In Panama, an Employer of Record (EOR) plays a crucial role in streamlining hiring processes and ensuring compliance with labor laws. With their access to a diverse pool of talent and market expertise, EORs efficiently identify qualified candidates. By collaborating with an EOR, businesses can focus on their core operations while leaving HR tasks, payroll, and statutory requirements in capable hands. This partnership also offers a cost-effective way to establish a local presence without the need to set up a legal entity, making it a favorable choice for short-term projects or market exploration. Partnering with an EOR in Panama empowers companies to acquire the right talent and navigate local employment regulations seamlessly.

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To expand your team in Panama, it is vital to navigate the complexities of local employment regulations and efficiently manage compliance, payroll, tax, and benefits.

With Gloroots' comprehensive global Employer of Record (EoR) service, you can entrust the intricacies of payroll, tax, benefits, and compliance to our experienced team. This allows you to concentrate on your core business operations, empowering your workforce and driving business growth. Our EoR service in Panama ensures strict adherence to all local laws and regulations, providing a seamless and efficient solution for successful team expansion in the country.

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In Panama, misclassifying employees can result in significant risks for businesses. Incorrectly categorizing workers as independent contractors or exempt from employment laws may lead to legal and financial consequences, including claims for unpaid wages and benefits.

To mitigate these risks, partnering with a PEO/EOR in Panama is a prudent step. The PEO/EOR ensures proper employee classification, compliance with labor laws, accurate payroll processing, and access to comprehensive benefits. This allows businesses to focus on their core operations while entrusting employment-related responsibilities to experienced professionals, thereby protecting them from potential legal liabilities. By maintaining compliance with Panama's labor regulations, companies can safeguard their interests and mitigate the risks associated with employee misclassification.

The primary source of employment laws is the "Código de Trabajo" (Labor Code), which was established in 1972. The Labor Code sets out the framework for labor relations in the country, covering a range of topics from contracts, working hours, and benefits to labor unions and dispute resolution.

Employment contract

Employment contracts must be written in Spanish or English. Both parties need to act as the signatory.

Essential details to include: 

• Names of the parties involved 
• Nationalities, ages, genders, civil statuses, addresses, and identification numbers.
• If the employer is a company, specify the company name, address, name of its legal representative, and registration data in the Public Register
• Mention names of people living with the employee and any dependents
• Include start date and duration of employment
• job description
• Location of workplace
• Regular work hours
• State the salary, payment method, and the place and date of contract execution.

It's important for employers to understand the intricacies of these programs before making a hire. This might sound overwhelming, but it doesn't have to be. A solution like Gloroots eliminates the barriers for you. With Gloroots' Employer of Record offering, hiring and managing employees globally is a piece of cake.

Get an overview of what you need to know when hiring in Panama. Contact us.

Working Hour

The regular workday encompasses eight hours daily, and a full-time work week constitutes up to 48 hours. 

Overtime

Overtime work is limited to a maximum of three additional hours per day and nine hours per week. If the work is deemed hazardous to one's health, employees should not perform any overtime.

Overtime hours in excess of 48 hours per week are compensated at an overtime rate, which varies based on the hours worked:

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Minimum Wage

In Panama, minimum wages vary based on factors such as the type of economic activity, the specific job role, and the size of the business. Monthly wages generally fall within a range of $326.56 to $971.35, depending on these criteria.

Sick Pay

Overall, employers in Panama must offer 26 weeks of paid sick leave. 

The employer covers the first three days with full payment. From the fourth day onwards, Social Security provides sick leave compensation at a rate of 70% of the employee's salary, which can continue for up to 26 weeks.

Maternity leave 

Maternity leave in Panama spans for 14 weeks. Employees can avail six weeks of leave before the expected delivery date and eight weeks after delivery. During maternity leave, female employees cannot work on any rest days.

Maternity pay is provided by the Social Security system. To avail this benefit, the employee must have contributed to the Social Security for at least six months before beginning their maternity leave. If this minimum requirement is not met, the employer must pay the high salary paid to the employee in the last 180 workdays. 

In the case of multiple births, difficult delivery, or pregnancy-related illness, extended leave is possible with a medical certificate.

For mothers who adopt a child, 28 days of paid parental leave is granted.

Annual leave 

In Panama, all full-time employees can enjoy paid annual vacations. The length of these vacations depends on how long they've been working, with a minimum requirement of 12 months of employment. Employers must ensure they pay for these vacations at least three days before the vacation starts.

Income tax

Employee Income Tax

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Social Security contribution

Employer Payroll Contributions

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Employee Payroll Contributions

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Employment Termination and Severance

Termination Process

The termination process in Panama varies depending on the employment and collective agreements, contract type, and reasons for termination. All terminations must be provided in written form and adhere to the guidelines outlined in the Panama Labor Law. Unjustified dismissals may lead to legal proceedings in the labor court, and if the claim remains unresolved after 60 days, the employer may proceed with the termination.

Certain circumstances prohibit employee dismissal, such as during pregnancy or due to involvement in trade union activities, strikes, or complaints against the employer. However, specific employee classifications, such as domestic workers, fishing or agricultural workers, and retail workers, may be dismissed without just cause.

Severance Pay

Severance pay is not mandatory unless the dismissal is due to redundancy. The amount of severance pay for redundancy is determined by the employee's length of service:

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Notice Periods

Typically, notice periods in Panama do not exceed three months and are often set at 30 days or paid in lieu of notice for dismissals without just cause. No notice is necessary for dismissals with just cause or during the probationary period.

Probation Periods

In Panama, the probation period is determined in the employee's employment contract or collective agreement and generally lasts up to three months.