With a stable economy and a GDP of over $57 billion US dollars, Costa Rica is a popular choice for businesses around the world that want to expand into a Latin American market. The most prosperous of the five Central American Common Market countries, Costa Rica is the perfect destination for growing global businesses, whether in the technology, health or tourism industry.
In this article, we’re uncovering the biggest advantages of hiring a PEO in Costa Rica, and also uncovering some of the drawbacks to doing so. By the end of this piece, you’ll no doubt know whether Costa Rica is the right option for your global expansion, or whether to look elsewhere.
What you need to know about hiring in Costa Rica
Last year, the Labor Procedure Reform went into effect in Costa Rica and overhauls half of the country's employment laws and labour laws. The reform was designed to give employees more protection and ensure businesses were treating members of their staff legally and ethically. If a company wishes to terminate an employee, the must deliver a dismissal letter to the employee, outlining the facts and reasons behind their dismissal. What's more, employee disputes can be litigated orally, rather than requiring a written form, giving both parties more control.
There are nine public holidays in Costa Rica, where employees are given paid leave. These include the standard New Year’s Day, Christmas Day, Mother’s Day, as well as the Annexation of Guanacaste Day and the Juan Santamaria Day. It’s important to factor these nationwide days into your annual planning so, if required, you can have an employee available within the country.
Daytime working hours within the country are between 5 am and 7 pm, whilst nighttime roles take place between 7 pm and 5 am. Employees who work a mix of day and night shifts must not work more than 42 hours per week, whilst night time employees cannot work more than 36 hours per week. Whilst it will be the responsibility of your PEO, rather than your business, it's essential that you follow these local laws and regulations to avoid penalisation and fines.
The benefits of hiring through PEO in Costa Rica
One of the biggest benefits of choosing a PEO to hire new employees in Costa Rica is that you can hire an employee without the extra costs associated with setting up a business within the country. Indeed, expats who want to set up their own business within the country must spend between $50,000 and $200,000 in order to apply for temporary residency with Costa Rica; after three years, they can apply for permanent residency if they choose to live within the country. With a PEO, you don’t need to move to Costa Rica or set up an official business, as your new employee will actually be employed by a third-party company, lowering the barrier to entry.
Another significant reason why you should consider a PEO in Costa Rica is the local economy. The country has seen a steady increase in its Gross Domestic Product, showing strong signs of growth after recovering from a recession in the late nineties. Because of this, it's possible to bring your products and services into the country and make a killing, whether you're launching a FinTech product to help Costa Ricans manage their finances or a new clothing brand that's taking the rest of the world by storm. The country's economy makes possibilities truly endless.
20.5% of the population live below the poverty line, and a 2016 figure suggests that 8.2% of the country is unemployed. What’s more, when you compare the average salary in the United States, which is an incredible $47,390, to the average salary in Costa Rica, $6,810, you can see why companies invest in the country thanks to low labour and running costs. Indeed, if you’re a shoestring business, outsourcing some of your operations to Costa Rica to take advantage of the lower running costs could help to increase your bottom line and make more money.
The drawbacks of hiring through PEO in Costa Rica
Whilst there are a number of benefits, you should also consider the downsides to hiring through SEO in Costa Rica. The labor code requires employees to be given a day of vacation for every month of their employment, and two weeks after spending fifty weeks within their role. There are some stipulations to this, however, including that the employer is in control of when employees must take their time off; this can be great if you're looking to wind down your operations during periods such as Christmas or the Summer Holidays, where you're likely making less money.
Another drawback is the Costa Rica Social Security system, known as Caja. All employers must register their employees with Caja, who are responsible for free health care, sick leave, disability pensions and retirement benefits. The biggie is that employers must contribute roughly 34.5% of their employees' salaries - but the good news is that by working with a PEO, this will be covered as part of your fee. Employers must pay 50% of their employees' salary during sick leave, but this is only for the first three days of their sickness. After that, no contribution is required. Some companies recommend budgeting around 25% as benefits on top of a gross employee salary, to cover the costs of benefits and associated fees; again, this will be included as part of your PEO.
Whether you already have a presence in Latin America or you’re looking to enter the market and bring your products and services to a new territory, consider a PEO in Costa Rica. Businesses around the world are taking advantage of the country, with large businesses in the United States employing hundreds of Costa Ricans as part of their strategy. Indeed, Craig Dempsey, CEO of Biz Latin Hub, agrees, saying that “we’ve seen a huge increase in PEO Costa Rica wide, so getting ahead of the competition and hiring talent should be a priority if you want to go global”.