How do you terminate an employee in Costa Rica in 2026?
Severance in Costa Rica stops counting after the last eight years of the relationship, a hard ceiling the Labour Code writes in (art. 29). Dismiss without proven just cause and you still owe notice, the full cesantía, plus back pay running to judgment. So the eight-year cap protects you only when the grounds hold.
· Costa Rica guide
Illustration · San José, Costa Rica
Costa Rica lets you dismiss with just cause and owe no severance. Without proven cause, you owe two things. First the notice (preaviso). Then the severance (auxilio de cesantía).
Notice scales with service. It is 1 week from three to six months, 15 days up to a year, then 1 month after a year. You can pay it out instead of working it.
Severance is 7 days of pay at three to six months and 14 days up to a year. After a year it runs at roughly three weeks of pay per year worked. The total counts only the last eight years (Código de Trabajo art. 29).
Get the grounds wrong and a court can add back salaries from the firing date to the final judgment, on top of notice and severance (art. 82).
What counts as a valid reason to dismiss in Costa Rica?
You can end a contract two ways. Dismiss with just cause and you owe no severance. Dismiss without cause and you pay notice plus severance.
The Labour Code lists the just causes in a fixed set. They include theft, serious misconduct, and unjustified absence for two days running. Outside that list, treat the dismissal as without cause and budget for the payout (art. 81).
Costa Rica runs a cause-based system. Article 81 of the Código de Trabajo sets out the just causes that let an employer end a contract without paying severance. The list is closed, so a reason that is not on it does not qualify, however reasonable it feels.
Just causes under article 81
- Immorality or injury against the employer, their family, or other staff
- An offence against property, including theft and intentional damage
- Unjustified absence for two consecutive days, or more than two separate days in the same calendar month
- Serious breach of the duties the contract sets out
If just cause is not proven, the dismissal is treated as termination without cause. You then owe the preaviso (notice) and the auxilio de cesantía (severance). The numbers sit in the next two sections.
Protected workers
Some dismissals need prior approval whatever the reason. Pregnant and breastfeeding workers, and union representatives, carry special protection (fuero). A firing that touches a protected worker without the right authorisation can be reversed and the worker reinstated. Discriminatory dismissal is barred outright. Treat any protected-worker exit as a process that starts with legal sign-off, not notice.
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Pick the exit path
Decide before you act whether you have proven just cause under article 81 or are ending the contract without cause. The two paths have completely different bills and there is no switching once you have committed.
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Check for protected status
Confirm the worker is not pregnant, breastfeeding, or a union representative. A protected-worker exit needs prior authorisation and can be reversed if you skip it.
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Build the paper trail
Document the grounds in writing before the termination, not after. If just cause is challenged and the file is thin, the dismissal is treated as without cause.
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Calculate the liquidación
Add the preaviso, the auxilio de cesantía to the eight-year ceiling, accrued vacation, and the proportional aguinaldo. Run every figure against the worker's real pay.
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Settle and deregister
Pay the final settlement on or around the last day and deregister the worker from the CCSS. Get any mutual agreement signed before the exit so the timing is never disputed.
How much notice must you give a Costa Rica employee?
Notice (preaviso) scales with service. It is 1 week from three to six months, 15 days from six months to a year, then 1 month after a full year.
Below three months there is no notice owed. That window doubles as the probation period in practice. You can pay the notice out in cash instead of having it worked (art. 28).
| Completed service | Minimum notice (preaviso) |
|---|---|
| Under three months | None owed (the probation window) |
| Three to six months | 1 week |
| Over six months up to one year | 15 days |
| Over one year | 1 month |
These are the floors in article 28 of the Código de Trabajo. A contract can offer longer notice. It cannot drop below these days.
Working it or paying it out
The employer can require the notice to be worked, or pay its cash value and end the contract at once. Paid-out notice is ordinary taxable income. There is no express probation article in the Labour Code beyond domestic service. The three-month standard that everyone uses comes from these same notice and severance rules, which only start to accrue once an employee passes three months.
How is Costa Rica severance (auxilio de cesantía) calculated?
Severance is owed on dismissal without just cause, not on every exit. It starts at 7 days of pay for three to six months of service, and 14 days from six months to a year.
After a year it runs at roughly three weeks of pay for each year worked, rising slightly with tenure. The total is capped at the last eight years of the relationship, so the meter stops there (art. 29).
