Panama Labor Law Guide for Hiring Employees and Contractors
Panama, with a population of around 4.5 million people, boasts one of the most dynamic economies in Central America.
As of 2023, Panama’s economy had a GDP of approximately $70 billion, driven primarily by the services sector, which includes banking, logistics, and the Panama Canal. Other important sectors include commerce, construction, and tourism.
The official currency of Panama is the Panamanian Balboa (PAB), which is used alongside the US Dollar (USD).
Minimum Wage
US$340 Region 1, US$315 Region 2
Overtime Wage
125% of the regular hourly rate
Meal Breaks
1 hour
Rest Breaks
15 minutes
Working hours
8 hours/day, 48 hours/week
Salary Payment Cycle
Bi-weekly
Payroll Taxes
Social Security (CSS)
Paid Vacation
30 days
Overtime Hours
After 8 hours per day
Night Shift Hours
125% of the regular hourly rate
Holidays
11 holidays
No Work Days
Sunday
To hire employees in Panama, businesses must establish a legal entity and register with the relevant authorities. The cost of setting up a business entity generally ranges from $1,500 to $3,500, with the process typically taking between 30 to 60 days.
Employment contracts in Panama must be in writing and include essential details such as job description, salary, working hours, and termination conditions. The contracts should also specify probationary periods, if applicable. Panama’s labor laws distinguish between employees and independent contractors, with employees receiving more comprehensive benefits and protections under the law.
Panama has a national minimum wage law. The current monthly minimum wage is set at US$340 for Region 1 and US$315 for Region 2 as of January 2024.
This rate is uniform across all sectors and regions. There are no specific exemptions from the minimum wage law, and all workers are entitled to at least this amount. Employers are also required to provide holiday pay for public holidays.
The standard working hours in Panama are 8 hours per day, totaling 48 hours per week. Overtime is compensated at 125% of the regular hourly rate and applies to any work beyond 8 hours per day. Night shift work is also paid at 125% of the regular hourly rate.
The minimum legal age for employment in Panama is 14 years, and strict regulations prevent child labor, especially in hazardous industries.
Employers in Panama are required to make payroll deductions for Social Security (CSS), which covers retirement, healthcare, and other social benefits. Employers must also withhold income tax from employees’ salaries, based on a progressive tax system.
The Panamanian income tax rates for 2024 are as follows:
Income Level (PAB) | Tax Rate |
0 – 11,000 | 0% |
11,001 – 50,000 | 15% |
50,001 and above | 25% |
Panamanian law mandates several types of leave for employees:
Paid Vacation: Employees are entitled to 30 days of paid vacation after completing one year of service.
Maternity Leave: 14 weeks, with 6 weeks before and 8 weeks after childbirth.
Paternity Leave: 3 days following the birth of a child.
Sick Leave: Paid sick leave is available, with up to 18 days covered by the employer, and additional days covered by Social Security.
Adoption Leave: Similar to maternity leave, applicable when adopting a child.
Mandated Holidays: Panama observes 11 public holidays each year.
Holiday | Date |
New Year’s Day | January 1 |
Martyrs’ Day | January 9 |
Good Friday | April |
Labor Day | May 1 |
Independence Day | November 3 |
Christmas Day | December 25 |
And others… | Various Dates |
Employers in Panama must provide various benefits, including Social Security contributions, which cover healthcare, pensions, and unemployment insurance. Employees are also entitled to a year-end bonus, known as the “Decimotercer Mes,” equivalent to one-twelfth of their annual salary, paid in three installments throughout the year.
Panama does not follow At-Will Employment laws. Employers must have a valid reason for terminating an employee, such as misconduct, redundancy, or breach of contract.
The termination process usually requires a notice period, typically 30 days, and employees are entitled to severance pay, depending on their tenure and the reason for termination. If an employee is terminated without just cause, they have the right to challenge the dismissal legally, and the employer may be required to pay additional compensation or reinstate the employee.
Employers can legally terminate an employee under specific conditions, including the expiration of a fixed-term contract, mutual agreement, or severe misconduct. However, all terminations must be documented to ensure compliance with Panamanian labor laws.