Definitive Guide to Hiring in Panama

Hiring in Panama

Hiring employees compliantly in Panama means doing it yourself or using an Employer of Record like Global Expansion. You should be careful using independent contractor agreements in Panama so that you don’t run afoul of employment laws. To hire an employee compliantly and offer them mandatory benefits and compliant agreements, you can:

(a) Establish your own new legal entity, banking, accounting and payroll service in Panama; or

(b) use an Employer of Record like Global Expansion who can handle all of the details for you.

Labor Laws in Panama

Employment laws in Panama are uniquely suited to the country’s way of life, and crucial to understand if you want to employ local talent in this country. Get the details on Panama employment laws and Panama policies here.

Employee Probation Period

Annual Leave in Panama

• The statutory paid vacation is 30 days. 
• However, you would only be entitled to 30 days of vacation after 11 continuous months of employment.

Holidays in Panama

Maternity Leave Panama

• Total maternity leave must be at least 14 weeks' duration. 
• If childbirth is delayed, the employee is entitled, after the birth, to paid leave for the following eight weeks.

Paternity Leave Panama

Sick Leave in Panama

Working Hours in Panama

• The standard workday is eight hours, with the standard workweek up to 48 hours. 
• Night work (work shifts between 6 pm and 6 am) is limited to seven hours per day and 42 hours per week. 
• A mixed-shift workweek is seven and a half hours, up to 45 hours per week.

Overtime in Panama

• The rate of overtime pay depends on whether it is during the standard workday (25% above the pay rate) or at night (50% above the pay rate). 
• In the circumstances where overtime is permitted, it cannot exceed three hours per day or nine hours per week.

Termination of Employment in Panama

• The employer cannot prematurely terminate a labor relationship contract without justification under the law. 
• These are considered to be justified by law: disciplinary, economic reasons or causes of unavoidable accidents and chance occurrences.
• Generally, there are no statutory notice periods to be observed.
• However, there is an exception for some specific categories of workers to which the "just cause" rule does not apply. 
• Those workers can be dismissed without just cause provided that the employer gives 30 days' prior notice or pay the corresponding amount in addition to a payment amounting to compensation for unfair dismissal.
• This rule applies to those workers with less than two years' uninterrupted service; domestic employees; permanent employees of small agricultural, fishing or manufacturing undertakings; seafarers serving on board vessels operating on international routes; apprentices; workers in retail sales establishments and in undertakings with five or fewer workers, except in the case of insurance establishments or real estate (art. 212 LC).
• The employee can put an end to the employment relationship without supporting reasons through a written notification with 15 days’ notice.

Notice Period in Panama

• Generally, there are no statutory notice periods to be observed.
• However, there is an exception for some specific categories of workers to which the "just cause" rule does not apply. 
• Those workers can be dismissed without just cause provided that the employer gives 30 days' prior notice or pay the corresponding amount in addition to a payment amounting to compensation for unfair dismissal.
• This rule applies to those workers with less than two years' uninterrupted service; domestic employees; permanent employees of small agricultural, fishing or manufacturing undertakings; seafarers serving on board vessels operating on international routes; apprentices; workers in retail sales establishments and in undertakings with five or fewer workers, except in the case of insurance establishments or real estate (art. 212 LC).
• The employee can put an end to the employment relationship without supporting reasons through a written notification with 15 days’ notice.

Severance in Panama

• Severance payment for unjustified dismissal amounts to:
  • 3.4 weeks pay per year of service for up to 10 years
  • 1 week's pay per year of service for more than 10 years of employment

Panama Salary and Wages

13th / 14th Month Salary in Panama

• Yes (Mandatory)
• There is a statutory requirement to pay the 13th
• This is paid in three instalments in April, August and December and combined they make one month salary.

• Social security contributions are levied on salaries, at a rate of 12.25% for the employer and 9.75% for the employee. 
• Contributions are computed based on an employee’s gross compensation. 
• No ceiling applies to the amount of remuneration subject to social security contributions. 

