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Costa Rica – Wage garnishments and indirect deductions
Publications || 2019 || Costa Rica – Wage garnishments and indirect deductions

Costa Rica – Wage garnishments and indirect deductions

by charbds, 4 February, 2019

February 04, 2019
Marco Arias / marias@bdsasesores.com
Partner BDS Costa Rica

As the holiday season ends and ‘hard January’ arrives, many people face the obligation to pay the purchases made in December on credit.  Unfortunately, for many of them paying their debts gets complicated, and this is when wage garnishments begin over time.

In Costa Rica, employees’ wages enjoy a number of protections intended to secure a minimum and dignified income for workers. These protections include the impossibility to perform unilateral and baseless deductions, as well as a procedure in place to calculate wage garnishments.

There are circumstances, however, where the law allows performing direct deductions on wages. For instance, social contributions and income tax amounts, where appropriate, will directly apply to the employee’s wage. The same will occur with the so-called wage garnishments.

Wage garnishments. A wage garnishment is a court order where the employer is required to withhold an amount permitted by law from the employee’s salary to fulfill any outstanding debts or alimony/child support obligations. There is an exception in loans granted by Banco Popular, as its own law allows to directly request the deduction of the relevant installments.

Article 172 of the Labor Code sets forth limits on the garnishable portion of wages and a calculation method – a little complex, though – for these purposes. This intends to ensure that the person always have a minimum income level, despite his/her debts, to make ends meet.

As for alimony/child support, and due to its preferred nature, employees’ wages may be garnished up to fifty percent. Besides, this type of garnishment will always have preference over any civil or commercial garnishment.

Employers should be advised as to how these wage garnishments must be applied, what should be done when a person is subject to several garnishments, and how should this be communicated to their employees. The usual practice in some countries under which employees receiving a wage garnishment are dismissed, may result in claims or lawsuits.

Indirect deductions? On the other hand, there have been recent cases of “indirect” withholdings or deductions on wages. We are referring to cases where wages are deposited in full in the employee’s bank account, but then a deduction is directly made in the account.

This happens when a person has debts with the same bank where his/her employer deposits his/her salary, and thus the bank collects loan installments or debts directly from the employee’s bank account without undergoing a collection process and a court garnishment order. Consequently, many persons ask to change banks or close their accounts.

This creates issues, as many employers have a system or platform designed to execute payroll payments with a specific bank so that they may pay all salaries on a timely basis. If several or many employees decide to change banks, the operational and administrative costs associated with said payments will significantly increase.

Based on the foregoing, employers should define the banking institutions in which they will perform payments and ensure that employment contracts indicate said information.  Employees, however, should also review the documentation they sign when applying for a loan or a debit or credit card, in order to verify whether any direct deductions on their accounts have been authorized.

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