Creating payroll is hard, but the alternative is disaster

Putting a worker on a new legal payroll as required by law is a pain. Not making an employee legal is asking for trouble.

Recently, a young foreign couple moved to Costa Rica from Europe and needed a domestic worker for their family. They wanted the worker they hired to have all the benefits provided by the country. They decided to set up a legal payroll with the government.

To do so required making applications with the Caja Costarricense de Seguro Social, known to most as the Caja, and the Instituto Nacional de Seguros de Costa Rica or INS.

They were shocked at the paperwork to set up a simple payroll for one person. Here are the steps for the first part of the process, set up with the Caja:

1. Fill out an application form with the exact details of the job, attaching the following documents:

2. Costa Rican cedula, DIMEX card, or passport as identification. Copying all the pages from the front to the back cover in the case of a passport.

3. Proof they are insured by the Caja or have some other approved insurance coverage.

4. The identification of the employee and proof the person can work legally in Costa Rica.

5. A current light bill with a localization number on the bill. This number must correspond with the one put on the application form.

Once a Caja representative accepts the application and documents, the agency prepares an inspection and interview order.  This document is put in the system so a Caja investigator visits the location of the employment.  Usually, this is a surprise visit.

The second part of the process is to set up a workers’ compensation policy with INS, as follows:

1. Fill out another application form with an insurance agent.

2. Supply proof of a Caja payroll.

3. Supply estimated yearly income numbers so the agent can calculate the value of the policy and respective payment.

4. Submit a know-your-customer form with personal financial information, including, but not limited to, source of funds, retirement pension statement, or accountant’s certification of same.

It is not surprising so many people do not want to put their domestic workers on a payroll. Many people prefer to use the pide perdón, no permiso.

The idea behind the concept is that if one asks permission to do something, the consequences are usually much more complex and expensive than just apologizing for doing it or paying a fine.  This practice is not recommended or condoned, and it should never be used when dealing with the legal insurance requirements for employees or workers.

The law in Costa Rica is very clear.  Every  worker in this country is required to be covered by two insurance policies: A health checklist051115policy with the Caja and a workers’ compensation policy with INS.

Paying a worker by the hour and not putting them on an official payroll is a mistake because the Ministerio de Trabajo says that even temporary or part-time workers need full insurance.

What makes a service or independent worker an employee?

According to the Caja, INS, the labor department and the courts, the key element is the number of jobs they have. This means 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 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.

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.

Trying to cheat the system 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.

What should one do, Insure or not insure a domestic worker? Many Ticos say play the pide perdón, no permiso game. Some expats agree and pay on an hourly basis. However, more and more employers are being caught and they change their tune after having to pay a huge fine.

Some employers in Guanacaste are hiring illegal workers, people who cannot work legally in Costa Rica. The Costa Rican government is cracking down on this practice too.  The fines can range from $1,500 to more than $15,000 per occurrence, depending on the circumstances and number of infractions.

The best advice is to face the situation, set up a legal payroll and be straight with the law.  Another option is to use a payroll service, a company that takes care of all the details of paying workers and dealing with their benefits.

Garland M. Baker, a certified international property specialist, is a 45-year resident and naturalized citizen of Costa Rica. His firm’s team provides multidisciplinary professional services to the country’s international community.  Reach him at  Baker has undertaken the research leading to these series of articles in conjunction with A.M. Costa Rica.  Find the collection at, a free reprint is available at the end of each article.  Copyright 2015, use without permission prohibited.

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