Table of Contents


Table of Contents


Panamanian Balboa (PAB)

Payroll Frequency


Employer Taxes


About Panama

Located in Central America, Panama was originally home to indigenous tribes at the time of the Spanish conquest in the 16th century. Following independence from Spain, it joined an alliance eventually known as the Republic of Colombia. However, it subsequently seceded from Colombia, paving the way for the Panama Canal to be built by the US Army Corps of Engineers between 1904 and 1914. Income from canal tolls continues to represent a significant part of Panama’s GDP.

Panama has distinct geography with its central line of mountains and hills forming the continental divide. Its wildlife is considered the most diverse in the region and is home to many South American species such as several varieties of monkeys like white-faced capuchins and squirrel monkeys, as well as Geoffroy’s tamarin which are unique to its land. Its jungles contain big cats such as jaguars and pumas while its coral reefs sport a multitude of tropical fish.

The majority of Panamanians speak Spanish as their first language while native languages such as Ngäbere are spoken widely in the tribal territories.

Employment Relationship

• Permanent Employment

According to Panama's Labor Code, permanent work is one that constitutes an occupation of permanent necessity in the company or establishment and that has as its object normal and uniform activities of the employer, and corresponds to the contract for an indefinite period. Contracts for a definite term cannot be used to fill positions of a permanent nature. A fixed-term contract is considered to be made for an indefinite period in the following cases: If the term of a contract for a definite time expires but the employee continues to provide services. If a contract is concluded to execute specific work and the worker continues performing the same tasks after the work is completed. Seasonal work is work that is executed at a certain time every year, forms part of the normal and uniform routine of the employer's activities, and constitutes a form of a contract for an indefinite period. Seasonal workers are recognized as permanent workers when 2 full seasons have been worked consecutively.

• Fixed-Term or Specific-Purpose Contracts

According to Panama's Labor Code, employment contracts can be made for a fixed duration or for a specific job. Contracts for a fixed duration may not be used to fill positions of a permanent nature. An employment contract is concluded for a fixed term in the following conditions: When permitted by the nature of the job To temporarily substitute a worker on leave or vacation, or for any other temporary impediment In other cases specifically provided for in the Labor Code Fixed-term contracts must be put in writing, and their duration cannot be more than 1 year. In the case of services that require special technical preparation, the contract term may be stipulated up to a maximum of 3 years. The contract is considered to be made for an indefinite duration in the following cases: If the definite-term contract expires, but the employee continues to provide services. If a contract is concluded for specific work and the worker continues performing the same tasks after the work is completed.

• Temporary Employment Contratcs

Panama's Labor Code allows the use of temporary workers. Temporary work agencies must receive prior authorization from the Ministry of Labor and Social Welfare, which allows the operation of companies dedicated to providing workers to other employers that need to use them temporarily, for periods not exceeding 2 months. Temporary work agencies and employers that utilize their workers must obey the following rules: The minimum wage that workers must receive will be the highest set in their respective districts. The companies that use the services of the workers will be jointly and severally responsible, with the employing company, for wages, benefits, and compensation corresponding to the period in which, on each occasion, they use their services.  The temporary worker's acts are considered the employer's own acts for all legal purposes. The Ministry of Labor and Social Welfare is empowered to regulate this provision and ensure that these companies do not circumvent the provisions regarding worker placement. Contracts that require an agency to provide all employees to a user company are prohibited.

Probationary Period

According to Panama's Labor Code, employment contracts can include a probationary period of up to 3 months. A probationary period can only be included when the job requires certain specialized skills. The probationary period must be expressly stated in the written employment contract. During this period, either of the parties may terminate the employment relationship without any liability. The probationary period will not be valid if the worker is hired to work a role that they already held in the same company.

Working Hours

In Panama, the labor law provides that the standard workweek is 48 hours and the standard working day is 8 hours. Employees who work longer hours are eligible for overtime. Working hours for persons below 16 years of age cannot exceed 6 hours per day. Working hours for persons under 18 years of age cannot exceed 7 hours per day. The maximum length of a night shift is 7 hours, and the corresponding maximum working week for night workers is 42 hours. The maximum duration of the mixed day and night shift is 7.5 hours, and the respective maximum working week is 45 hours. Night shifts of 7 hours and 7.5-hour mixed day/night shifts are to be remunerated as 8 hours of daytime work to calculate the legal minimum wage or to calculate wages paid in a company with a shift of work in several periods.