The auxilio de cesantía is set in article 29 of the Código de Trabajo, as amended by the Protección al Trabajador law (Ley 7983). It is due when the employer ends the contract without proven just cause, and on a handful of equivalent grounds. It is not paid when the worker resigns or when just cause is proven.
The short-service rates
| Completed service | Severance entitlement |
|---|---|
| Three to six months | 7 days of pay |
| Over six months up to one year | 14 days of pay |
| Over one year | A graduated rate per year worked (see below) |
The graduated rate after one year
From the first full year, severance is set as a number of days of pay for each year worked. The rate is graduated by tenure rather than flat. It opens just under three weeks of pay per year, climbs to its peak in the middle years of service, then eases back for the longest-serving staff. The Ministry of Labour publishes the full year-by-year table; Teamed runs it against the employee's actual pay so the figure is exact.
The eight-year ceiling
One rule changes the maths on long tenures. The Labour Code says cesantía can never be paid on more than the last eight years of the working relationship. A worker of twenty years and a worker of nine years both have their severance counted on eight years of service. The ceiling caps your exposure on senior, long-serving staff in a way many neighbouring systems do not.
What sits on top
Severance is one line in the final settlement (liquidación). Alongside it you pay any preaviso not worked, accrued vacation, and the proportional aguinaldo. Vacation is 2 weeks per year of service. The aguinaldo is a full 1 month of pay built up over the year and normally paid out within the first 20 days of December, so any unpaid portion is owed at exit.
What does an unjustified dismissal cost in Costa Rica?
Lose the cause argument and the bill grows. You owe notice and the full severance, then back salaries from the firing date to the day the judgment becomes final.
That back-pay tail is the real risk. A contested case can run for months, and the clock keeps adding salary the whole time (art. 82).
Where a dismissal is challenged and just cause is not proven, the worker is owed the preaviso and the auxilio de cesantía that would apply, plus, as damages, the salaries they would have earned from the end of the contract until the judgment against the employer becomes final.
Source: Código de Trabajo, Ministerio de Trabajo y Seguridad Social
Costa Rica has no fixed compensation cap for an unjustified dismissal. The exposure is the notice, the capped severance, and an open-ended back-pay award tied to how long the dispute takes. Building a clean paper trail before the exit is the only thing that keeps the back-pay tail short.
Why the grounds decision is the whole game
The eight-year cap on severance is generous to employers. It only helps you if you reach it through a clean termination without cause, where you simply pay what is owed and move on. The moment you claim just cause and cannot prove it, you lose the predictable payout and inherit the back-pay clock instead. Decide which path you are on before you act, not after.
Collective exits
Costa Rica has no separate collective-redundancy framework with fixed consultation windows of the kind the UK or France run. Group exits are handled as a set of individual terminations, each with its own notice, severance, and liquidación. Where a union is recognised, expect engagement and the same article 81 and 82 tests applied person by person.
Can you agree a mutual exit in Costa Rica?
Yes. The cleanest way out is a signed mutual agreement (mutuo acuerdo). Both sides settle the terms and the worker leaves on an agreed date.
A mutual exit removes the cause argument and the back-pay risk that comes with it. The trade-off is usually a payment at or above what severance would have been.
A mutual agreement is the route most foreign employers prefer for a senior or sensitive exit. It converts an uncertain cause dispute into a fixed, signed number. The agreement should record the leaving date, the full payment breakdown, and a clear release of claims so the worker cannot later file for unjustified dismissal.
What a Costa Rica mutual exit normally covers:
- Preaviso: the notice value, paid out rather than worked
- Auxilio de cesantía: severance to the eight-year ceiling, often topped up to seal the deal
- Accrued vacation: any unused days at the daily rate
- Proportional aguinaldo: the share of the 1 month bonus built up since December
- Release of claims: the worker waives the right to bring an unjustified-dismissal case
There is no legal requirement for the worker to take independent advice before signing. It is still good practice, because a release signed without it is easier to attack later. Teamed prepares the liquidación, runs the numbers against the worker's real pay, and gets the agreement signed before the last day so the payment timing is never in dispute.
How Teamed runs Costa Rica terminations
Teamed is your legal employer of record in Costa Rica. The cost is from $599 per employee per month, with zero FX mark-up in any currency. Every termination runs through Teamed's local operations team.
