Employment and labor laws vary from country to country. This guide is intended to provide the most up to date information available. We will update this guide as needed when changes are made to the laws.
Employment Contracts
Employers are legally required to provide formal written contracts for all employees that include salary/wage, termination terms, job title, etc. The contracts must be written in Spanish and use the United States Dollar currency (USD).
Working Hours
The standard workday consists of eight hours per day, and a full-time work week is up to 48 hours. Employees under the age of 16 are limited to a 36-hour working week.
Overtime
Overtime work is limited to three additional hours per day, nine hours per week and if the work is deemed hazardous to one’s health, an employee should not perform overtime at all.
All overtime hours in excess of 48 hours a week are to be paid at an overtime compensation rate; this rate is dependent on the hours in which the overtime is carried out.
- Hours performed between 6.00 am and 6.00 pm are paid at 125.00% of the employee’s regular wage
- Hours performed between 6.00 pm and 6.00 am or on a rest day or holiday are paid at a rate of 150.00% of the employee’s regular income.
- Hours carried over from working during night hours increased to 175.00% of the employee’s standard rate pay
Public Holidays
Public holidays that fall on a Sunday are moved to the following working day.
For the year 2024:
- Jan 1 – Monday: New Year’s Day
- Jan 9 – Tuesday: Martyrs’ Day
- Feb 13 – Tuesday: Carnival
- Mar 29 – Friday: Holy Friday
- May 1 – Wednesday: Labor Day
- Nov 3 – Sunday: Separation From Colombia Day
- Nov 5 – Tuesday: Colon’s Day
- Nov 11 – Monday: Day of the Saints
- Nov 28 – Thursday: Independence Day
- Dec 8 – Sunday: Mother’s Day
- Dec 9 – Monday: Mother’s Day Holiday (Day off in lieu)
- Dec 25 – Wednesday: Christmas Day
Annual Leave (vacation)
An employee in Panama is entitled to 30 calendar days of paid annual leave following the commencement of 12 months of employment (accrued at 1 day for every 11 days worked). Employers must provide the payment of annual leave three days before the vacation and cannot be compensated in lieu of payment.
Sick Days
The first 3 days of sick leave are paid by the employer. From the 4th day Social Security pays sick leave at a rate of 70% of salary, for a period of up to 26 weeks.
Maternity and Paternity
Maternity Leave
Maternity leave starts six weeks before the expected date of delivery and ends eight weeks after delivery, for a total of 14 weeks.
Maternity pay is paid by the social security system (provided that the employee has accrued a total of nine monthly social security quotas before the seventh month of pregnancy), if the employee has not accrued the minimum the payment will be made by the employer (calculated as the greater of the last salary or average of the last 180 workdays).
In the case of multiple, difficult birth or pregnancy-related illness, the leave can be extended upon the presentation of a medical certificate.
Female employees are protected during their maternity leave and cannot work any rest days or overtime hours.
Adoptive mothers are entitled to 28 days of paid leave.
Paternity Leave
Employees are entitled to three days of fully compensated paternity leave following the birth of their child. The employer compensates this leave.
Parental Leave
There are no provisions in the law regarding parental leave.
Other Leave
There are no provisions in the law regarding any additional leave.
Employee Severance and Terminations
Termination Process
The termination process varies according to the employment agreement and collective agreement in place and is based on the type of contract and reason for termination. All termination must be provided in writing and must follow the laws outlined in the Panama Labor Law; unjustified dismissals may be trialed in labor court. If the court cannot resolve the claim within 60 days, the employer may dismiss the employee.
Employees cannot be dismissed when pregnant or for their involvement in trade union activities, strikes, or complaining about their employer.
However, there are certain classifications of employees that may be dismissed without just cause (domestic workers, fishing or agricultural workers and retail workers)
Notice Period
Employers may terminate an employee during their probation period without notice. In general, notice periods cannot exceed three months and are commonly 30 days.
Severance Pay
Severance pay is not required unless in the case of dismissal due to redundancy; the severance payment for redundancy is dependent on the employee’s length of service 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
Probation Period
In Panama, probation periods are outlined in the employees’ employment contract/collective agreement. The probation period is typically around three months.
Payroll Cycle
In Panama, the payroll frequency is stipulated in the employment contract, paid on a monthly or weekly basis.
In Panama, minimum wages are dependent on the economic activity, specific occupation, and size of the establishment. Minimum wages typically range from 326.56 USD to 971.35 USD per month.
13th Salary
In Panama, 13th-month payments are mandatory, and the amount of an additional month’s salary is paid in three equal instalments on 15th April, August, and December.
Contributions
Employer Payroll Contributions
VISA
As a general rule, employers/companies must make up 90% of their workforce via Panamanian citizens or foreigners who are either married to a Panamanian citizen or who have resided in the country for at least ten years. They can engage an expert or foreign technical personnel, but this must not exceed 15% of the total number of workers.
Employers who need to contract foreign personnel must obtain authorization issued by the Ministry of Labor. This authorization or work permit is valid for renewable one-year periods, except for citizens of certain specific countries who may obtain a permanent work permit. Employees under the Marrakech Treaty may renew their resident permits and work permits, but only for a maximum of six years.
The Ministry of Labor has published a decree which restructures Panama’s work permit categories and implements numerous other changes to work permit regulations. Under the decree, there are overall stricter quota requirements for employers in Panama but relaxed quota requirements for short-term technicians; stricter work permit rules for SEM and EMMA visa holders, stricter documentary requirements for certain employers, and new work permit options for self-employed foreign nationals and students, among numerous other changes.
The Ministry has granted a grace period until March 31, 2023, so that foreign nationals who already hold a valid work permit in Panama or submit their work permit application on or before that date are unaffected by the changes.
VAT
The standard rate of movable goods and service transfer tax is 7.00%