Hiring Your First Employee in Costa Rica: A Compliance Checklist for Foreign Employers

Hiring the first employee is a major step for any business operating in Costa Rica.

It is also the point when an informal project becomes an employer subject to payroll, social-security, occupational-risk, recordkeeping and employment-law obligations.

Foreign business owners often make the mistake of hiring first and organizing compliance later. They agree on a salary, let the person begin working and assume that the accountant can handle the registrations at the end of the month.

That approach creates risk from the first day.

A worker’s rights do not begin when the employer finishes the paperwork. They begin when the employment relationship begins.

The safer approach is to identify the employer, prepare the contract, activate the required registrations and establish payroll controls before—or immediately upon—the employee’s start date.

The basic hiring sequence

A properly organized first hire generally follows this sequence:

1. Identify the legal employer.
2. Confirm that the worker will be an employee rather than an independent contractor.
3. Register the employer with the Costa Rican Social Security Fund, or CCSS.
4. Register the employee and report the correct compensation.
5. Obtain occupational-risk insurance through the INS.
6. Sign a written employment contract.
7. Establish the job description, schedule and compensation structure.
8. Set up payroll and required withholding.
9. Create reliable time and payment records.
10. Begin tracking vacation, aguinaldo and termination exposure.

Each step addresses a different obligation. Registering with the CCSS does not replace INS coverage. Obtaining an INS policy does not replace payroll reporting. Paying a salary through a bank does not correct the absence of an employment contract.

The system must work as a whole.

Step 1: Identify the legal employer

Before hiring, determine who will legally employ the worker.

The employer may be:

• A Costa Rican corporation
• A Costa Rican limited-liability company
• A foreign company with an appropriate Costa Rican presence
• An individual operating a business
• An individual homeowner employing domestic help

The person who owns the business is not always the same as the legal employer.

For example, a foreign investor may own the shares of a Costa Rican S.R.L., but the company itself may employ the staff. Contracts, CCSS payroll, INS coverage and salary payments should then consistently identify that company as the employer.

Problems arise when different documents identify different employers.

A worker may:

• Sign a contract with one company
• Receive payments from the owner personally
• Appear on the CCSS payroll of another entity
• Take instructions from a property-management company
• Work at a business operated under a different corporation

This confusion can complicate disputes over who employed the worker and which person or company is responsible for the obligations.

Hiring through a Costa Rican company

Foreign business owners commonly use a Costa Rican S.R.L. or S.A. as the operating employer.

A properly maintained company can provide useful separation between business operations and the owner’s personal affairs. It also creates a consistent structure for:

• Contracts
• Payroll
• Banking
• CCSS reporting
• INS coverage
• Tax filings
• Business expenses
• Employee records

However, forming a company does not erase labor obligations or guarantee that an owner can never face personal exposure.

The company must operate as the real employer. Owners should not use corporate entities interchangeably, mix personal and company payments or treat the company as a name on paper while managing the employment relationship personally.

Hiring as an individual

An individual can also act as an employer and register as a physical-person employer with the CCSS. The CCSS provides registration procedures for both individual and corporate employers. (CCSS)

Personal hiring is particularly common for domestic workers, including:

• Housekeepers
• Gardeners
• Caregivers
• Drivers
• Household caretakers

For a domestic worker attached to a personal residence, forming a company solely to employ that worker is not always necessary or practical.

The important issue is that someone must be clearly identified and registered as the employer.

Step 2: Confirm that the worker is being classified correctly

Before setting up payroll, confirm whether the relationship is employment.

A worker is not necessarily an independent contractor merely because:

• They agreed to issue invoices
• They work part-time
• They work remotely
• They are paid per month
• The parties signed a consulting agreement
• They asked not to be placed on payroll

When the business controls the worker’s schedule, duties and performance, requires personal service and pays recurring compensation, the arrangement may be employment.

Misclassification affects every later step.

If a person treated as a contractor is actually an employee, the employer may also have failed to:

• Register them with the CCSS
• Obtain proper INS coverage
• Track working hours
• Pay overtime
• Provide vacation
• Accrue aguinaldo
• Calculate termination benefits

The classification review should therefore happen before the person begins working, not when the relationship ends.

Step 3: Register the employer with the CCSS

Costa Rica’s social-security system requires employers to register and report employees through the CCSS.

The CCSS maintains separate employer-registration processes for physical persons and legal entities, along with an online employer platform for ongoing procedures. (CCSS)

Registration should not be treated as a task to complete several months after the worker starts.

From a risk-management perspective, the employer should begin the process before the start date and complete the employee’s inclusion promptly when the relationship begins.

