Pension and work in the private sector: what changes in payroll, contributions, and payments.
By Kimberly Esquivel, Esq.
Work Area | EAS LATAM Group
Retiring due to old age does not necessarily mean stopping work. In the private sector, a person can receive their pension from the Disability, Old Age, and Death Insurance scheme . and continue working for one or more employers.
Retirement does indeed affect payroll, social security contributions, and tax treatment. Therefore, before modifying the employment relationship, it's advisable to review what changes and what rights remain the same.
Do I have to resign if I retire?
Not necessarily. If the person continues working under the same conditions, the employment relationship can be maintained, along with seniority, vacation time, Christmas bonus, and other labor rights. Retirement should not automatically lead to resignation or severance pay simply to change one's insurance status.
What changes in the spreadsheet?
Once the pension is granted, the employee's payroll status must be updated. The main change is that they will no longer contribute to the IVM (Disability, Old Age, and Survivors Insurance) based on their salary, both the employee and employer components, while all other applicable contributions, including Health Insurance, will remain in place.
The change must be made once there is a resolution from the CCSS confirming the pension and its effective date. A pension projection is not sufficient to modify the payroll in advance.
Beware of income tax
This point requires special attention when there are multiple employers. The tax-exempt portion of payroll taxes is applied only once. Therefore, income from different employers must be analyzed together, and withholding must be coordinated to avoid omissions or duplication.
Including a pension can also affect tax calculations. The analysis should consider total income, not each payment in isolation.
What about ROP and FCL?
Once the basic scheme pension has been approved, the Mandatory Supplementary Pension Scheme (ROP) can be managed with the corresponding operator, according to the available payment methods.
The Labor Capitalization Fund (FCL) works differently: retirement does not automatically allow withdrawal of the entire balance if the employment relationship continues. Its availability will depend, among other factors, on completing the five-year service period or the termination of the employment relationship.
Don't switch to professional services just to reduce workloads
It shouldn't be seen solely as a way to reduce costs. To replace an employment relationship with professional services, genuine autonomy must exist, and the labor, tax, and social security implications, as well as VAT where applicable, must be reviewed beforehand.
Retiring and continuing to work can be perfectly compatible. The key is to properly coordinate your pension, payroll, withholdings, and supplemental funds before making any changes to your employment.
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