How to run payroll in Costa Rica

In Costa Rica, most employers pay employees monthly, typically on the last working day of each month. Here's the complete payroll cycle.

Payment frequency and dates

Costa Rica law requires monthly salary payments for most employees. You must pay by the last working day of each month, though many companies choose the 30th or 31st regardless of whether it's a working day.

Hourly workers can be paid bi-weekly or weekly, but monthly remains the standard across most industries. The Ministry of Labor allows more frequent payments but prohibits extending the monthly cycle.

Late payment penalties start at 1.5% of the unpaid amount per month, so timing is critical for compliance.

13th month payment (aguinaldo)

Costa Rica requires a mandatory 13th month payment called aguinaldo. You must pay this between December 1st and December 20th each year.

The calculation is straightforward: total all salaries paid from December 1st of the previous year through November 30th of the current year, then divide by 12. For employees who worked less than a full year, prorate based on months worked.

The aguinaldo is subject to the same income tax and social security contributions as regular salary. Many employers split the payment into two installments to help with cash flow.

Holiday and vacation pay

Employees earn vacation at 2% of their annual salary, which equals roughly 2 weeks per year. You can pay vacation in advance when the employee takes time off, or accumulate it for year-end payment.

Unused vacation must be paid out within the first quarter of the following year or when employment ends. The calculation includes the base salary plus any regular bonuses or commissions earned during the vacation-earning period.

Public holidays are paid at regular rates if the employee would normally work that day. If an employee works on a mandatory holiday (there are 9 per year), they earn double pay for those hours.

Payment methods

Bank transfers are mandatory for all employees in Costa Rica. You cannot pay salaries in cash, by check, or through digital wallets. Employees must provide a local bank account number in Costa Rican colones.

International companies typically establish a local bank account or use a payroll provider with Costa Rican banking relationships. Currency conversion happens automatically at the bank's daily rate if you fund the account in USD.

Payslip requirements

Every payslip must include specific information in Spanish:

• Employee's full name and cedula number
• Pay period dates and payment date
• Gross salary breakdown by concept
• All deductions itemized (taxes, social security, other)
• Net payment amount
• Year-to-date totals for salary and deductions

You can deliver payslips electronically, but employees can request paper copies. Keep payroll records for at least 5 years - labor inspectors frequently audit payroll documentation during workplace visits.

Think you just withhold income tax? Costa Rica adds territorial tax complexities and special resident classifications that catch many employers off guard.

How much income tax do employees pay?

Costa Rica uses a progressive tax system with rates ranging from 0% to 25% for 2026. The tax-free threshold provides meaningful relief for lower earners.

The monthly tax-free allowance of ₡420,000 means employees earning below this amount pay zero income tax. This threshold adjusts annually based on inflation.

Non-resident taxation

Non-resident employees face different rules. They're taxed at a flat 25% rate on all Costa Rican-sourced income, with no tax-free allowance.

Residents who spend more than 183 days per year in Costa Rica qualify for the progressive rates and tax-free threshold.

What are the withholding requirements?

Employers must withhold income tax monthly from employee salaries. You're responsible for calculating, deducting, and remitting taxes to the Ministry of Finance (Ministerio de Hacienda).

Monthly filing deadline: 15th of the following month Annual reconciliation: March 31st for the previous tax year

Late filing penalties start at ₡50,000 and increase based on the delay period. Interest accrues at 1.5% monthly on unpaid amounts.

You'll use Form D-101 for monthly withholding reports and Form D-104 for annual reconciliation.

How do you register for payroll taxes?

New employers need tax registration before running payroll. The process takes 10-15 business days.

Register at any Ministry of Finance office or through the online ATV system. You'll receive a tax identification number (NIT) that's required for all payroll filings.

The registration fee is ₡25,000, payable by bank transfer or certified check.

What tax mistakes should you avoid?

Misclassifying resident status is the most expensive error. Many companies apply non-resident rates to employees who qualify as residents, resulting in over-withholding and complex refund processes.

Missing the 13th salary calculation for year-end tax withholding catches new employers. The aguinaldo is subject to regular income tax rates, not special treatment.

Late monthly filings generate automatic penalties even when no tax is owed. Set up calendar reminders for the 15th of each month.

