Panama

Overview

Panama’s economy with a 5-year compound annual growth of 7.9% and per capita income of $21,765, is one of the fastest growing economies in the world. The country’s economy is largely based on the robust services sector that contributes more than 75% to GDP. Other major sectors include banking, logistics, the Colon Free Trade Zone, flagship registry, and tourism. Also, several important infrastructure development projects have bolstered Panama’s economic growth. Reforms including easing the process of setting up business and reduction of corporate tax have contributed to economic growth.

Currency: US Dollars, Panamanian Balboa

Principal language: Spanish

Government: Presidential Representative Democratic Republic with Multi-party System

Capital City: Panama City

Major Cities: San Miguelito, Juan Díaz, David, Arraiján

Employment Contracts

Employment contracts must be in writing. Employers have to retain a copy of the contract, provide one to employees and another to the directorate general of labor or Ministry of Labor’s regional bureau when the contract is signed. The contract must have the employee’s:

  • Name
  • Sex
  • Age
  • Address
  • Marital status
  • Identification number name of the dependents
  • The type of work
  • Duration of the contract
  • Work schedule
  • Wages
  • Signing date
  • In case of legal entity, the contract must include: Name and address of the business
  • Registration data
  • Name of the legal representative

The duration of employment contracts can be for a fixed period, indefinite period, or for the time required to perform a particular task.

Work/Time Regulations

Regular work schedules should not be more than 8 hours per day and 48 hours per week. Employees aged less than 16 cannot work for more than 6 hours a day while those aged 16 to 18 cannot work for more than 7 hours a day. Employees are entitled to rest periods of 30 minutes to 2 hours in a day. The rest period in a week should be at least 24 hours, which is generally a Sunday. Any work done between 6 p.m. and 6 a.m. is considered night duty. Even a shift that includes more than 3 hours in this 12-hour period is considered night work. Employees who perform night duties have 7-hour shifts and work no more than 42 hours in a week. Pregnant employees should not be asked to perform work at night.

Overtime
Employees are entitled to overtime pay under the Constitution. The work performed between 6 a.m. and 6 p.m. is paid at the rate of 125% premium over the regular pay while the overtime work performed between 6 p.m. and 6 a.m. is paid at the rate of 150% of regular pay. Employees who work on a Sunday or a weekly rest day are entitled to an overtime pay equal to 150% of regular pay and a day off. Overtime should not exceed 3 hours in a day and 9 hours in a week.

Leave

Holidays
The following 10 national holidays are observed in Panama:

  • January 1: New Year's Day
  • January 9: National Sovereignty Day
  • Mardi Gras
  • Good Friday
  • May 1: Labor Day
  • Nov. 3: Separation Day
  • Nov. 10: Los Santos Uprising Day
  • Nov. 28: Independence Day
  • Dec. 8: Mothers' Day
  • Dec. 25: Christmas

In addition to these holidays, a new president’s inauguration day is a paid holiday, and each municipality and district observe local public holidays concerning to their patron saints or their foundling’s anniversary. If a holiday falls on a Sunday, it is carried over to the following Monday.

Maternity Leave
Pregnant employees can take paid maternity leave for 14 weeks out of which 6 weeks can be taken before the expected date of delivery while 8 weeks can be taken afterward. If an illness occurs due to pregnancy or childbirth, the maternity leave can be extended. In case the birth occurs after the expected date, 8 weeks of postnatal leave are counted from the actual birth date. In cases of miscarriage or stillbirth, the maternity leave is determined according to mother’s health assessed and confirmed by a doctor by issuing a medical certificate. Pregnant employees who have made contributions for at least 9 months in the last 12 months prior to the 7th month of pregnancy are entitled to maternity benefits by social security. If pregnant women have not made necessary contributions, the employer must pay entire full maternity benefits.

Child Care Leave
Employees can take paid leave for medical appointments for children aged less than 2 years provided they give notice in advance and go through verification.

Sick Leave
Employees who fall sick or suffer an injury are entitled to 70% of their average earnings in the last 2 months for a maximum of 26 weeks of sick leave. The leave entitlement can be extended by an additional 26 weeks if agreed to by the Social Security Administration.

Vacation Leave
Employees in Panama are entitled to 30 days of paid vacation for every 11 months of employment. Employers must provide vacation pay at least 3 days before the leave begins. Vacation can be taken in no more than two equal periods and must be taken without undue delay after accumulating leaves. Employers cannot pay in lieu of vacation.

Adoption Leave
Mothers who adopt are entitled to 4 weeks of adoption leave while adoptive fathers who can take a 2-week leave that is deducted from annual leave.

Benefits

Social security benefits such as disability benefit, old-age pension, maternity benefit, survivors’ pension are funded by employees, employers, and the government.

Old Age Benefits
The individual accounts system was introduced in 2008 to supplement the social insurance system. The benefits are calculated based on whether payments are made from an individual account or the social insurance fund. This mixed system is mandatory for employees who have joined the labor force since the beginning of 2008 and for self-employed individuals who under than 35 years on 1st January 2008.

Survivor's Benefits
Widows or widowers of employees who were entitled to or were receiving disability pension at the time of death receive survivors’ pension equal to 50% of the deceased employee’s pension.

Illness Benefits
Employees who have made contributions for at least 6 months in the last 9 months receive illness benefits equal to 70% of their average wages in the 2 months before the illness began. The benefits are paid after a waiting period of 3 days for a maximum of 52 weeks for any single illness. The benefits coverage can be extended after receiving permission from the Social Security Administration.

How GPS can Help

With our Global PEO/Employer of Record services, companies can expand into Panama and hire their employees without having to establish a branch office or subsidiary in Panama.

  • Your candidate is hired via our Panama PEO. If needed, we can also help you find the right talent in any country with our comprehensive global staffing services.
  • Your new employee begins work quickly as we take care of employment contracts, statutory and non-statutory benefits, and running their payroll - all in full compliance with Panama laws.
  • Global PEO Services experts manage all day-to-day operational issues such as employee expenses, and severance/termination if required.
  • With no contractor risks, pass on the compliance burden to Global PEO Services.

Spin Off/M&A Support

  • Ensure continuity of payroll, benefits and HR support when acquiring or spinning off a business with employees overseas.

24/7 Support in 100+ Countries

  • Empower your teams with 24/7 support and a single point-of-contact model in which experienced client services directors are in continuous communication with information and advice.
  • We are backed by a mix of 300+ multidisciplinary experts from HR, Payroll, Finance, Tax, and Legal domains who are ready to respond to the expected and unexpected needs of your business on the shortest notice.

Easy Visibility into Your Employee Time & Attendance and Benefits Data
With our Global PEO, you get access to Mihi, our proprietary SaaS solution for time and attendance, vacation, leave management and benefits enrollment and managements. Mihi enables clients to have easy access to employee data in real time. It is designed specifically for companies with a global workforce, especially when working in multiple countries with low headcounts.

Ready for Growth When You Are
When ready, we can seamlessly transition you from the PEO/EOR model to your own legal entity and provide ongoing international HR, finance, legal, compliance and staffing support. Lean more about our end-to-end international expansion services.