Hire in Panama

EOR in Panama

If a lack of speed or local expertise are among your top concerns when expanding to or employing workers in Panama, an employer of record may be the best option for achieving your global growth objectives.

An employer of record, sometimes known as an international PEO, enables you to quickly hire and onboard workers in Panama ―often in as little as two weeks―without having to take on the cost and risk of establishing a local entity.

Learn about the hiring, employment, payroll and benefits requirements for workers in Panama and how our employer of record service, EOR, and local HR experts can help you manage your international employment needs.

Hiring in Panama

Employment in Panama is regulated primarily by the Constitution and the Labor Code (Código de Trabajo).

Employment contracts in Panama

As you look to hire employees in Panama, here are some standard regulations you’ll need to know to create a compliant contract, as well as how an employer of record and PEO can provide support for your unique HR needs.

Working hours

The Constitution and the Labor Code establish a maximum workday of eight hours and a maximum workweek of 48 hours. For workers under 16, the maximum workday is six hours; for workers from 16 to 18, the maximum workday is seven hours.

Workers are entitled to a daily rest break of at least 30 minutes and a maximum of two hours.

Workers are entitled to one day of rest per week, generally on Sunday. The weekly rest period must be at least 24 hours.

Night work is defined as work performed between 6 p.m. and 6 a.m. A shift that includes more than three hours during this period is considered night work. Employees who work the night shift are limited to seven hours of work per shift and 42 hours per week. Payment for a full seven-hour night shift must be equal to the pay for eight hours of day work. Women who are pregnant may not be required to work at night.

For workers under 16, the weekly limit is 36-night work hours; for workers from 16 to 18, the weekly limit is 42 hours.

Overtime is limited to three hours per day and nine hours per week.

Compensation

As you consider the appropriate salary to offer new employees, keep in mind:

• In Panama, minimum wages vary based on region and occupation.
• The Ministry of Labor and Job Development separates Panama’s territory into two regions regarding minimum wage enforcement:

• Industry-specific minimum wages for Region 1 typically are higher than those of Region 2.
• The current hourly minimum wage varies from 1.55 balboas to 4.67 balboas, depending on region and occupation.
• Minimum wages are adjusted at least once every two years by executive decree following recommendations by a national minimum wage commission with representatives of the government, workers, and employers.
• Wages may be set by a collective bargaining agreement at a higher rate than the minimum wage.
• The Labor Code establishes a premium of 25% for overtime work performed between 6 a.m. and 6 p.m. and 50% for work performed between 6 p.m. and 6 a.m.
• Employees who work on a Sunday or their weekly day of rest are entitled to an overtime premium of 50% plus a day off to replace the day worked.
• Work on a holiday or a day of national mourning qualifies the worker for a 150% overtime premium.

As your employer of record in Panama, we can provide you with resources and insights about employee compensation, so you are better equipped to make a competitive employment offer.

Bonuses

Employees are entitled to an annual bonus, also known as a 13th-month bonus, equal to one month’s salary. The annual bonus is paid in three equal installments on April 15, August 15, and December 15.

Probationary period

A written employment contract may include a probationary period of not more than three months for jobs involving special skills or abilities.

Termination and severance

The employer must give the employee prior notice of termination setting forth the act constituting just cause and the date such act occurred.

If the employer fails to demonstrate just cause for the termination, the employee is entitled to receive, in addition to severance pay, up to three months’ lost wages plus an additional payment based on years of service.

If an employee who was terminated without cause was employed under a fixed-term contract or a contract to perform a specific task, the employer must pay the employee the wages the employee would have earned under the remainder of the contract.

Although just cause is not required to terminate these types of employees, the employer nonetheless must give 30 days' notice of termination and pay the applicable amount of severance pay. The notice period begins to run from the pay period after notice of termination is given. Because just cause is not required for the termination of these types of employees, such employees are never entitled to compensation for unfair dismissal.

An employee may resign without just cause by giving the employer 15 days’ notice. If the employee performs technical work, the requisite notice period is extended to two months. An employee who resigns without providing the required notice is required to pay the employer an amount equal to one week’s pay.

When an employment contract of indefinite duration is terminated for any reason, the employee is entitled to severance pay, also known as a seniority premium, in the amount of 3.4 weeks’ wages per year for the first 10 years, one week per year for each additional year.

Employee benefits and paid leave in Panama

When negotiating terms of an employment contract with a candidate in Panama, here are some of the statutory benefits and paid leave requirements to keep in mind, as well as how an employer of record can support your company’s benefits strategy.