Incorrect foreign income treatment creates audit risks. Document which income sources are Costa Rican-based versus foreign-sourced for resident employees.

Employer contributions in Costa Rica add 26.33% to every salary. Budget for it.

Your payroll costs extend well beyond base salaries. Costa Rica requires employers to contribute to social security, pensions, health insurance, and several smaller programs that protect workers.

What do employers pay?

Here's your complete contribution breakdown:

How much will you actually pay?

For a ₡1,500,000 monthly salary:

• Base salary: ₡1,500,000
• Social security: ₡73,800
• Health insurance: ₡138,750
• Occupational hazards: ₡25,200
• Family allowances: ₡75,000
• Other contributions: ₡82,200
• Total employer cost: ₡1,894,950
• Cost multiplier: 1.26 (you pay 26% more than base salary)

The contribution cap of ₡2,463,000 monthly (₡29,556,000 annually) affects high earners. Once an employee's salary exceeds this amount, your contributions plateau at ₡648,870 monthly.

Registration and compliance

You must register with multiple agencies before hiring your first employee:

Payment deadlines

All contributions are due by the 15th of the following month. Miss this deadline and you'll face penalties of 1% per month plus interest.

The CCSS conducts regular audits and can impose additional penalties for non-compliance. Keep detailed payroll records for at least five years.

Costa Rica has 10 public holidays in 2026. Work on these days? Pay double.

Annual leave

Employees earn 2 days of vacation for every month worked. That's 24 days per year, but Costa Rica rounds it up to 25 days minimum after 50 weeks of work.

Vacation pay gets tricky. You pay the regular daily wage plus a proportional part of the aguinaldo (13th month bonus). Calculate it as: (monthly salary ÷ 30) × vacation days + (aguinaldo ÷ 365 × vacation days).

Employees can carry over unused vacation to the next year, but you must pay it within the first quarter. No exceptions - labor inspectors check this regularly.

When someone leaves, you pay all accrued vacation immediately. Use the same calculation method, including the proportional aguinaldo amount.

Sick leave

Employees get 12 days of sick leave per year at 100% pay - and you cover the full cost for these days.

After 12 days, the CCSS (social security) takes over and pays 60% of salary from day 13 onwards. You don't pay anything during CCSS sick leave periods.

The employee files the claim directly with CCSS. You'll receive notification to stop salary payments once CCSS approves the extended sick leave.

Parental leave

Maternity leave

Pregnant employees get 4 months of maternity leave at 100% salary. CCSS pays the entire amount - not you.

The leave breaks down as 1 month before birth and 3 months after. Employees can adjust this split with medical approval, but the total stays at 4 months.

You continue paying normal salary, then claim reimbursement from CCSS. The process takes 2-3 months, so plan your cash flow accordingly.

Paternity leave

Fathers get 1 week of paid paternity leave, and you pay 100% of salary. No reimbursement available - this comes directly from your payroll budget.

Public holidays 2026

Work performed on public holidays requires double pay (200% of regular wages). Most businesses simply close rather than pay the premium.

Mandatory benefits affecting payroll

Aguinaldo (13th month)

You must pay a 13th month bonus by December 15th each year. Calculate it as one month's salary for employees who worked the full year, or proportional amounts for partial years.

This affects every payroll calculation because you need to accrue 8.33% of each month's salary for the December payment.

Severance fund

Deposit 8.33% of each employee's monthly salary into a severance fund. Employees can access these funds when they leave or for specific approved purposes like home purchases.

Vacation bonus

Pay an additional 50% bonus when employees take their annual vacation. If someone takes 10 days of vacation, you pay 15 days total (10 regular + 5 bonus days).

This vacation bonus is separate from the aguinaldo calculation and comes directly from your operating budget.

Employment contracts in Costa Rica must include employee identification numbers, exact salary amounts, and specific termination clauses or they're legally invalid. The Ministry of Labor can void contracts missing these elements, leaving you without legal protection in disputes.

Monthly filing requirements

You'll submit three monthly reports to different agencies, each with strict deadlines that don't align with calendar months.