You decide who leaves and on what grounds. We handle the notice, the cesantía maths to the eight-year ceiling, the accrued vacation and aguinaldo, and the CCSS deregistration. It all runs on one platform.
Real HR and legal experts handle your Costa Rica hires, from the first contract through every payroll run and statutory deduction. An actual person, not a chatbot or a pooled queue, owns the case when an exit gets contested. There is no setup fee and no exit fee, and employer cost passes through at cost, itemised on every invoice.
The split of responsibilities on a Costa Rica termination under EOR:
| What Teamed handles | What you decide |
|---|---|
| Testing the grounds against the article 81 just-cause list before you act | Whether to dismiss, and on what basis |
| Preaviso calculation to the statutory floor, worked or paid out | The timeline and how the news is delivered |
| Auxilio de cesantía to the eight-year ceiling, on real pay | Whether to offer an enhanced or ex-gratia sum |
| Final liquidación: notice, severance, vacation, proportional aguinaldo | Commercial terms of any mutual agreement |
| Protected-worker checks and authorisation before any fuero exit | Reference wording and any release of claims |
| CCSS deregistration and the closing payroll filing | Communication with the wider team |
Costa Rica gives no second chances on the grounds call. Claim just cause, fail to prove it, and the back-pay clock starts. Teamed builds the paper trail before the exit so the eight-year cap on severance is the worst case, not the floor.
EOR, contractors, and entity employees all live on one platform. An employee hired through Teamed's Costa Rica network can graduate to your own Costa Rican entity when headcount makes that the right call, until it isn't. Run the Crossover Calculator to see when the model flips. Start from the Costa Rica hiring overview.
Key sources: Código de Trabajo (MTSS), Caja Costarricense de Seguro Social, and the Ministerio de Trabajo y Seguridad Social.
Frequently asked questions
How much notice must you give a Costa Rica employee in 2026?
Notice (preaviso) scales with service under article 28 of the Código de Trabajo. It is 1 week for three to six months of service, 15 days for six months up to a year, and 1 month after a full year. Below three months no notice is owed. You can require the notice to be worked or pay its cash value instead.
Is severance pay mandatory in Costa Rica?
It depends on the grounds. The auxilio de cesantía is owed when the employer dismisses without proven just cause, not when the worker resigns or when just cause is established. It runs at 7 days of pay for three to six months of service, 14 days up to a year, and a graduated rate of roughly three weeks of pay per year after that. The total counts only the last eight years of the relationship.
What does the eight-year severance cap mean in practice?
The Código de Trabajo says severance can never be paid on more than the last eight years of the working relationship. A worker with twenty years of service and one with nine years both have their auxilio de cesantía calculated on eight years. The cap limits an employer's exposure on long-serving, senior staff, but only on a clean termination without cause.
What happens if a Costa Rica dismissal is ruled unjustified?
Under article 82 of the Código de Trabajo, where just cause is challenged and not proven, the employer owes the preaviso and the full auxilio de cesantía, plus back salaries from the end of the contract until the judgment becomes final. There is no fixed compensation cap, so the open-ended back-pay award is the main risk. A clean paper trail built before the exit is the best protection.
Does accrued vacation and aguinaldo get paid out on termination in Costa Rica?
Yes. The final settlement (liquidación) includes accrued vacation of 2 weeks per year of service and the proportional aguinaldo. The aguinaldo is a full 1 month of pay built up over the year, normally paid within the first 20 days of December, so any unpaid portion is owed at exit alongside notice and severance.
Is there a probation period in Costa Rica?
There is no express general probation article in the Código de Trabajo outside domestic service. In practice the first three months act as probation, because notice and severance only start to accrue once an employee passes three months of continuous service. Below that window you can end the contract without owing preaviso or auxilio de cesantía.
The Costa Rica mistake we see most is an employer claiming just cause they cannot prove. The eight-year severance cap is generous, but it only saves you on a clean termination without cause. Get the grounds wrong and you owe the severance anyway, plus back pay running all the way to judgment.
Costa Rica caps severance at the last eight years of service. That ceiling is a gift to employers.
It only helps you when the grounds hold. Claim just cause you cannot prove and the back-pay clock starts.
Decide the path before the conversation, not after. Know the 1 month notice and the full cesantía before you act.