Information commonly needed

The precise requirements depend on whether the employer is an individual or legal entity, but the process may require:

• Identification of the employer
• Corporate information where applicable
• Legal-representative information
• Business address
• Description of the activity
• Employee information
• Employment start date
• Job or occupational category
• Salary
• Work schedule
• Supporting corporate or identification documents

The employer should verify the current CCSS checklist rather than relying on an old list or a prior business registration.

Report the real salary

The reported salary should reflect the worker’s actual remuneration.

That may include more than the amount casually described as “base salary.”

Depending on the nature of the payment, compensation can include:

• Ordinary salary
• Commissions
• Overtime
• Regular bonuses
• Recurring allowances
• Certain benefits provided as compensation

Underreporting salary can create social-security exposure even when the worker is registered.

Step 4: Register each employee

Employer-level registration is not enough.

Each employee must be included under the employer’s reporting structure with accurate information about the relationship.

Employers should confirm that:

• The worker appears under the correct employer.
• The correct identification number is used.
• The actual start date is recorded.
• The reported salary is accurate.
• The occupational information is consistent with the person’s duties.
• Later salary or status changes are reported correctly.

The business should retain proof of registration in the employee’s file.

Avoid retroactive improvisation

When an employer discovers that a worker was not registered, it should not attempt to correct the problem by:

• Using a false start date
• Asking the worker to sign a backdated contractor agreement
• Creating invented payment records
• Reporting only part of the compensation
• Moving the worker to another company to conceal continuity

The employer should establish the real facts, quantify the potential exposure and follow a legitimate correction process.

Step 5: Obtain INS occupational-risk insurance

CCSS coverage and occupational-risk insurance are separate obligations.

Article 193 of the Labor Code requires public- and private-sector employers to insure workers against occupational risks through the National Insurance Institute, or INS. The obligation continues even when the employer uses intermediaries to carry out the work.

The policy should be active when the employee begins working.

Why the policy classification matters

The INS premium and coverage structure depend partly on the type of work and its risk.

An office employee, gardener, construction worker and hotel-maintenance worker do not present the same occupational hazards.

The employer should accurately describe:

• The business activity
• The employee’s duties
• The work location
• Physical risks
• Tools and machinery used
• Driving responsibilities
• Field or off-site work

A policy that exists but inaccurately classifies the work may still create serious problems when an injury occurs.

Common mistake

A foreign owner obtains a general policy for an “administrative office,” then asks employees to:

• Perform property maintenance
• Drive company vehicles
• Work on roofs
• Use landscaping equipment
• Handle construction tasks
• Perform hotel or restaurant operations

The written job description, actual duties and insurance classification should match.

Step 6: Prepare a written employment contract

Foreign employers sometimes hear that verbal contracts are valid in Costa Rica and conclude that written contracts are optional.

That is too broad.

Article 22 of the Labor Code permits verbal contracts in limited categories. Article 23 states that, in other cases, the employment contract must be in writing. Article 24 lists the information the written agreement should contain.

A written contract should therefore be part of the normal hiring process.

What the contract should cover

The Labor Code identifies core terms including:

• Identity and address of the parties
• Duration or type of contract
• Working hours
• Salary
• Method, period and place of payment
• Work location
• Agreed conditions
• Date and signatures

A practical contract should also clearly address:

• Job title
• Detailed duties
• Reporting line
• Start date
• Place of work
• Remote-work terms, where relevant
• Ordinary schedule
• Rest periods
• Compensation components
• Commission formula
• Confidentiality
• Use of equipment
• Policies incorporated into the relationship
• Procedures for reporting absences
• Handling of company property
• Applicable disciplinary rules

Why the written contract protects the employer

The contract does not allow an employer to waive mandatory employee rights.

Its value is different: it records the terms the employer may later need to prove.

Without a written contract, disputes may arise over:

• Start date
• Salary
• Work schedule
• Duties
• Remote-work expectations
• Whether payments were salary or reimbursements
• Whether the arrangement was indefinite or temporary

Article 25 of the Labor Code places the consequences of a missing required written contract on the employer.

Step 7: Choose the correct contract duration

Most permanent roles should be documented as indefinite employment.

A fixed-term contract should not be used merely because the employer wants an easy exit after several months.

Article 26 allows fixed-term arrangements when the nature of the service justifies the limitation. If the underlying work is permanent and continues after the stated term, the relationship may be treated as indefinite when that result benefits the worker.