Social security contributions go to CCSS (Caja Costarricense de Seguro Social) by the 15th of the following month. Submit through the SICERE online portal using Form 900. Late submissions incur 1% monthly interest plus a base penalty of ₡25,000.

Income tax withholdings must reach the Ministry of Finance by the 15th through the ATV system. File Form D-103 with detailed employee breakdowns. Penalties start at 1.5% of the withheld amount for the first month late, increasing to 3% monthly thereafter.

Labor risk insurance payments go to INS (Instituto Nacional de Seguros) by the last working day of each month. Use their digital platform with Form INS-001. Late payments trigger immediate coverage suspension and ₡75,000 fines.

Annual reporting

Year-end reconciliation happens in two phases. Submit preliminary reports by January 31st, 2027, followed by final reconciliation by March 31st, 2027.

Employees receive their Constancia de Retenciones (withholding certificates) by January 31st. These documents must show total earnings, all deductions, and net payments in both digital and physical formats.

The Ministry of Labor requires annual payroll audits for companies with 50+ employees. Schedule these between February and April 2027. Auditors check contract compliance, overtime calculations, and vacation accruals.

Aguinaldo reporting needs special attention. Submit detailed calculations to MTSS by December 20th, 2026, showing how you calculated each employee's 13th-month payment.

Employee documentation

Employment contracts require 12 mandatory elements including probation periods, salary review schedules, and termination procedures. Write contracts in Spanish - English translations need official certification.

Payslips must include 15 specific line items: base salary, overtime hours, commission details, social security deductions, income tax withholdings, and net pay calculations. Include the employee's cedula number and your company's tax ID.

Keep payroll records for seven years minimum. Store contracts, payslips, time records, and tax filings in both physical and digital formats. The Ministry of Labor conducts surprise audits and expects immediate document access.

Penalties table

Regulatory bodies

CCSS (Social Security) oversees all social insurance contributions and employee benefits. Access their SICERE portal at www.ccss.sa.cr for monthly filings. Contact their employer services line at 2539-0821 for compliance questions.

Ministry of Finance handles income tax withholdings and corporate tax matters. Use their ATV system for all tax submissions. Their payroll compliance unit operates at 2539-2662.

Ministry of Labor (MTSS) regulates employment contracts, working conditions, and labor disputes. Register all contracts through their digital platform. Reach their compliance department at 2542-3000.

INS (National Insurance) manages workplace accident insurance and occupational health requirements. File monthly reports through their employer portal. Contact 800-800-4467 for technical support.

Each agency maintains separate login credentials and filing systems - you can't cross-file between platforms.

2026 brought several major payroll changes to Costa Rica. Here's what you need to update.

Minimum Wage Increase - Effective January 1, 2026

Costa Rica's minimum wage increased by 3.2% across all sectors. The general minimum wage rose from ₡385,735 to ₡398,080 per month. Domestic workers saw their minimum wage increase from ₡308,588 to ₡318,465 monthly.

You'll need to adjust payroll calculations for any employees at or near minimum wage levels. The increases apply to both monthly and hourly calculations.

Social Security Contribution Adjustments - Effective January 1, 2026

The CCSS (Caja Costarricense de Seguro Social) increased employer contribution rates by 0.25 percentage points to 26.75%. Employee rates remain unchanged at 10.67%. The contribution ceiling increased to ₡1,890,000 monthly.

Update your payroll system to reflect the new employer rate and ceiling. The change affects all employees earning above the previous ceiling of ₡1,825,000.

Tax Bracket Modifications - Effective January 1, 2026

Income tax brackets adjusted for inflation with the tax-free threshold increasing from ₡929,000 to ₡965,000 monthly. The 10% bracket now applies to income between ₡965,001 and ₡1,380,000, up from the previous range of ₡929,001 to ₡1,330,000.

Review withholding calculations for employees in the affected brackets. The changes reduce tax burden for lower-income employees while maintaining rates for higher earners.

Vacation Accrual Update - Effective March 1, 2026

The Labor Code amendment changed vacation accrual from calendar year to anniversary-based calculation. Employees now earn vacation days from their hire date anniversary rather than January 1st.

This affects vacation balance calculations and carryover policies. You'll need to recalculate existing balances and update accrual schedules for all employees hired before 2026.