By: Garland M. Baker B.
Exclusive to A.M. Costa Rica
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How to handle employees and their paperwork represents a continuing problem for expats.
An article on domestic employees produced a great deal of interest. Many persons wrote and said they were not legally registering their employees and did not have workers compensation for them either. Some expats asked if they needed to cover themselves as well. Everyone who wrote still is confused.
One person stated the system of the Caja Costarricense de Seguro Social — referred to in Costa Rica as the Caja — was unfair. She stated a Caja employee told her she had to pay a minimum of 26,000 colons (about $47) on a mythical base salary of 101,000 colons (about $184) even if her domestic employee worked just one hour a week.
Another wrote and asked about gardeners and maintenance workers. They tend to do work for many people. Who should legally register them? After the article “Those hidden pitfalls in hiring domestic employees” appeared, 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 to check on compliance with their rules. The same day in Cartago, an associate was investigated, too. This is surprising, but surely a coincidence nonetheless.
During the examination, the inspector confirmed the information about the minimum. She said the administration of the social security system calculated a minimum carrying cost of adding an employee to its rolls, and the amount was 26,000 colons. This means any worker regardless of how many hours he or she works must be registered with at least a base salary of 101,000 colons, even if that is far more than they actually are paid.
This fact seems unfair for workers as well as employers. People hiring temporary employees of any type do not have the inclination 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.
Another surprise was she said everyone needed to be covered by the Caja. This meant even the owners of the company. It did not matter if the owner had private insurance.
Many expats own a company in Costa Rica, and some cover their employees, whereas others do not. However, very few of the expats cover themselves. Researching the statement she made that everyone must be covered by the Caja found that it is true. It is the law. Since 2005, the Ley de Protección al Trabajador, the worker protection law, states that any person with an economic activity must be signed up with the Caja. Non-payment accrues interest and penalties and is 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” insurance. The latter option is cheaper, and if the expat is over the age of 50, he or she can exclude the insurance for disability, old age and 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 easy.
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 worker's compensation insurance. This means employees and owners alike.
• Workers should be put on a normal payroll and the appropriate amount paid into the social security system. If the employees are temporary, they too should be signed up because the law states so, even though the system appears to be unfair. The fines and headaches for not doing so outweigh the amount to be paid.
• A workers' compensation policy should be purchased from the Instituto Nacional de Seguros de Costa Rica, the national insurance company, to cover work accidents. 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 or
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, one either needs to add them to a payroll or not work with them and look for someone else.
The principal is simple: 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 should they cover part-time domestic employees, gardeners, maintenance workers and the like if doing so just means disproportionate assessments by the same rules made to protect workers. The answer is also simple: It is the law.
Article first published in A.M. Costa Rica on November 24, 2008.
