QCOSTARICA from Outlierlegal.com – Under Costa Rican labor laws, domestic workers are considered employees, and as such, you are required to pay certain benefits.
A lot of people do not realize this until the employee is laid off, then a few weeks later you get a notice from the labor court indicating that you have been sued by your former employee.
Unless you have a service agreement under which the services provided are on a contractual basis, the government will assume that the domestic worker is an employee, and you as the employer must pay certain benefits.
The purpose of this post today, is to make sure that you pay what you are supposed to pay according to the law. This is applicable to both regular employees as well as domestic workers. I make the distinction between regular employees for people who are on a full time or part time basis. Domestic employees may provide services for a few hours a couple of times a week, which makes it difficult for foreigners to understand why they may have benefits.
This is a brief list of benefits under Costa Rican Law:
- Social Security. This involves the payments to the famous CAJA. Both the employee and the employer need to pay CAJA fees. These fees include payments for the retirement savings for the employee, as well as coverage for healthcare services. Employers are required to pay 26,33% of the employee’s salary to CAJA, and employees are required to pay 9.34%. The employer has the responsibility to collect the portion from the employee salary and pay a total of 35.67% of the employee’s salary to CAJA. This means that per every $100 USD that you pay your employee as salary, you should be disbursing $35.67 to CAJA, from which $26,33 is your share.
- Workers Compensation Insurance. If an employee has an accident while at work, you would like to have insurance to cover for those injuries. The National Insurance Institute (INS) calculates the premiums based on the type of labor and the salary paid to the employee.
- Vacation. Depending of the amount of time worked, an employee will have a certain number of days as vacation per year. According to Section 153 of the labor code an employee has the right to receive two weeks of vacation per each period of 50 consecutive weeks of work.
- Aguinaldo. This is a Christmas bonus. It is an additional salary per year which must be paid within the first 20 days in December. The aguinaldo is not part of the labor code. It was created separately by act of Congress in law 2414. The aguinaldo is calculated on the average salary per month received by the employee between December 1st and November 31st (12 month cycle prior to December 1st.) As noted, the aguinaldo between December 1st and December 20th. If you have an employee that gets $100 a month in salary and started working on August 1st, the aguinaldo is $33.33, which is the average monthly salary received in the 12 month cycle prior to December 1st. So, in order to calculate the aguinaldo, you add up the salaries received in the 12 month cycle and divided by 12. In this scenario, the employee only received $100 per month for four months (August – November) which is $400 USD, which divided by 12 results in $33.33.
Termination of Contract
When the labor contract terminates, whether the employee resigns or you fire the employee, you will need to pay certain benefits. Let’s review them briefly.
If you let your employee go, you will need to do the following:
- Pay aguinaldo. The aguinaldo is calculated on a prorated basis. As noted, the aguinaldo is the average monthly salary of the 12 month period.
Regardless whether you fire the employee, or the employee resigns, you are required to pay aguinaldo.
- Pay Vacation. If the employee has not taken vacation, then you are required to pay the equivalent in cash for the days of vacation the employee has accumulated. Vacation is calculated as one day of vacation per month worked. For instance, if the employee has accumulated six days of vacation, then you will need to pay six days worth of salary to the employee. Similarly to the aguinaldo, you are required to pay the days of vacation, regardless of whether the employee resigns or you fire him.
- Pay Cesantía. This is only applicable if you let the employee go. If the employee resigns, you are not required to pay for cesantía. Cesantía is a compensation based on seniority. The longer that the employee worked for you, the more money you are required to pay in censantía. This is the description of the different amounts you have to pay depending on the time worked.
Calculation of Cesantía Time Worked Amount to Pay 3 to 6 months Seven Days 6 to 12 months Fourteen Days 1 year 19.5 days 2 years 20 days per year work or fraction over six months 3 years 20.5 days per year work or fraction over six months 4 years 21 days per year work or fraction over six months 5 years 21.24 days per year work or fraction over six months 6 years 21.5 days per year work or fraction over six months 7 years 22 days per year work or fraction over six months 8 years 22 days per year work or fraction over six months 9 years 22 days per year work or fraction over six months 10 years 21.5 days per year work or fraction over six months 11 years 21 days per year work or fraction over six months 12 years 20.5 days per year work or fraction over six months 13 years 20 days per year work or fraction over six months
So, based on the table above, if you had an employee working for three years and earning $10 per day, you are required to pay 20.5 days of salary per each year the employee worked for you. In this scenario, as we are basin the salary at rate of $10 per day, you will need to pay the employee a total of $615 in cesantía.