Maternity leave

Pregnant employees are entitled to 14 weeks of paid maternity leave beginning six weeks before the expected due date and continuing for eight weeks after the birth. If illness results from pregnancy or childbirth, the term of maternity leave may be extended as necessary. If the birth occurs later than the expected due date, the eight weeks of paid postnatal leave run from the actual date of the birth. In the case of a stillbirth or miscarriage, the paid maternity leave is determined according to her doctor’s medical certification of the mother’s health.

If the pregnant employee has made at least nine months of contributions to social security in the 12 months before the seventh month of pregnancy, maternity benefits will be paid by social security. Where social security is not required to pay maternity leave benefits because the employee lacks the necessary contributions, the employer bears the entire cost of the maternity leave.

Vacation

Panamanian employees are entitled to 30 days of paid annual leave for every 11 months of continuous work. Payment for annual leave must be made at least three days before the leave begins. Annual leave must be taken in no more than two equal installments and without undue delay after being earned. Employers may not offer compensation instead of annual leave.

If an employee is hospitalized by accident or illness while on vacation, that time is considered sick leave, and the vacation is extended.

Holidays

Workers in Panama are entitled to the following paid holidays:

• New Year’s Day
• National Sovereignty Day
• Mardi Gras
• Good Friday
• Labor Day
• Separation Day
• Los Santos Uprising Day
• Independence Day
• Mothers’ Day
• Christmas

The inauguration day of a new president is also a paid holiday, and each district and municipality has local public holidays for either its patron saints or the anniversary of its founding.

When a holiday falls on a Sunday, it is observed on the following Monday. Workers ages 16 to 18 may not work on Sundays or public holidays.

Sick leave

Employees are entitled to 18 days of paid sick leave annually. The entitlement is doubled for employees with disabilities.

Employees with HIV or a sexually transmitted disease are entitled to up to 144 hours of leave per year based on their medical condition.

Health coverage

Panama introduced a system of individual accounts in 2008 as a supplement to the social insurance system. The calculation of benefits varies, depending on whether the payments are being made from the social insurance fund or an individual account. The mixed system is mandatory for those who have entered the labor force since the beginning of 2008 and for self-employed individuals who were younger than 35 on January 1, 2008.

Men at 62 and women at 57 who have contributed for at least 20 years (10 to 15 years for seasonal workers in the agriculture and construction sectors) qualify for payments from the social insurance system and/or an individual account. Under the social insurance system, a full pension is calculated in the amount of 60% of the employee’s average wages in the best 10 years of earnings.

The amount increases by 1.25% for every year of contributions over 20 years.

Men at 60 and women at 55 with at least 180 months of contributions may retire early and receive a reduced pension.

Additional benefits

In addition to healthcare benefits, employees in Panama are entitled to pension, which is funded by government tax revenues, as well as workers compensation, which is covered through mandated employer insurance.

Employer social costs will cover a large portion of employee benefits in Panama, but we can consult with you about supplemental coverage options, such as additional pension contributions or life insurance if needed.

Updated: June 21, 2024

Employee onboarding with an employer of record in Panama

We write and validate all local employment contracts, streamlining the onboarding process for you and your Panamanian employees—all you have to do is provide relevant information and review and approve the employment agreement. As your employer of record in Panama, we will:

• Schedule a welcome call to discuss HR and employment information for Panama, as well as answer any questions
• Prepare a customized employment contract in English or other local language
• Share the employment contract and benefits information with the new employee for signature and review
• Gather tax and banking information from the employee to set up payroll
• Provide a local point of contact to the employee to answer any questions regarding their employment, local HR or payroll

The entire onboarding process for the employee is often completed in as little as two weeks.

Partner with Safeguard Global as your Panama employer of record and PEO

With over a decade of service, we are the longest-serving employer of record and PEO provider in the international market. Organizations around the world rely on EOR, our employer of record solution, to expand and hire in 170+ countries around the world, quickly and compliantly.

We’ve seen just about every global employment circumstance imaginable—and with our extensive knowledge of local law and culture, we know what it takes to get employment right in Panama. We provide written contracts in the local language, salaries in the local currency and HR support in your employees’ time zone.

Additionally, as a global payroll provider we support payroll administration—including payments, filings and other calculations— all around the world and can accommodate the payroll outsourcing needs of any size organization.

Whether you’re looking to hire as part of a strategic expansion or to meet specific talent needs, our global solutions advisors can walk you through your international hiring options so you can make the right choice for your organization. Contact us today.

Disclaimer

The information provided on or through this website is for informational purposes only and does not constitute legal advice. Safeguard Global expressly disclaims any liability with respect to warranty or representation concerning the information contained herein, including the lost essence, interpretation, accuracy and/or completeness of the information in transit and language translation.