Legitimate fixed-term situations may include

• A genuinely temporary project
• Replacement during a defined absence
• Seasonal work tied to a temporary need
• Work that ends when a specific project is completed

High-risk use of fixed-term contracts

A restaurant hires a cashier on consecutive three-month contracts even though the cashier performs permanent work and the position continues year-round.

The repeated paperwork does not necessarily convert permanent work into a temporary relationship.

Step 8: Define duties before the employee starts

A vague job description creates room for disagreement.

The employer should document:

• Core duties
• Expected results
• Reporting line
• Schedule
• Work location
• Physical requirements
• Driving responsibilities
• Handling of money
• Supervisory authority
• Equipment use
• Customer-contact responsibilities

Article 20 of the Labor Code limits what may reasonably be required when the contract does not identify the service to be performed. The clearer the role is at hiring, the easier it is to manage performance and later changes.

Update the role when reality changes

A contract should not remain untouched when an employee moves from:

• Office work to field work
• Daytime to nighttime work
• Administrative work to management
• Individual contribution to supervision
• Fixed salary to commission-heavy compensation
• On-site work to remote work

Use an amendment and update payroll or insurance information where necessary.

Step 9: Establish a lawful salary structure

The employer must identify the correct minimum-wage category and ensure the compensation meets or exceeds it.

Costa Rica does not rely on a single minimum wage for every worker. Minimum wages are set according to occupational categories and are updated periodically. The Labor Code provides that workers are entitled to the applicable minimum wage and that a new legal minimum automatically modifies lower contractual salaries.

Before finalizing an offer, determine:

• The correct occupational category
• Whether the wage is monthly, weekly, daily or otherwise structured
• Whether commissions are included
• Whether housing or meals are provided
• Whether bonuses are discretionary or recurring
• Whether overtime is likely
• Whether the job includes nighttime or holiday work

Do not use a salary copied from another employee without confirming that both positions fall within the same category.

Step 10: Set up payroll and withholding

Payroll should account for more than transferring the agreed net amount.

The payroll process may need to calculate and document:

• Gross salary
• Employee social-security deduction
• Employer social-security contributions
• Income-tax withholding, when applicable
• Ordinary hours
• Overtime
• Commissions
• Bonuses
• Other salary components
• Lawful deductions
• Net salary

Exact contribution rates and tax thresholds change. They should be obtained from current official sources for the applicable payroll period rather than hard-coded permanently into an employment contract or internal guide.

Use a qualified payroll provider

For a foreign employer with one to ten workers, outsourcing payroll is usually more efficient than creating an internal payroll department.

The provider should understand Costa Rican:

• CCSS reporting
• INS payroll reporting
• Salary withholding
• Aguinaldo
• Vacation
• Overtime
• Termination calculations

Outsourcing the calculations does not outsource the employer’s responsibility.

The employer should still review the information supplied to the provider.

If the employer fails to report overtime or commissions, the accountant cannot calculate them correctly.

Step 11: Use traceable salary payments

Bank transfer is generally the safest payment method because it creates reliable evidence.

Each payment should correspond with a payroll record or payslip showing:

• Pay period
• Gross salary
• Salary components
• Overtime
• Commissions or bonuses
• Deductions
• Net payment

Cash is not automatically unlawful, but undocumented cash creates serious evidentiary problems.

Later, the employee may allege that:

• Part of the salary was unpaid
• The cash represented only base salary
• Overtime was excluded
• A lower amount was reported to CCSS
• The employer never paid a bonus or holiday
• Payments occurred on different dates than claimed

A simple bank transfer labeled only “payment” is better than no record, but it is not a substitute for an itemized payroll document.

Step 12: Establish timekeeping from day one

Many small employers begin recording hours only after an overtime dispute.

That is too late.

Timekeeping should identify:

• Starting time
• Ending time
• Meal periods
• Overtime
• Work on holidays
• Work on weekly rest days
• Absences
• Vacation
• Medical incapacity

The system can be simple, but it must be consistent.

Possible systems include:

• Digital clock-in software
• Electronic timesheets
• Signed paper records
• Shift schedules reconciled against attendance

The employer should not require workers to sign inaccurate records or automatically enter the scheduled hours when the actual hours were different.

Invisible overtime

Common examples include employees who:

• Open the business before the scheduled shift
• Close the business afterward
• Respond to customers after hours
• Attend mandatory meetings outside the normal schedule
• Work during unpaid meal periods
• Travel between work locations
• Complete reports from home

These activities should be identified and managed rather than ignored.

Step 13: Begin benefit tracking immediately

The employee’s compensation cost is not limited to monthly salary.

