Hire in Panama
Here’s where you get started with human resources best practices and hiring in Panama.
The Currency of Panama
Panamanian Balboa (PAB)
The Capital of Panama
Time Zone in Panama
Important Facts About the Country of Panama
Introduction to Panama
Officially the Republic of Panama, Panama is a narrow land bridge, or isthmus, that connects North and South America. The economy of Panama is based on services, accounting for almost 80% of GDP. These services include the Panama Canal, banking, commerce, the Colón Free Trade Zone, flagship registry, container ports and tourism.
What to Know about Panama's Geography
Bordered by Costa Rica and Colombia, Panama is bound to the north by the Caribbean Sea and to the south by the Pacific Ocean. It has an elongated S shape, with its Caribbean coastline stretching some 1,290 km and the Pacific coast some 1,700 km. It covers a total area of 75,517 sq. km.
Climate in Panama
Panama has a hot and humid, tropical climate, with a long rainy season from May to January and a short dry season from January to May. The rainy season is between May and December. Climatic conditions are markedly different on the Atlantic and Pacific sides of western Panama, especially in the amount and seasonal distribution of rainfall.
The Culture of Panama
Most Panamanians are descended from indigenous or native people, Europeans, Afro-Caribbeans and immigrants from all over the world. The three largest indigenous groups in Panama are the Kunas, Emberás and Ngöbe-Buglés and they still live in the remote areas of the country. They have their own dialects, languages and customs, and most of them also speak Spanish.
Religions Observed in Panama
Over 90% of Panamanians are declared Christians, with Roman Catholicism having the most adherents (approximately 80%). The Constitution provides for freedom of religion, and minority religions including Jewish, Buddhist, Baháʼí Faith add up to be about 8% of the population.
Languages Spoken in Panama
Spanish is the official language of Panama and is spoken by the vast majority of the people. The country’s seven indigenous groups speak a variety of dialects, with Kuna and Ngobe-Bugle being the most common.
Panama Human Resources at a Glance
Employment Law Protections in Panama
The Labor Code of 1971 which governs the terms and conditions of employment (e.g. working hours, holidays, rest periods, wages, overtime, employment relationships, etc.) is the main source of employment law in Panama.
The Constitution of Panama, another important legislation, protects the basic rights of employers and employees.
Employment Contracts in Panama
All employees are required to sign a written employment contract, in Spanish, and this must be sealed before the Ministry of Labor. Employment contracts are assumed to be for an indefinite period, except for temporary positions to replace workers who might be on vacation or on sick leave, or for work where there is a specific and limited time frame.
An employment contract must contain the following information:
- Employee’s personal information
- Names of the employee’s dependents
- The job scope and how it will be performed
- Place of work
- Working hours
- Date of signing the contract
Panama's Contract Terms
A company employing 10 or more employees must have internal work regulations which must be approved by the Ministry of Labor. Employees have the right to comment on internal work regulations, and these comments should be voiced within 30 days of notification of these work regulations.
Work regulations must include work schedules, wages, safety, hygiene measures, employer/employee obligations, disciplinary measures and provisions relating to discrimination and sexual harassment. Work regulations should also include the unique particulars that relate to the workplace.
Work regulations must be in Spanish and posted in a location with unrestricted access (e.g. company’s intranet or notice board).
Fixed Term Contacts for Panama Employees
Fixed-term contracts can be used only for temporary positions and the duration may not exceed one year. For positions that require special technical skills, the duration may be for up to three years.
Fixed-term contracts can be extended and once the extension period is surpassed, the fixed-term contract will automatically convert to an indefinite-term contract.
Employee consent is required for any pre-employment tests. The employer can request for an employee to undergo a medical check prior to the start of employment and during the course of employment. This is to ensure that the employee is fit to work and does not have any issues which may put co-workers or company property at risk. The employer can also request for a criminal background certificate with the employee’s consent. A pregnancy test is not allowed.
Panama's Guidelines Regarding Probation Period/Trial Period
The probationary period is usually up to three months, which applies to job positions that require certain skills or abilities but does not apply to entry-level positions.
During probation, the employer can terminate the contract without any cause and without paying a severance.
Regulations and Rules Regarding Working Hours in Panama
The maximum working hours per day is eight hours and the maximum working hours permitted per week is 48 hours.
Employees must be given a minimum rest break of at least 30 minutes and up to two hours during the workday.
