Q COSTARICA — To protect jobs and enable more businesses to thrive, the Consejo de Promoción de la Competitividad (CPC) — Competitiveness Promotion Council, on Monday, during the I Summit Nacional de Competitividad (1st National Competitiveness Summit), proposed a gradual reduction of social security contributions.
These contributions specifically address social security obligations unrelated to the Costa Rican Social Security Fund (CCSS), which currently increases the cost of formal employment by 7.25 percentage points.
This means Costa Rican businesses pay twice the rate required by OECD countries.
“Costa Rica maintains one of the highest employer contribution structures in the region. Currently, employer contributions amount to 26.83% of gross salary, a percentage that directly impacts the cost of formal employment and is among the factors companies consider when investing, expanding, or creating new jobs,” the CPCl stated.
These are social security contributions that currently fund the Fondo de Desarrollo Social y Asignaciones Familiares (FODESAF) —Social Development and Family Allowances Fund, the Instituto Nacional de Aprendizaje (INA) — National Learning Institute, the Instituto Mixto de Ayuda Social (IMAS) — Joint Institute for Social Assistance, and the Banco Popular y de Desarrollo Comunal — the Banco Popular.
The idea is to gradually transfer this contribution to the State.
“The cost of formalizing employment determines how many people are included or excluded from social protection. Reducing this cost doesn’t represent a benefit for companies, but rather the most direct way for more people—especially women and young people—to access formal, protected, and quality employment, without weakening the funding of social programs,” explained Rodrigo Cubero, former president of the Central Bank of Costa Rica and coordinator of the working group on employer contributions at the CPC.
Given this situation, the Competitiveness Promotion Council has proposed the following alternatives:
- Immediate universal reduction: Reduce the 7.25 percentage point contribution for all companies starting in the first year of implementation.
- Universal phase-in reduction: Reduce the 7.25 percentage point rate for all businesses gradually over a five-year period.
- Immediate phase-out reduction: Reduce the 7.25 percentage point rate for micro and small businesses, and apply smaller reductions to medium and large businesses.
- Phase-out reduction: The reduction would be greater for smaller businesses and would be applied gradually over a five-year period.
The CPC indicated that the proposal also explores options for fiscally offsetting any potential reduction in these costs, with the goal of not underfunding social programs.
Cubero noted that reducing the cost of formalization could expand access to sheltered employment.