Global PEO Services (GPS) helps companies hire employees in Panama without establishing a legal entity. All human resources, benefits, payroll, and tax needs for the employees are managed by the Global PEO, while the new hires and headquarter teams focus on your business goals.
When hiring employees in Panama, establishing a subsidiary or branch office is not always the best route, as it’s often a lengthy and expensive process. Hiring via a Professional Employer Organization (PEO), or Employer of Record (EOR), is a faster and often more effective option – especially when starting up in a new country.
Global PEO Services hires the employees on your behalf, legally contracting them through our subsidiary in accordance with Panama labor laws. As a result, the burden of compliance is on us and the employees can begin work for your company in a matter of days. PEOs/EORs provide you with a streamlined option for hiring employees, testing markets, and responding to growing business needs in Panama. With Global PEO Services, you get control without taking on legal entity liabilities, contractor risks, or sacrificing on talent or speed to market.
Panama - Country Overview
The economy of Panama is one of the fastest-growing economies in the world. The country has a 5-year compound annual growth of 5.8% and a per capita income projected to be $13,200 in 2020. Panama’s economy is largely based on the robust services sector that contributes to over 75% of the country’s 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 such as easing the process of setting up business and reduction of corporate tax have contributed to economic growth.
US Dollars, Panamanian Balboa
Presidential Representative Democratic Republic with Multi-party System
San Miguelito, Juan Díaz, David, Arraiján
Employment Contracts in Panama
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:
- Marital status
- Identification number
- Name of the dependents
- The type of work
- Duration of the contract
- Work schedule
- 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.
Working Hours in Panama
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.
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 25% premium over the regular pay while the overtime work performed between 6 p.m. and 6 a.m. is paid at the rate of 50% 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.
Employee Leave in Panama
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 observes local public holidays concerning their patron saints or their foundling’s anniversary. If a holiday falls on a Sunday, it is carried over to the following Monday.
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 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.
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 the Social Security Administration agrees.
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.
Women who adopted a child are entitled to 4 weeks of adoption leave while adoptive fathers can take a 2-week leave that is deducted from annual leave.
Employee Benefits in Panama
Social security benefits such as disability benefit, old-age pension, maternity benefit and survivors’ pension are funded by employees, employers, as well as 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 aged less than 35 years on 1st January 2008.
Widows or widowers of employees who were entitled to or were receiving disability pension at the time of the employee’s death receive survivors’ pension equal to 50% of the deceased employee’s pension.
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 during 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.