Daytime hours are from 6 a.m. to 6 p.m. Night-time hours are from 6 p.m. to 6 a.m. It is considered a night shift if the employee works more than three hours in the night-time hours. There is a maximum of seven hours per week of night shift allowed.
Rest days are preferably on Sundays. A compensatory rest of 24 hours may be offered in lieu.
Panama Laws Regarding Overtime
Overtime is paid as follows:
- 25% increase in wages for work performed during the daytime
- 50% increase in wages for work performed during the night or when mixed shifts that started in the daytime are prolonged
- 75% increase in wages for work that is an extension of the night shift or mixed shift that started during the night period
- During National Holidays (dia de fiesta o duelo nacional): 150% plus compensatory rest
No more than three hours of overtime per shift or nine hours per week are allowed.
Panama Timesheets & Record Keeping
An employer must maintain records of employees that include name, address, duration of hours worked, overtime hours, and vacation period. Although the Labor Code states that the authorities will not require proof of payment of wages from an employer after five years, the Social Security Law establishes that legal action to collect any outstanding social security contributions has a statute of limitation of 20 years. Therefore, it is recommended that employers retain employees’ payroll, tax, and social security records for at least 20 years.
Rules Regarding Bonus and 13th Month Pay in Panama
Employees are entitled to a thirteen-month bonus, which represents one-month salary, to be paid in three equal parts during the months of April, August and December.
On top of this mandatory thirteen-month bonus, it is common to reward employees with performance bonuses as defined by the policies of each individual employer.
Prior notice must be given to the employee on the date and cause for dismissal. The notification of dismissal must be given two months from when the date of cause to dismiss was discovered.
Pregnant workers and union members cannot be dismissed without justifiable reason. Any dismissal must be authorized by the Labor Courts.
There are four ways that the employment relationship can end:
1. Employee resigns voluntarily
2. FTC expiration date
3. Mutual agreement of employer and employee
4. Employer terminates the employee
Employees who have worked for more than two years may only be dismissed for “just cause” as defined under Panama’s Labor Code. These include:
- Inability to work due to physical/mental condition
- Absence from work without permission or good cause for two Mondays in a month, six within a year or any three days in one month
- Economic conditions that negatively impact the employer’s business
- Employee misconduct or crime committed
The notice of termination must specify the reason. For termination due to economic reasons, the employer must submit proof and get authorization from the Ministry of Labor. If there is no response from the Ministry of Labour 60 days from the submission, the employer can proceed with the termination subject to paying the mandatory severance applicable.
Panama's Requirements Regarding Notice Periods
Employees who work for less than two years must be provided with at least a 30-day notice prior to the termination date. In case notice is not given, the equivalent ordinary wages in lieu of notice must be paid to the employee.
In cases of resignation, employees must give the employer a minimum of 15-day notice except for technical employees, who must provide a minimum of two-months’ notice to the employer.
No notice is required to be given to the employee if:
- The employee is under a fixed-term contract, or
- The employee has been employed for over two years.
Redundancy/Severance Pay in Panama
Severance pay is payable for termination without just cause or early termination of a fixed-term contract, usually equivalent to 3.4 weeks of salary for each year of service pro-rated.
Seniority premium entitlement is one week of salary per year of service, payable regardless of the reason for termination.
Severance pay must be paid immediately after termination. As part of severance pay, an employer must also pay out the accrued 13th salary and vacations.
Employees employed for less than two years are entitled to an advance notice payment equivalent to one month’s salary. Employees employed for more than two years are entitled to an additional indemnity equivalent to 6.54% of all wages received during employment. However, they are not entitled to an advance notice payment.
Post-Termination Restraints/Restrictive Covenants
According to the Labor Code, an employer can only restrict the employee’s activities during the period of employment.
For post-employment restrictions, this must be agreed upon between employer and employee prior to ending an employment relationship. Although remuneration can be included for such restrictions, it is generally not common in Panama to have post-employment restrictions.
Tax and Social Security Information for Employers in Panama
Social security and income must be reported monthly and a unique invoice is generated from the Sistema de Ingresos y Prestaciones Económicas (SIPE) when both tax and social security are paid. Payments are due 30 days from the previous calendar month.
Personal Income Tax in Panama
|Monthly Band||Tax Rate %|
|Up to USD 11,000||0|
|USD 11,000 – 50,000||15.0|
|Over USD 50,000||25.0|
Social Security in Panama
Employers and employees pay social security taxes when the employee is paid. Currently, employers pay 12.25% and the employee pays 9.75%.