The employer should begin tracking and budgeting for:

• Aguinaldo
• Vacation
• Overtime
• Paid holidays
• Notice exposure
• Severance exposure
• Employer social-security contributions
• Occupational-risk insurance
• Variable compensation

Aguinaldo and vacation should not become unexpected expenses at the end of the year or the end of employment.

Accrual is a budgeting tool

An internal accounting accrual does not mean the employer pays every benefit monthly.

It means the employer recognizes that the obligation is developing and reserves sufficient funds.

For example, the employer can track the aguinaldo liability each month so the December payment is already funded.

Step 14: Create an employee file

Create one secure file for every worker.

The file should contain, as applicable:

• Identification
• Employment contract
• Contract amendments
• Job description
• CCSS registration evidence
• INS-related information
• Payroll receipts
• Time records
• Vacation requests and acknowledgments
• Medical-incapacity documents
• Performance evaluations
• Written warnings
• Equipment acknowledgments
• Confidentiality documents
• Termination records

Sensitive employee information should be stored securely and accessed only for legitimate purposes.

Do not keep the only copy of critical records in:

• A manager’s personal WhatsApp account
• An employee’s email account
• Loose paper files
• A payroll provider’s system without employer access

The employer should control and preserve its own records.

Step 15: Establish basic workplace policies

A small employer may not need a large corporate handbook, but it does need basic rules.

From the first employee, written policies can address:

• Working hours
• Attendance
• Overtime authorization
• Absence reporting
• Vacation requests
• Workplace conduct
• Harassment
• Health and safety
• Confidentiality
• Information security
• Company equipment
• Customer communications
• Disciplinary procedures

Policies should not contradict the employment contract or reduce legal rights.

They should also be implemented consistently. A rule applied only to one disliked employee may become evidence of unfair or retaliatory treatment.

Do not invent an informal trial period

Foreign employers often assume that the first three months are an obligation-free probationary period.

They may believe they can:

• Delay CCSS registration
• Omit INS coverage
• Pay a reduced “training salary”
• Avoid vacation and aguinaldo accrual
• Dismiss without calculating any amounts
• Operate without a contract

That is dangerous.

Even where the length of service affects which termination amounts have accrued, the employee is still an employee from the beginning. Registration, salary, occupational-risk and other basic obligations do not wait until the employer decides the person has “passed.”

Employers should also distinguish general employment from domestic work, where the Labor Code contains a specific three-month trial provision. That special rule should not be casually applied to every business employee.

Common Expat Mistake

“We will register the employee after we see whether it works out.”

This approach creates exactly the period the employer will later struggle to explain.

If the relationship ends badly after six weeks, the worker may claim:

• They were never registered.
• They were paid in cash.
• They worked overtime.
• They had no insurance.
• Their salary was underreported.
• They were dismissed without proper final payment.

The employer may have no contract, time records or payroll documentation to respond.

The safer solution is to establish a compliant relationship from the first day and manage performance through clear expectations and documentation.

The first 30 days: practical compliance plan

Before the offer

• Identify the legal employer.
• Confirm employee versus contractor status.
• Determine the job duties.
• Identify the correct salary category.
• Calculate the full employer cost.
• Confirm that the employer can legally and financially sustain the hire.

Before the first day

• Start or complete CCSS employer registration.
• Arrange employee registration.
• Obtain the appropriate INS policy.
• Prepare the written employment contract.
• Prepare the job description.
• Configure payroll.
• Establish timekeeping.
• Create the employee file.
• Explain workplace policies.

During the first week

• Confirm the employee’s actual start date.
• Verify identification and payroll details.
• Confirm that actual duties match the contract and INS classification.
• Record all hours worked.
• Provide a copy of the contract.
• Document receipt of equipment and policies.
• Confirm the person appears correctly in the registration system.

Before the first payroll

• Verify base salary.
• Add overtime and commissions.
• Confirm deductions.
• Compare payroll with time records.
• Issue an itemized payslip.
• Pay through a traceable method.
• Save proof of payment.
• Begin benefit accruals.

At the end of the first month

• Reconcile payroll with CCSS reporting.
• Confirm the INS information remains accurate.
• Review actual duties and schedule.
• Correct any classification or reporting errors.
• Confirm all employment records are in the file.
• Address performance problems in writing rather than allowing them to continue undocumented.

Five common first-month mistakes

1. Starting before CCSS and INS compliance is organized

The worker begins because the business needs help immediately. Registration is postponed until someone has time.

The employment relationship, however, has already started.

2. Using a contractor agreement as a temporary trial

The worker operates as an employee but invoices for the first few months. The employer plans to “put them on payroll later.”

This creates a misclassified initial period.

