private banks.
Since 1996, there is no monopoly on demand savings and checking accounts.
Private banks have expanded and their credit grew 5.4% in real terms during
1996, accounting for 50.8% of total credit during that year. State banks
accounted for 79.2% of total assets in 1996 and private banks 21.2%.
Long term capital is scarce due to variations in the inflation rate
and a small domestic capital market.
There is an active stock exchange, the largest in Central America although
small compared to international standards. It is seldom used to raise capital,
though projects in the tourism industry have used it as a source of capital.
Shares, bonds, promissory notes and securities, among others, are exchanged
every day in primary and secondary markets.
Foreign investors can borrow on the local market, but the cost is high
due to macroeconomic policy. As mentioned before, there are no limitations
on capital or exportation regardless of the citizenship of company.
The Costa Rica Stock Market
Costa Rica Visas and Immigration
