How to handle employees and their paperwork represents a continuous problem for expats.
An article on house employees produced a great deal of interest. Many people wrote and said they were not legally registering their employees in Caja Costarricense de Seguro Social — referred to in Costa Rica as the Caja — or paying all compensation as required by law. Some expats also asked if they needed to register themselves. Everyone that wrote is still confused.
One person stated the Caja system was unfair. She stated a Caja employee told her she had to pay them 26,000 colons monthly (about $47) on a minimum base salary of 101,000 colons (about $184), even if her house employee worked just one hour a week.
Another wrote and asked about gardeners and maintenance workers. They tend to work for many people. Who should legally register them?
After the article “Those hidden pitfalls in hiring domestic employees” was published, a Caja inspector showed up unexpectedly to examine this writer’s payroll records. This had never happened. When asked why she made a surprise visit, she said the Caja now has a new police force in charge of checking compliance to their rules. The same day, an associate was investigated in Cartago as well. This is surprising but surely a coincidence nonetheless.
During the examination, the inspector confirmed the information about the minimum fee of 26,000 colons. She said the administration of the social security system calculated a minimum cost of adding an employee to its rolls, and the amount was 26,000 colons. This means any worker – regardless of how many hours they work – must be registered in Caja with at least a base salary of 101,000 colons, even if that is far more than what they are actually paid.
This fact seems unfair for workers as well as employers. People hiring temporary employees of any type would not be eager to legally register them if they have to pay the Caja a disproportionate share of money compared to full-time workers. Further along in the meeting, the inspector said she, too, felt the system was unfair but that it was out of her control.
More surprising information came when she said that everyone needed to be covered by the Caja, which includes the owners of the company: it does not matter if the owner has private insurance.
Many expats own a company in Costa Rica; some cover their employees and others do not. However, very few expats cover themselves. After doing some research about the statement she made that everyone must be covered by the Caja, it turns out that it is true. It is dictated by law. Since 2005, the Ley de Protección al Trabajador (Workers’ Protection Law), states that any person with an economic activity in Costa Rica must register with the Caja. Non-payment accrues interest and penalties that are collected with a court action.
The owner of a company has two options: 1.) Add themselves to their company’s payroll, or 2.) purchase trabajador independiente (independent worker’s) insurance. The later option is cheaper, and if the expat is over the
age of 50, they can exclude the insurance for disability, old age or death.
This expat said, “If that is the law, what do I need to do to sign up?” The inspector said, “If you let me sign you up, the process is easy, if you do not and I have to fill out this form, the Caja will do an extensive investigation and make your life difficult, so you better let me do it.” The decision was an easy one.
While she was filling out the forms, the question of the gardeners and maintenance workers came up. She said, according to the law, everyone needs to be registered as an employee with the Caja unless they have signed themselves up as an independent worker and file tax returns as such too.
Here are some conclusions and recommendations:
• Costa Rican labor law states all workers must be signed up with the Caja Costarricense de Seguro Social and be protected by Workers’ Compensation Insurance, which covers both employees and owners.
• Workers should be duly enrolled on a payroll, and a corresponding percentage of their salary (information issued by the Caja) must be paid to the social security system. If the employees are temporary, they should also be registered as dictated by law, even though the reasons for this seem to be unfair. The fines and headaches for not doing the latter outweigh the amount to be paid.
• A workers’ compensation policy should be purchased from the Instituto Nacional de Seguros de Costa Rica (National Insurance Company) to cover any accidents in the workplace. This coverage can be included in a homeowner’s policy if only a few workers are involved.
• Owners should purchase a separate Caja policy for themselves, which covers independent workers and professional people. It is better to do so voluntarily. However, it is advisable to wait for an inspector to show up and let them do the process because they will expedite it. Going to a Caja office and offering to file for the insurance could turn into a nightmare.
• Gardeners, maintenance, construction and other workers should be asked if they are registered with the Caja as a trabajador independiente and if they have individual coverage for workers’ compensation. If they are, doing business with them is probably safe, as long as they do business with others as well. However, if they are not legal and do not have insurance, they need to be included on a payroll or not be employed at all.
It is a simple equation: The law requires all workers, whether they are hourly, salaried or independent, to be covered by the social security system in Costa Rica. The law also requires that all workers be covered by some sort of workers’ compensation insurance for work-related accidents.
The dilemma for expats and other employers is why they should cover part-time house employees, gardeners, maintenance workers and the like if doing so only enables disproportionate assessments by the same rules made to protect workers. The answer to this dilemma is also simple: It is the law.