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Those hidden pitfalls in hiring domestic employees

by Garland M Baker on October 27, 2008

So many expats make the same mistakes with domestic workers in Costa Rica. Usually their intentions are good. Nevertheless, from the outset of the work relationship most start it off on the wrong foot, giving workers a reason to go to court. Why should they wait to be fired upon by the domestic staff? They should fix the mistakes. It is easy to do.

The scenario usually starts innocently enough. Expats come to the country and start looking for a domestic employee to help with household chores. This process starts by asking others for references or putting the word out in their community. Placing ads is not common practice for domestic workers because all kinds of weirdos answer them. Some even are crooks looking to case out locations to rob.

First mistake: Once a person is found for the job, most people do not sign them up as a legal worker but pay them by the hour. The going rate today for this type of worker -— someone working by the hour and not registered legally to work — is around 1,500 colons ($2.75) an hour. The official rate for a servidora doméstica is 518.67 colons an hour with an upward adjustment coming Jan. 1. People pay more thinking they can circumvent the law. Some get away with it, many do not.

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 to be registered with the Caja Costarricense de Seguro Social, the nation’s social security agency.

Doing so is easy enough. An employer needs to go to their local social security office and ask them to start a planilla, a payroll for their domestic staff. The amount paid to an employee is reported at the beginning of each month and the social security costs are paid around the third week of the month. Reporting can be done online at the Sistema Centralizado de Recaudación, “central collection center,” Web site. Payment can also be done online. Once a payroll is reported to the collection center, the amount due can be paid from one’s bank account via a link to the social security agency.

An employer is responsible for deducting 9 percent from the employee’s wages and paying it to the social security department along with the employer’s payment of 24.5 percent for a total of 33.5 percent. For example, for a total payroll of 100,000 colons — this is just an example in round numbers — an employer needs to pay the Caja 33,500 each month over and above the wages of the worker. This extra amount covers the worker for health insurance, old age and disability benefits, among other things.

Second mistake: Giving the employee too many “in-kind” benefits is a big no-no. “In-kind” means things in a form other than money. This includes meals, lodging, clothes, education assistance, and transportation. In Costa Rica, any “in-kind” benefits an employee receives can become part of their payment for work performed. In addition to the legal consequences, being too nice can backfire on any employer.

All domestic workers are entitled by law to some extras like meals. If no percentage is set in a contract, 50 percent of their salary is assumed the amount. It is very important to have an employment contract with domestic workers stating the exact monetary value of their “in-kind” benefits.

Third mistake: Not covering an employee with workers compensation is a legal problem just itching for court. Most expats do not cover their domestic staff with workers compensation — called riesgos del trabajo — because they do not know they have to. It is easy to do for domestic workers by purchasing a homeowner’s policy called seguro hogar comprensivo or comprehensive homeowners insurance. One does not need to be an actual owner of a home. The policy also works for people renting.

If an employee is hurt on the job and the employer does not have workers compensation, depending on the injury, the employer could be looking at criminal liability. Comprehensive homeowners insurance is relatively cheap. Why would any expat take the risk? Those without should call an insurance agent today.

What constantly happens is that at some point where a worker is not covered as they should be according to the law, they complain and want to be compensated. If they go to the work ministry or the social security agency all hell breaks loose. Inspectors are sent to the workplace to study the complaint, and they are not very friendly. Employers can be liable for all back payments and be fined heavily for not complying with the law.
If the situation goes to court, the matter becomes even worse. There is no winning for the employer just paying through the nose to set things straight. This is one area where Costa Rican attorneys take cases on contingency because they know they will eventually win.

Expats that have made these classic mistakes should start over before they get stuck up and extorted. They should end any work relationship that is not properly set up, pay the person the legal amounts due for dismissal. Then re-hire the person and put them on a payroll, stipulate their “in-kind” benefits in a labor contract and cover them with workers compensation.

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