Hiring Staff As Consultant or Employee? What’s Best For My Business?

Many new and existing investors start their operations in Costa Rica, working as employers to Costa Rican workers without having a base knowledge about what Costa Rican labor law demands, in this post, we’re explaining the minimal aspects to be considered when hiring someone as an employee or a consultant, what are the advantages and disadvantages for each condition, in both of the cases we recommend to establish the scope of the relation in the contract.

  1. Hire as an employee

An employee and employer relation in CR are regulated by the Costa Rican labor regulation, between the most important aspects to consider are the following:

  • Labor hours: The regular daily working day for an employee in CR is 8 hours a day, over 8-hour threshold the overtime rate will be 1.5 hours to a maximum of 12 hours a day. There are other working journeys as the nightly that goes until 6 hours regular and over that is considered overtime to a maximum of 12 hours a day.
  • Types of Employees: There are two position types that determine the maximum hours per day, the regular employees and the trusted employees.
    • Regular employees work under certain conditions as their time is tracked, they respond to a direct supervisor, they earn overtime over 8 hours a day, and in principle there is a dependency relation between the employee and the employer, they are registered into the employer’s payroll, labor risk and social security as CR labor laws state.
    • Trust employees differ from regular employees because their conditions are less depending on the employer, they have liberty to manage their time along the day, their tasks are usually related to high responsibility tasks, their time is not tracked, and they don’t respond to a supervisor, they are registered into the employer’s payroll, labor risk and social security.
  • Employers in CR by law have to give their employees all the guarantees by law, as minimum one day off a week, vacation days 12 days per each 52 weeks of work, Christmas bonus (equal to the average monthly salary throughout a year), social security including labor risk insurance policy mandatory for workers in the country.
  • Employee hires are understood to be for undefined time, unless their contract states a temporary period.
  • On top of the gross salary of a worker, the employer must cover the following costs, as an example using a $1000 gross salary:
    • $1,000.00 monthly salary
    • $265.00 CCSS Social security (26.5%)
    • $43.50 Labor Risk Insurance Policy (4.34%)
    • $83.30 Christmas bonus (annual 13th month) (8.33% Monthly)
    • $1,391.80 Total monthly
    • In summary the cost for an employer equals to 39% of the gross salary paid to each employee
  • Hire as a consultant

A consultant is an independent professional that provides services to a company or individual through a services contract on a determined amount of time, for a determined fee, all the conditions can be set on the contract, the relation between the consultant and the client is totally independent, a consultant can make use of his time as he please as long as he complies with the dues and responsibilities set on the service contract and the scope of services and results.

The consultancy services are billed to the client, the only charge on top of the financial scope of a contract is the VAT tax which in CR equals 13% if the services are billed by the consultant to a company or individual on CR, if the services are given to a company overseas there is an additional retainer of up to 25% of the gross amount to be paid.

A consultant is not subject to the following benefits: Social security, labor risk insurance, Christmas bonus, vacations and others since the relation is for services provided only.

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