3. Paying an agreed net amount without calculating payroll properly

The employer promises the worker a specific take-home amount without understanding deductions and employer costs.

This can produce confusion about whether the stated salary was gross or net.

4. Failing to record overtime

The business uses an informal schedule and assumes employees will mention extra hours themselves.

The employer later has no evidence of the hours actually worked.

5. Using a generic foreign contract

A contract downloaded from another country may include concepts that do not work under Costa Rican law and omit terms the employer needs to document locally.

Warning signs that the setup is already going wrong

Review the arrangement immediately when:

• The employee started before the contract was signed.
• Salary is being paid from a personal account although a company is the employer.
• The worker is not visible on CCSS payroll.
• No one knows whether the INS policy covers the actual duties.
• The employer and employee disagree about whether the salary is gross or net.
• Overtime is handled informally.
• Commissions are paid outside payroll.
• The worker’s real duties differ from the job description.
• No one is tracking vacation or aguinaldo.
• The accountant receives incomplete payroll information.
• The employee is called a contractor but follows an employee schedule.

Small problems are easier to correct during the first month than after several years.

When to involve an attorney

Legal review is particularly useful when:

• The employee will hold a management or fiduciary role.
• Compensation includes commissions, equity, housing or vehicles.
• The role is described as temporary or project based.
• The worker previously served as a contractor.
• The employer is unsure which company should hire.
• The employee will work remotely from another country.
• The work involves confidential information or intellectual property.
• The job includes unusual schedules or nighttime work.
• The employer is taking over existing staff from another business.
• The employee may have protected status.
• The business wants to terminate shortly after hiring.

An accountant or payroll provider can calculate payroll, but they should not be expected to resolve every legal classification, contract or termination issue.

Frequently asked questions

Does a foreigner need a Costa Rican company to hire an employee?

Not necessarily. An individual may register as an employer. However, a Costa Rican operating company may provide a clearer structure for a business with employees.

Can a tourist or foreign resident own a company that employs Costa Ricans?

Company ownership and the foreign owner’s personal authorization to work are separate questions. The company may employ workers, but the foreign owner should separately confirm whether their own activities are permitted under their immigration status.

Is a written employment contract required?

The Labor Code permits verbal contracts only in limited categories and requires written contracts in other cases. A written contract should be standard practice.

Can the employee start before CCSS registration?

Allowing work to begin before compliance is organized creates exposure from the start date. The employer should arrange registration promptly and avoid treating the first weeks as an informal period.

Is CCSS the same as workplace-injury insurance?

No. Social-security registration and INS occupational-risk coverage are separate.

Does an office employee need INS coverage?

Article 193 broadly requires employers to insure workers against occupational risks. The appropriate policy and risk classification should reflect the real work.

Can a business pay salary in cash?

Cash payment does not eliminate employment rights. From an evidentiary and administrative perspective, bank payment with an itemized payslip is safer.

Is a payslip necessary when the bank transfer shows the payment?

A bank transfer generally shows only that money changed hands. An itemized payroll record explains gross salary, deductions, overtime, commissions and net pay.

Can an employer use a fixed-term contract for the first year?

A fixed term should be justified by the temporary nature of the work. It should not be used merely to avoid the consequences of indefinite employment.

Does the employee handle their own CCSS registration?

Not when they are an employee. Employer registration and payroll reporting are employer responsibilities.

Must the employer accrue severance every month?

The legal payment depends on how and when the employment ends. Internal accrual is a prudent budgeting method so that a later termination does not create an unplanned cash crisis.

Does a one-person business need workplace policies?

It does not need an oversized corporate manual, but it should have clear written rules for schedule, overtime, absences, vacation, conduct, safety and equipment.

Employer checklist

Before considering the first hire complete, confirm that:

• The correct person or company is the employer.
• The classification has been reviewed.
• Employer registration is complete.
• The employee is reported accurately.
• INS coverage is active and correctly classified.
• A written contract has been signed.
• Duties and schedule are documented.
• Salary meets the applicable minimum.
• Payroll includes every compensation component.
• Payments are traceable.
• Timekeeping is active.
• The employee file is complete.
• Vacation and aguinaldo are being tracked.
• Managers understand the basic rules.
• The arrangement has been reviewed after the first month.

Hiring properly from the beginning costs less than reconstructing an undocumented employment relationship after a complaint, accident or termination.

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Legal information notice: This article provides general information about hiring employees in Costa Rica. It does not constitute legal advice for a specific employer or employment relationship. Registration procedures, contribution rates, tax thresholds and administrative requirements can change and should be confirmed for each hire.

Last reviewed: July 2026