Special setup lets employers duck Caja collectors

The Caja Costarricense de Seguro Social known to most in its abbreviated form as CCSS or just the Caja is out in force to collect money owed to the institution. Many companies owe the Caja money. Some try to play games with the system, so they do not have to pay. Here is a bit of background and a company structure that most expats and Ticos alike do not know about which can be used to avoid the game playing.

The CCSS is the foundation of the social security system in Costa Rica. It collects money each month for itself and various other institutions to cover employee health, death and old age benefits to name a few.

Many companies get behind paying their monthly dues to the Caja. This is causing a severe breakdown of the system which is already taxed by rising health costs in general.

About a month ago, there were protests all over the country by the public complaining about the inefficiencies of the CCSS system and the poor medical care the institution provides in some areas of the country.

Some companies try to play games with the usual system of putting their employees on the payroll to avoid paying social security charges. One of the most notorious ruses is to have an employee provide an invoice to the company so it appears the employee is an independent contractor and not an employee.

There are three basic proofs that make up the definition of an employee in Costa Rica: remuneration, personal service and subordination.

Remuneration means a person gets paid for the work they perform. Personal service means the worker being paid for the services they provide must do the work, they cannot simply replace themselves with someone else when they do not want to work. Subordination means the worker takes orders and must obey them.

One problem with this ruse is that the worker usually does not pay into the CCSS system and thus is not covered by any benefits. In many cases, they do not pay for worker compensation either. That is provided by the Instituto Nacional de Seguros or INS for short. This fact contributes to the financial problems of the whole system and is one of the reasons the Caja is in a financial crisis.

True, independent workers can opt into the CCSS system by paying their quotas as such “trabajadores independientes” which mean independent – or professional – workers. However, if they meet the basic proofs of an employee as listed above, they are not independent and should be on a company’s payroll.

Due to the uproar by the public, Caja inspectors are everywhere trying to find the companies that do not pay and also trying to identify the companies that are playing games with the system.

Some companies like having certain professional workers off the payroll and it is more convenient for them to pay for professional services. Even the country itself has found it more economical to pay for services rendered and keep the payroll down.

For this reason, Law 7407 was created in May of 1994 adding a type of special company structure just for independent workers. It is called a S.A.L. or Sociedad Anónima Laboral. Translated into English this means a company for workers.

This company structure was initially created for companies that work with the government so the country could cut costs, but anyone can use it. One example is the phone company, Instituto Costarricense de Electricidad known as ICE for short. It uses S.A.L.s to do contract work like fix telephone lines and install telephone services.

A S.A.L must have at least four workers, and the workers must own the majority of the shares of the company. Outside investors can invest in a S.A.L. but they must remain a minority. If a worker of a S.A.L. leaves, he or she must return the stock holdings back to the company.

Here is how they work: Independent or professional workers constitute a S.A.L. to work with a company or companies. They bill for their work, and then the S.A.L. is responsible for paying into CCSS system and also paying for their workers compensation.

This keeps them off the payroll of the companies they work for and gives them the ability to work independently. The CCSS gets their money, and the companies receiving services do not have to worry about big payrolls.

An interviewed Caja inspector said, “S.A.L.s work well if the people that manage them do not play internal games with the company.” He was referring to the fact that in some S.A.L.s the workers’ pay themselves more than they report to the social security system and do not pay their workers compensation.

A company that has independent workers who are not on the payroll but meet the definition as an employee probably will have problems with the CCSS sooner or later. If these independent workers number less than four, the company should put them on the Caja system and get them workers compensation as soon as possible. If they number more than four and can manage themselves according to Law 7407, they should create a S.A.L and bill the company they are working for to keep in line with the law.

Most people do not know that if they hire a company and that company is not up to date with the Caja Costarricense de Seguro Social, the Caja can collect the money from the company or people to which the delinquent firm is providing services. For example, a security firm might not have all its guards on the payroll or might cheat by not listing any. The Caja has the right to come back at the firm or person who hired the company that did not pay into the system.

The Caja is on a rampage to get non-payers. Everyone, should evaluate the payroll to be sure they are being reported correctly and check to see if the companies they work with on a continual basis are up-to-date as well.

Garland M. Baker is a 39-year resident and naturalized citizen of Costa Rica who provides multidisciplinary professional services to the international community.  Reach him atinfo@crexpertise.com.  Baker has undertaken the research leading to these series of articles in conjunction with A.M. Costa Rica.  Find the collection at http://crexpertise.info, a complimentary reprint is available at the end of each article.  Copyright 2011. Use without permission prohibited.

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