Seasonal Contracts and Annual Settlements in Costa Rica: A Useful Tool That Few Companies Apply Correctly
In Costa Rica and much of Latin America, many industries rely on predictable cycles of activity: retail intensifies at the end of the year, tourism fluctuates according to high season, agriculture responds to specific harvest periods, and distribution centers adjust staffing during months of higher demand. However, despite the clear operational need, legal management often falls short. The result is a high volume of labor contingencies that could be avoided with proper handling of seasonal employment contracts.
When is a seasonal contract actually valid?
A seasonal contract is a fully valid employment modality when the company can demonstrate that the need is cyclical, intermittent, and recurrent, and that each cycle corresponds to a real increase in activity. This differentiates it from a project-based contract, which concludes once the project ends, and from an indefinite-term contract, which is based on a continuous operational need. In practice, it is a fixed-term employment contract that grants the worker full labor rights during each season worked.
For general official guidance on labor obligations, companies may also review Costa Rica’s Ministry of Labor and Social Security, the official Labor Code of Costa Rica or contact us for a legal advice.
Documentation is what protects the employer most
The key lies in documentation. Each season must be formalized in writing, establishing start and end dates, job responsibilities, salary, working hours, and any operational conditions specific to that cycle. This level of detail protects the employer in the event of future claims, particularly if a worker alleges that the position was, in reality, permanent.
Annual settlement: where mistakes usually happen
A critical point is the annual settlement. At the end of each season, even if the company rehired the worker the following year, it must pay proportional vacation and year-end bonus (aguinaldo). Notice and severance only apply if the company eliminates the season or chooses not to rehire the worker in future cycles. In other words, the employment relationship may be intermittent, but the legal obligations are not.
Costa Rica’s Ministry of Labor states that fixed-term and work-specific arrangements still generate labor rights such as the year-end bonus, and it also provides official calculation tools for bonus and labor settlement estimates.
Most common mistakes in seasonal hiring
The most frequent errors are well-known:
- “seasons” that in practice last the entire year
- relationships never formalized in writing
- failure to pay proportional settlements
- using seasonal contracts to fill positions that are essentially permanent
All these scenarios expose the company to claims that may become significant liabilities.
A useful tool when implemented correctly
When implemented correctly, the seasonal contract is a valuable tool to manage costs, organize operations, and ensure legal certainty. More importantly, it allows the company to adapt to its natural business cycles without losing sight of the labor responsibilities inherent to every employment decision.
Author: Yannsi Paniagua – Labor Department, GLC Legal
yannsi@glclegal.com
