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Costa Rica – Proper handling of the Christmas Bonus
Publications || 2018 || Costa Rica – Proper handling of the Christmas Bonus

Costa Rica – Proper handling of the Christmas Bonus

by charbds, 26 November, 2018

November 26, 2018
Marco Durante / mdurante@bdsasesores.com
Managing Partner BDS Asesores

The proper calculation and timely payment of the Christmas bonus during this year end might keep you from being exposed to legal contingencies.

With the holiday season around the corner, certain topics such as the payment of the Christmas bonus become particularly relevant for companies, and although the proportional payment of this entitlement is commonly acknowledged by many employers during employment terminations performed all year long, a number of questions arise when it comes to their proper handling during the holiday season. This is why this time we will address the proper handling of this right.

What is and how should we pay the Christmas bonus? Generally speaking, the Christmas bonus is a labor right and, therefore, an obligation to be fulfilled by every employer, which consists of an annual economic benefit equivalent to one month of salary that must be paid to each employee.

According to the Law on the Payment of Christmas Bonus for Private Sector Employees, in order to determine the amount to be paid as Christmas Bonus, the calculation should take into consideration all ordinary and extraordinary salary amounts paid to the employee from December 1st of the preceding year through November 30 of the ongoing year, divided by twelve; thus, the average amount resulting from this operation will be the amount to be paid to the employee as Christmas Bonus.

It should be noted that when referring to ordinary and extraordinary salaries it should be understood that the calculation not only must include the remuneration agreed upon with the employee since the very beginning of the employment relationship (ordinary salaries), but also any other sums paid to the employee during the aforementioned period and considered of a salary nature, i.e., payments for overtime, commissions, salary bonuses, and any other items of a salary nature paid by the employer.

Given that the calculation of the Christmas Bonus only includes any amounts of a salary nature, another aspect to be considered is that if an employee has been granted a disability certification between December 1st, 2017 and November 30 this year, such disability period will not be taken into account for the calculation of said right, as in these cases the employee receives allowances rather than salaries. The case of female workers enjoying their maternity leave is a completely different scenario, as the Labor Code expressly states that any amounts paid by female workers during their maternity leave should be considered for the calculation of their labor benefits.

Finally, it should be reminded that any amounts paid to the employee as for Christmas Bonus are not subject to the payment of social contributions and are income tax exempt, according to Articles 7 and 9 of the Law on the Payment of Christmas Bonus for Private Sector Employees.

Timely and full payment. The law regulating the payment of the Christmas Bonus provides that said entitlement should be paid within the first 20 days of December, based on which a breach of this provision will qualify as an illegal salary withholding, as well as a violation of labor laws. Thus, if the employer fails to pay the Christmas Bonus before December 20, said noncompliance may lead to fines ranging between ₡431,000 and ₡9,913,000, i.e., between one and twenty-three base salaries).

In addition, the payment of the Christmas Bonus may not be subject to set-off, sale or assignment, and will be subject only to wage garnishments for alimony/child support purposes up to 50% of its amount. This is why employers may not use the Christmas Bonus to apply deductions for the collection of outstanding debts or for any reasons other than for alimony/child support duly supported by the relevant court order.

Thus, it is important to ensure that this obligation is properly fulfilled within the specific period set forth by law in order to avoid having to pay excessive fines in the near future. As said before, the Christmas Bonus is a nonwaivable right for employees, and its payment creates a great deal of expectation among employees as it allows them to cover a number of expenses specific to the holiday season. This is why employers are advised to verify that the Christmas Bonus is handled properly to avoid contingencies with workers and judicial and administrative authorities.

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