Panama PEO & Employer of Record

WeHG provides an International PEO and vglobal Employer of Record service in Panama to companies willing to join the Panama market or hire local/expat employees in this country.

Traditional approach requires establishing a subsidiary in Panama.  However our solution allows you to start the operations in Panama within days hence save time and money.  WeHG would recruit candidates on your behalf while you maintain full operational control of their work. So legally they would be our employees, on our local payroll, 100% compliant but will work on your behalf. .

Panama fast facts

Population, million: 4,314,767
Land area, sq. km: 75,517  km²
Capital: Panama City
Local currency: Balboa (PAB), United States dollar USD

GDP per capita:$ 11400.00
GDP in currency:$ 9.4 billion
Economic growth percentage: 6.4%
Inflation rate (consumer prices): 0.16%
Volume of export: 51815 PAB
Import of goods and services: $ 27 million
Total population: 4,314,767
Population of working age (15-64): 77.39%

Hiring, Negotiating and Doing Business in Panama

Necessity of written employment contract

Generally, employers execute a written employment contract with the employee at the beginning of the labour relationship. However, the Labour Code stipulates that in the absence of a written employment contract, any facts or circumstances argued by an employee that should have appeared in a written contract will be presumed to be true.

Panama Employment Contract

Types of employment agreements

An employment agreement for a definite period shall not be greater than one year.

Labor contracts can be written for a specific duration (one year for most employees but up to three years in case of technicians), for an indefinite duration, or for the completion of a limited and specified piece of work. In the construction industry contracts are limited to the duration of the construction project or the particular phase of the project to which the employee is hired.

Specific duration clause must be contained in a written contract. When there is no written contract it is assumed that the labor relation is for indefinite duration.  Specific duration contracts may only be used for a non-permanent positions. The renewal of specific duration contracts is allowed only in the circumstances described in Article 77A of the Labor Code, which include continuance of work after expiration of agreement for definitive period of time, and continuance of the same work after complation of specific work.  A successive specific duration contract shall not be deemed to exist, however, in the following cases:  agreements related to the continuance of employment or positions required in connection with the development of a new activity for the company; agreements relating to hiring during the first year of an employer’s activity or company’s operation; and agreements relating to the methods of work approved by the Ministry of Labor and Social Welfare or agreed to with a union.

Panama working hours

The Labour Code provides that the maximum working hours permitted during one day is eight hours. The maximum working hours permitted during a week is 48 hours.

Overtime

Overtime is charged for longer than the maximum daily or weekly hours.  An additional charge of 25% over the hourly wage is paid for day workers and 75% for night workers.

Vacation leave in Panama

The statutory paid vacation is 30 days. However, employee would only be entitled to 30 days of vacation after 11 continuous months of employment. The law permits the employer to fraction vacation time into two equal periods, as long as the collective bargaining agreement authorizes it. The employee may not trade unused annual paid leave for additional compensation, but annual leave may, by mutual agreement, be accumulated for up to two years. The 30 day period of paid leave can be divided into no more than two equal parts. As in many countries, if contract is terminated and employee has not used vacation time, employee will receive a payment for each vacation day that he/she is entitled to. Regarding compensation during termination, please see «Severance payments»

Sick leave: 

Employees are entitled to 18 days of paid sick leave.

Panama Maternity Leave

The maternity leave is 14 weeks paid by Social Security, not by the employer. All pregnant female employees are entitled to maternity leave, payable at the full salary for 6 weeks before and 8 weeks after childbirth. But if delivery is delayed beyond the anticipated due date, the employee is entitled to receive, as a paid leave, the full 8 weeks following childbirth.
The employer is required to cover any difference between the economic subsidy paid under Social Security for maternity and the regular salary the employee is entitled to receive. When Social Security is not obligated to provide a subsidy for maternity leave, the entire maternity leave benefit must be paid by the employer.
Panamanian law does not provide for paternity leave. However, such leave may be provided through the employer´s internal rules or an individual labor contract between the parties.

Panama Severance Laws

According to the Panamanian Labor Code, the dismissal of an employee shall be based on one of the just causes specified in Article 213 of the Labor Code, which contains a limited list of causes for dismissal and includes not only disciplinary but also economic causes.  In the Republic of Panama, employeers cannot create causes for dismissal and have to strictly apply the ones provided by the law.  Dismissal is not allowed for any reason other than the ones stated in Article 213.

Notice periods

The employer must notify the worker in advance and in writing with the date and reason for dismissal. For employees that have less than two years’ service, one month’s notice is required. No notice is required for employees that have over two years’ service.

The employee can put an end to the employment relationship without supporting reasons through a written notification with 15 days notice.

Severance payments

There are no statutory laws regarding severance pay unless the reason for dismissal is redundancy. In this case, payment is determined based on the length of employment and is as follows: 

• Up to 6 months of employment– .5 months of pay  
• Up to 9 months of employment- .75 months of pay  
• Up to 1 year of employment- 1 month of pay   
• Up to 2 years of employment- 3 months of pay  
• Up to 4 years of employment- 4.5 months of pay  
• Up to 5 years of employment- 5.2 months of pay  
• Up to 10 years of employment- 9.75 months of pay 
• Up to 20 years of employment- 14.8 months of pay

Panama Tax

The minimum taxable base is US$11,000 (tax exempt) per year:

• Employees that earn between US$11,000 and US$50,000 per year are taxed at a rate of 15% on the amount over US$11,000.
• Employees who earn more than US$50,000 pay US$5,850 on earnings up to US$50,000, plus a tax rate of 25% on the amount earned over US$50,000.

Social security contributions

9.75% on wages and other compensation paid, including compensation in kind, for employees. There is no maximum limit on the taxable amount.

Educational insurace tax

The employee contributes 1.25% of their salary, to the Social Security Fund.

Employer Burden

Social security contributions

13.5% on wages and other compensation paid, including compensation in kind. There is no maximum limit on the taxable amount.

Educational insurance tax

The employer contributes 1.5% of the employee’s salary to the Social Security Fund.

Health Insurance Benefits in Panama

Additional Benefits in Panama

Employees are paid 13 months for every 12 worked. The thirteen-month compensation can be paid once or in three instalments in April, August and December. Regarding compensation during termination, please see «Severance payments»

Employers may purchase complementary insurance with private insurance companies at their own will.

There are no restrictions or guidelines on the granting of bonuses, and this is governed by the policies adopted by each individual employer.
The Labor Code considers salaries in kind to include any payment to employees for housing, food and clothing.

Panama Holidays

• New Year’s Day
• Martyr´s Day
• Carnival/Shrove Tuesday
• Good Friday
• Labor Day / May Day
• Independence Day
• Colon Day
• Shout in Villa de los Santos
• Independence from Spain
• Christmas Day

Why Choose WeHireGlobally

WeHG takes care of all the onboarding hurdles, payroll, compensation and benefits, tax filing, and termination of employment. Our Employer of Record solution allows you to manage your overseas teams efficiently while minimizing cost and risk.