Holidays / PTO

• Statutory Holidays

New Year’s Day – January 1; Martyr’s Day – January 9; Carnival Tuesday – Date subject to change every year; Good Friday – Date subject to change every year; Labor Day – May 1; Day of the Dead – November 3; Day to celebrate the gesture of Rufina Alaro – November 10; Independence Day – November 28; Mothers’ Day – December 8; Christmas Day – December 25; Presidential Inauguration – July 1 (every five years).

• Paid Annual Leave

Panama's labor law stipulates that employees are entitled to 30 days of annual leave for every 11 continuous months of work, accrued at the rate of 1 day for every 11 days in the employer's service. Employees are to be paid their average monthly, weekly, or daily salary for each day of annual leave. The sums that the employee must receive must be settled and paid 3 days in advance of the date on which the employee begins their annual leave. Employees must enjoy their annual leave without interruption. The annual leave period may only be divided into a maximum of 2 equal parts when such division is allowed in a collective bargaining agreement or prior agreement with the employee. The employer must indicate, at least 2 months in advance, and after consultation with the employee, when the employee is to take annual leave.

• Sick Leave

According to Panama's Labor Code, an employee accrues 12 hours of sick leave for every 26 shifts worked, up to 144 hours (18 working days) per year. Employees are entitled to receive their normal wages from their employer while on sick leave. Employees may accumulate sick leave over 2 years, but then must use the leave, in whole or in part, during the third year of service. Employees must provide medical certificates to avail themselves of this leave. When an employee has exhausted all the sick leave to which they are entitled, they may take additional leave and deduct those days from their annual leave.

• Maternity Leave

Panama's labor law provides a total of 14 weeks of paid maternity leave: 6 weeks before the delivery and 8 weeks following delivery. In no case may the total leave period be less than 14 weeks. If the due date is delayed, the prenatal period of leave is extended so the employee has the right to 8 weeks of leave after birth. To qualify to receive state maternity benefits, an employee must have at least 9 months of contributions before the seventh month of pregnancy. Employees who qualify for the state maternity benefit are entitled to 100% of their average weekly earnings over the previous 9 months for the 14 weeks of maternity leave. If an employee does not qualify for state maternity benefits, the employer must pay the employee her regular wages during maternity leave.

• Paternity Leave

Employees in Panama are entitled to 3 working days of paid paternity leave. Employees must give their employer at least 1 week of notice of their partner's delivery date and provide a birth certificate certifying they are the child's father. This 3-day paid leave qualifies as service time to the employer.

Termination of Employment

• Notice Period

According to Panama's Labor Code, the following categories of employees must receive a notice of 30 days or payment of 30 days' wages in lieu of notice before dismissal: Employees who have less than 2 years of continuous service with the employer Domestic workers Permanent or plant workers, those working in small businesses, or in the agricultural, livestock, agro-industrial, or manufacturing sectors Employees in ships dedicated to international service Apprentices Establishment workers in retail merchandise sales and companies with five or fewer employees. Employees who have worked for more than 2 years generally can only be fired for just cause.

• Severance Benefits

According to Panama's Labor Code, employers must provide seniority pay to permanent employees when they are terminated. Seniority pay is calculated at a rate of 1 week's salary for each year worked since the beginning of the employment relationship, irrespective of the reason for termination. In the case of fixed-term contracts, if the employer terminates the contract without just cause before the expiration of the term or the total execution of the work, the employer must pay compensation equal to the wages due for the remaining term of the contract. If the employee is dismissed unfairly or without prior authorization, they are entitled to the following compensation from the Severance Fund (Fondo de Cesantía): For less than 1 year of service, 1 week's salary for every 3 months of work, provided it cannot be less than 1 week's salary For 1 to 2 years of service, 1 week's pay for every 2 months of work For 2 to 5 years of service, 3 months of salary For 5 to 10 years of service, 4 months of salary For 10 to 15 years of service, 5 months of salary For 15 to 20 years of service, 6 months of salary For more than 20 years of service, 7 months of salary