- Give notice. If you are firing your employee, you are required to give them notice. The amount of time of the notice depends on how long the employee worked for you. If you want to terminate the employee immediately, then you need to pay them the equivalent of cash for the days of notice that the employee should have received. According to Section 102 of the labor code, domestic workers are entitled to receive two weeks of notice for the termination of the work contract, when the employee has worked for more than a week and less than a year. If the employee has worked for more than a year, then the notice should be one month. As noted, if the termination is immediate then the employee is entitled to receive the equivalent of the time of notice in cash.
For other types of work that is not domestic, Section 28 of the Labor Code indicates that the notice should be as follows:
|Notice for Termination of work contract|
|Time Worked||Term of Notice|
|3 to 6 months||One week|
|6 months to 1 year||15 days|
|More than one year||1 month|
So, based on the table above, if you had an employee working for three years and earning $10 per day, you are required to pay 20.5 days of salary per each year the employee worked for you. In this scenario, as we are basing the salary at rate of $10 per day, you will need to pay the employee a total of $615 in cesantía.
For instance, if you were supposed to give them one month notice, but the termination is immediate, then you will need to pay them one month salary.
Needless to say, if the employee resigns, you are not required to give them notice. Thus, you are not required to pay them for that notice.
To summarize, all employees are entitled to receive, vacation, aguinaldo, social security and workers compensation insurance.
If you let the employee go, you are required to pay vacation, aguinaldo, cesantía and give notice to the employee. If the employee leaves, you are only required to pay aguinaldo and vacation.
Under current labor regulations, a domestic worker is considered an employee. So you have to be compliant with this responsibilities for housekeepers, gardeners, and home repairs services. This is also applicable to security guards or people watching your house or property. In some instances, people stay in Costa Rica for only a few months out of the year, and for the remainder of the year they have someone watching over the house. In situations like this, the person watching over the house should also be covered. Labor courts interpret this situation as an employment relation and expects the owner of the house to pay benefits for the person who is taking care of the house. The law calls for courts to protect the rights of employees, and courts follow this to the black letter of the law.
If you will be hiring domestic help, you have to options when it comes to liabilities. Number one, to pay all of the benefits. Number two, to sign an agreement for domestic services, for which the worker should be registered with CAJA as an independent worker and with the revenue service as well. Sometimes, the house keeper will tell you that she is registered as an employee with a different employer, and she may not sign a contract either. If that is the case, do not hire that employee. Do not expose yourself to liabilities.
Contract for Services
Doing a contract for services will limit your liability. But, as noted lines above, the labor courts have the tendency to be more protective of the employee. So, in some instances, regardless of whether you did a contract for services or not, you may still be liable.
If you decide to do a contract for services in order to avoid doing payroll and benefits for the house keeper, you will need to take the following elements into consideration:
- The contract should indicate that the house keeper must be registered with the CAJA as an independent worker. In addition, the contractor must be registered with the revenue service (DGTD) as an independent worker, and should give you receipts for the services rendered. Finally, the contractor should have their own insurance for accidents (Seguro de Riesgos al Trabajador)
- You cannot unilaterally decide on the or the costs of services, it has to be a mutual agreement;
- Do not designate an hourly rate. Instead, determine a cost for the services completed. For instance, 10,000 colones per week for cleaning the house; it is up to the contractor to clean the house in two hours or in eight hours, but you will pay for the end result, not for the amount of time spent in doing the service.
- Set the contract for a specific period of time of no more than a year.
- Do not include language to the effect of vacation or time off.
In other cases where you have an established business, such as a hotel, or a restaurant, and the employment relation is more clear, needless to say you have to comply with all labor regulations, pay all of the benefits and sign the appropriate work contracts.
You have also be careful with house sitters. If you have someone taking care of your place while you are gone, that person can be considered an employee. Costa Rican labor courts have interpreted this situation as a labor relation to the detriment of home owners. The suggestion is to also do a house sitting agreement where it is indicated that it is not a lease and it is not a labor agreement.
Article first appeared at Outlierlegal.com