Hiring Costa Rica Workers – Payroll Taxes – Work Comp

Hiring a person to pick a few bushels of coffee off your land may cost you more than you think, that is if you are not paying the payroll taxes

The scenario starts innocently enough. Expats come to the country and start looking for someone to help with household chores like maid or gardener service. If you are not living in a gated community where they have these services, it starts by asking around for references or putting the word out in their community.

Try not to place an ad in some local paper or post one in a market down the street,  because all kinds of weirdos answer them. Some even are crooks looking to case out locations to rob.

Costa Rica’s labor is good, however, one must understand how the labor laws work, otherwise you may find yourself in court.

Once a person is found for the job, most people do not sign them up as a legal worker but pay them by the hour.  If you pay by the hour, and for lets say for the sake of this article, you want a maid that comes two times a week but is not registered legally to work,  that  hourly may be around ($2.75) an hour. Where the official rate for a legal maid or  “servidora doméstica” is around $2.00/hr (550 colons an hour) with an upward adjustment that comes once a year, usually on Jan. 1. People pay more thinking they can circumvent the law. Some get away with it, many do not.

Wages vary per skill or service, and you have to make sure you are not hiring an illegal otherwise you will get into trouble with Director of Immigration in Costa Rica, which you can be fined.

In otherwords, paying a worker by the hour and not putting them on an official payroll is a mistake  because the Ministerio de Trabajo says that even temporary or part-time workers need to be registered with the Caja Costarricense de Seguro Social, the nation’s social security agency.

In reality it is not that hard, but it is best to get someone who knows the system and who speaks good Spanish.  An employer needs to go to their local social security office and ask them to start a planilla, a payroll for their domestic staff. The amount paid to an employee is reported at the beginning of each month and the social security costs are paid around the third week of the month. Once a payroll is reported to the collection center, the amount due can be paid from one’s bank account via a link to the social security agency.

Note: This Reporting used to be done online at the Sistema Centralizado de Recaudación, “central collection center,” Web site and  payments also, but we have tried  to show the link, but it comes up as a blank page.

An employer is responsible for deducting 9 percent from the employee’s wages and paying it to the social security department along with the employer’s payment of 24.5 percent for a total of 33.5 percent. For example, for a total payroll of 100,000 colons and  an employer needs to pay the Caja 33,500 each month over and above the wages of the worker. This extra amount covers the worker for health insurance, old age and disability benefits, among other things.

PERKS and BENEFITS
Giving the employee too many “Perks” or “Benefits” or called “In-Kind” CAN BE a big no-no. This includes meals, lodging, clothes, education  assistance, and transportation. In Costa Rica, any “Perks and  Benefits” an employee receives can become part of their payment for work performed. In addition to the legal consequences, being too nice can backfire on any employer.

All domestic workers are entitled by law to some extras like meals. If no percentage is set in a contract, 50 percent of their salary is assumed the amount. It is very important to have an employment contract with domestic workers stating the exact monetary value of their “Perks” benefits.

WORKER COMPENSATION
Not covering an employee with workers compensation is a legal problem just itching for court. Most expats do not cover their domestic staff with workers compensation — called riesgos del trabajo — because they do not know they have to. It is easy to do for domestic workers by purchasing a homeowner’s policy called seguro hogar comprensivo or comprehensive homeowners insurance. One does not need to be an actual owner of a home. The policy also works for people renting.

If an employee is hurt on the job and the employer does not have workers compensation, depending on the injury, the employer could be looking at criminal liability. Comprehensive homeowners insurance is relatively cheap. Why would any expat take the risk? Those without should call an insurance agent today.

What constantly happens is that at some point where a worker is not covered as they should be according to the law, they complain and want to be compensated. If they go to the work ministry or the social security agency all hell breaks loose. Inspectors are sent to the workplace to study the complaint, and they are not very friendly. Employers can be liable for all back payments and be fined heavily for not complying with the law.

If the situation goes to court, the matter becomes even worse. There is no winning for the employer just paying through the nose to set things straight. This is one area where Costa Rican attorneys take cases on contingency because they know they will eventually win.

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