What makes a service or independent worker an employee?
According to the Caja Costarricense de Seguro Social, commonly known as the Caja, and the Instituto Nacional de Seguros, known as INS, the key element is the number of jobs.
Yes, if anyone is working, regardless at what, and they only have one, two or three jobs, they are considered employees and should be covered as such by the people for whom they work, the agencies said Friday.
The labor law summarizes a worker by three criteria: 1) someone who personally provides labor or a service, 2) the person is paid, and 3) they are being directed by another and subordinate to them. However, one lawyer said the Sala II, the highest labor court of Costa Rica, has over 20 criteria including, but not limited to, how many jobs a person works.
This means that if an expat homeowner has a domestic or an outside maintenance worker coming to the house once or a few times a week and the employee only has a couple of these jobs, everyone hiring them should have them covered by the Caja for health insurance and INS for workers compensation.
Far too many expats, taking the example from their Tico friends, pay casual workers for professional services instead of having them on a payroll. The reason they do this is simple, it is cheaper. Many Costa Ricans set a very bad example to foreigners because they pay their domestic workers piecemeal and not at all as the law requires.
Here is the cost difference. Paying a domestic worker as a professional service person to come in and clean up the house five hours a week at 2,000 colons an hour is 10,000 colons a week or 520,000 colons ($1,050) a year. However, that same person on a payroll costs much more.
Here are the figures without going into nitty-gritty details. Once a person is an employee, an employer needs to pay 26.17 percent of the wages to the Caja for health insurance and an estimated 18,367 colons annually to INS for workers compensation.
This workers’ compensation number is only for domestic workers covered by RT-Hogar, a special workers’ compensation insurance for them and should not be confused with regular compensation rates which range between 1 and 7 percent of an employee’s annual wage. Employers are also required by law to escrow 5.33 percent of gross wages for severance benefits, 4.16 percent for vacations and 8.33 percent for a Christmas bonus. These additional amounts add up to an estimated 45 percent so the 2,000-colon-an-hour employee is really almost a 3,000-colon-an-hour worker. This translates into close to $500 more per year.
No wonder many try to cheat the system. However, cheating is even more expensive in the end. Workers claims to benefits never expire by statutes of limitation. Most claims for non-paid benefits have been upheld in Costa Rica’s constitution court. The worst nightmare is if the Caja gets its teeth into a collection action. The penalties and interest are severe.
Even if one is doing everything right, an employee can request an audit of his or her benefits. One expat with a yacht rental business had one employee question his retirement payments and get small increases three times over the course of 10 years. Needless to say, the expat always ended up paying more.
Some people like to pay as they go just because they do not like dealing with the Caja and INS. Their systems are not overly complex but when calling the institutions with questions, most find themselves in a bad dream. It is difficult for an educated person asking the right questions to get correct answers, imagine a less fortunate individual with no education.
One gardener questioned over the weekend said he was an independent worker and the Caja and INS covered him because workers’ compensation is included in his Caja policy. He said he was told this when he called to ask for clarification. A paralegal called the Caja to ask staffers if this was the case, and their answers were, “No, we have nothing to do with the INS.” The women on the phone kept insisting the paralegal come in for an interview regarding her questions because the institution’s policy is not to give out such information over the telephone. More information regarding insuring employees can be found in an article written Sept. 2.
When hiring anyone these are the questions one should ask:
1.) “How many people do you work for?” If the answer is three or less they are probably an employee.
2.) “Do you give invoices authorized by the tax authority, Dirección General de Tributación?” Ask to see one to see if it is authorized. Computerized invoices need to have this legend on them “AUTORIZATION POR RESOLUCION 11-97 12/08/97 DE LA DGTD (AUTHORIZED BY RESOLUTION 11-97 12/08/97 OF THE DGTD).”
3.) “Do you pay individual insurance?” Ask to see the receipts and check the coverage dates for both their health and workers’ compensation policies.
4.) Ask for references to check to see that in fact the prospective employee works for others and to check on the reputation. Expats should get at least five recommendations if the thought is to pay them as an independent contractor.
The bottom line, when in Costa Rica, do not do what many of the natives do. Pay workers according to the law. Set an example for the locals.
Garland M. Baker is a 42-year resident and naturalized citizen of Costa Rica who provides multidisciplinary professional services to the international community. Reach him at email@example.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 2004-2013, use without permission prohibited.