Immigration Panama

• The government of Panama grants work permits to foreign employees who have special knowledge or experience in a certain field and whose country of origin maintains economic, professional and friendly ties with the Republic of Panama. 
• The granting of a work authorization is subject to certain rules that have to be checked on a case-by-case basis because these rules often vary. 
• The Ministry of Labor and Employment Development grants the work permit after the foreigner obtains the residence permit granted by the National Immigration Service. 
• Foreign nationals may work in Panama only if they have obtained a permanent or temporary residence permit and the work permit that allows them to work. 
• Depending on the category, a visa may be valid for one year and may be renewed for the same period, up to five additional years. 
• Certain types of visas are issued indefinitely and others are issued for up to five years and are renewable for the same time period. 

Temporary work permits and process

Residence and temporary work permit in the capacity of personnel hired as executives of international companies, whose functions take effect abroad 

• Special temporary visitors’ visas may be obtained by international executives of companies that have Panamanian operations and by press correspondents. 
• International executives with a special temporary visa who receive a monthly salary of at least USD2,000 that comes from a foreign source for transactions or services executed or having effects abroad are not subject to income tax, educational tax and or social security tax in Panama. 

Migratory and labor options for a company hiring a foreigner

• The migratory and labor options for a company hiring a foreigner include, among others, the following: 
  • 10% of the ordinary personnel (10% category)
  • 15% of the specialized personnel (15% category)
  • Marrakesh Agreement. 

• The residence and work permit under this agreement applies to foreigners who enter the country to work in a company with less than 10 Panamanian employees. 
• The 10% category can be requested by foreigners who will be hired by private companies in Panama and who earn a monthly salary not less than USD850. 
• Foreigners hired under the 10% category must hold ordinary positions, which do not denote hierarchy, command or specialization within the company, and their hiring must not exceed the percentage established by the labor legislation in relation to national workers, according to the detail of the payroll reported to the Social Security Authority. 
• The 15% category may be requested by foreigners who will be hired by private companies in Panama and who earn a monthly salary not less than USD850. 
• Foreigners hired in the 15% category must hold a position of technician, expert or manager, and/ or be considered trustworthy personnel (as defined in Article 84 of the Labor Code) within the company, and their hiring must not exceed the percentage established by the labor legislation in relation to national workers, according to the detail of the payroll reported to the Social Security Authority. 
• After the term of two years of the provisional residence permit, the foreigner can apply for permanent residence.

Value Added Tax (VAT) in Panama

• The movable goods and services transfer tax (Impuesto de Transferencia de Bienes Muebles y Prestación de Servicios or ITBMS) is the Panamanian value-added tax (VAT).
• The standard rate is 7%, with special rates of 10% for accommodation and alcohol, and 15% for tobacco.
• Exemptions apply for food, medicine, medical services, and crude oil.

Payments And Invoicing

Payroll Accrual in Panama

Country Accruals Additional Information

Description

From January 2013, social security tax is assessed at a rate of 9.75% on wages and other compensation paid, including compensation in kind, for employees and 12.25% for employers. There is no maximum limit on the taxable amount.

Payroll Accruals Additional Information

Accrued Benefits in Panama

Why use Global Expansion to hire in Panama

Establishing a branch office or subsidiary in Panama can be time-consuming, expensive and complex. With such a robust labor market in place, one must pay great attention to detail when structuring employment because Panama labor laws are complex.

The company also has a responsibility to comply with specific employment practices dictated by Panama law to maintain its good standing as an equal opportunity employer.

Global Expansion makes it easy for you to expand into Panama. We'll help you hire your candidate of choice, handle HR matters and payroll, and ensure that you comply with local laws without the burden of setting up a foreign branch office or subsidiary. In addition, you'll have complete control and direction over your employees.

We enable you to stay in control of everything. Our Panama Global Professional Employer Organization (PEO) and Employer of Record (EOR) solution provides you with peace of mind to focus on running your company and the security to enter new markets.