An additional 1.25% of an employee’s wages are withheld as an “educational tax” while the employer pays 1.5%.
|Type||Employer Contribution Rate (%)||Employee Contribution Rate (%)|
The above rates serve as a broad guideline. Actual rates charged might differ.
Important Information for Panama Employees
Wages must be paid at least twice a month and payment frequency can be fixed by the unit of time (fortnight, week, day or hour), or by the specific duration of the job.
For monthly-salary employees, salaries include the weekly rest payment. For employees paid by day or by hour, the weekly rest pay shall apply on top of the regular pay.
An employee is entitled to 30 days of paid annual leave after continuous employment of 11 months (equivalent to the rate of one day for every 11 days of service). Annual leave must be taken in one block, or a maximum of two blocks with the prior agreement between employer and employee.
Converting annual leave to cash payment is not allowed.
Annual leave can be accumulated for up to two years upon the employee’s request as long as the first 15 days have been taken and the labor authority is notified.
Payment to employees must be made three days before their annual leave start date.
Employees are entitled to 18 days of paid sick leave.
From the start of the employment contract, the employee begins to establish a sick leave fund equivalent to 12 hours for every 26 shifts worked or 104 hours a year. This can be used in whole or in part while receiving full pay in case of sickness/accident. The sick leave fund can be accumulated for two years and until the third year of service.
Employees on sick leave and absent from work due to work-related accidents or illness cannot be terminated.
Maternity & Parental Leave
The total maternity leave duration is 14 weeks, with six weeks to be taken before the estimated date of birth and eight weeks to be taken after birth. It is prohibited for the employer to change the terms of the employment relationship during pregnancy and maternity leave. Dismissal without cause is not allowed during pregnancy and within the first year of coming back to work from maternity leave.
A female employee is entitled to a paid 15-minute break every 3 hours, or with the agreement of the employee, a 30-minute break twice a day. This time spent breastfeeding is considered working hours.
For an employee to be entitled to three business days of paid paternity leave, the employee must provide the employer with at least one week’s notice of his spouse/partner’s expected date of delivery and submit a birth certificate issued by the government that certifies him as the father of the child. The leave must be taken immediately after the birth.
A female employee is entitled to four weeks of adoption leave from the date when she is assigned pre-adoptive foster care. A male employee adopting a child may take two weeks from his annual leave. The payment for this will be made from the social security fund.
There are usually 13 public holidays in Panama.
Benefits to the Employee in Panama
The benefits offered by Panama’s Social Security System include:
- Dental, medical, and hospital coverage;
- Disability pay;
- Maternity leave;
- Worker’s compensation
- Retirement pensions;
- Death benefits; and
The severance fund (Fondo de Cesantía) in Panama is a mechanism established by law that guarantees that employers pay a seniority premium and compensation to employees with an indefinite contract. The worker has a right to receive compensation as guaranteed by the unemployment fund, if the employment relationship ended due to an unjustified dismissal.
Rules Regarding Visas and Foreign Workers in Panama
Foreign employees will need to get an immigration visa and residency status from the National Immigration Service before applying for a work permit to live and work in Panama. It is the employer’s responsibility to obtain a work permit, from the Ministry of Labor, on behalf of foreign employees. The work permit is generally valid for two years and renewable for an additional two years, except for citizens of certain countries who may obtain work permits for three-year periods. Employees under the Marrakech Treaty may renew resident permits and work permits for a maximum of six years.
If a company has a multinational headquarters license (issued by the Ministry of Commerce), the foreign employee may be exempt from obtaining a work permit. If these employees have a special temporary resident permit, they may be exempt from the payment of income tax and social security contributions.
Under Panamanian law, foreign employment is limited to 10% of a company’s workforce, or up to 15% if the expatriates are technical or management-level employees.
Foreign employees in Panama are subject to local employment laws and salaries are subject to income tax and social security contributions at the same rates as Panamanian employees.
Public Holidays Recognized by Panama in 2023
|1.||New Year’s Day||01.January.2023|
|4.||Easter holidays: Good Friday, Holy Saturday and Easter Sunday||March/April|
|6.||Separation of Panama from Colombia||03.November.2023|
|8.||Colón Province Separation Movement||05.November.2023|
|9.||First Cry of Independence from Spain||10.November.2023|
|10.||Panama Independence Day||28.November.2023|
|11.||Immaculate Conception’s Day (Mother’s Day)||08.December.2023|