Labor Law Compliance Guide for Panama

Panama, with a population of around 4.5 million people, boasts one of the most dynamic economies in Central America.

Category	Details
Minimum Wage	B/.350/month Region 1, B/.320/month Region 2 (domestic workers, effective Jan 16 2026). Hourly rates range B/.1.22–B/.2.36 by sector. 1 PAB = 1 USD.
Overtime Wage	125% (day), 150% (night/holidays), 175% (night-shift OT)
Meal Breaks	1 hour
Rest Breaks	15 minutes
Working hours	8 hours/day, 48 hours/week
Salary Payment Cycle	Bi-weekly
Payroll Taxes	Employer: 13.25% CSS + 1.50% educational insurance (14.75% total). Employee: 9.75% CSS + 1.25% educational insurance (11.00% total).
Paid Vacation	30 days
Overtime Hours	Max 3 hours/day, 9 hours/week
Night Shift Hours	150% of the regular hourly rate
Holidays	13 paid public holidays
No Work Days	Sunday

As of 2025, Panama's economy had a nominal GDP of approximately $90.4 billion (IMF), with real GDP growth of around 4.0%. The 2026 growth forecast ranges from 3.8% (ECLAC) to 4.3% (GlobalSource). The economy is driven primarily by the services sector, including banking, logistics, and the Panama Canal, with commerce, construction, and tourism also playing important roles. Growth is recovering from the 2024 slowdown caused by the Cobre Panama mine closure.

The official currency of Panama is the Panamanian Balboa (PAB), which is used alongside the US Dollar (USD).

Hiring Laws

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. Minimum wage rates vary by economic activity (agriculture, manufacturing, construction, retail, hospitality, transport, finance, health, etc.), company size, and region. As of January 16, 2026, hourly rates range from B/.1.22 to B/.2.36 per hour (Executive Decree No. 13, December 31, 2025), representing approximately a 1.34% increase over previous rates. Employers are also required to provide holiday pay for public holidays.

Working Hours

The standard working hours in Panama are 8 hours per day, totaling 48 hours per week. Overtime is limited to 3 hours per day and 9 hours per week. Overtime rates are: 125% for daytime hours (6 AM–6 PM), 150% for nighttime, rest days, and holidays, and 175% for night-shift employees working overtime. Hazardous work has no overtime allowed.

The minimum legal age for employment in Panama is 14 years, and strict regulations prevent child labor, especially in hazardous industries.

Payroll and Taxes

Employers in Panama are required to make payroll deductions for Social Security (CSS), which covers retirement, healthcare, and other social benefits. Following Law No. 462 (March 18, 2025), employer CSS contributions are set to increase gradually: 13.25% through February 2027, 14.25% from March 2027 to February 2029, and 15.25% from March 2029 onward. The current total employer burden (2026) is approximately 14.75% (13.25% CSS + 1.50% educational insurance), while the employee burden is approximately 11.00% (9.75% CSS + 1.25% educational insurance).

Employers must also withhold income tax from employees' salaries, based on a progressive tax system. Panama uses a territorial tax system — only Panama-sourced income is taxed.

The Panamanian income tax rates for 2026 are as follows:

Income Level (PAB)	Tax Rate
0 – 11,000	0%
11,001 – 50,000	15%
50,001 and above	25%

Statutory Leave Policies

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 13 paid public holidays each year.

Holiday	2026 Date
New Year’s Day	January 1
Martyrs’ Day	January 9
Carnival Tuesday	February 17
Ash Wednesday (half-day)	February 18
Good Friday	April 10
Labor Day	May 1
Foundation of Old Panama (Panama City)	August 15
Separation Day (Independence from Colombia)	November 3
National Symbols Day (Flag Day)	November 4
Colon Day	November 5
Cry of Independence (Villa de Los Santos)	November 10
Independence from Spain	November 28
Mother’s Day	December 8
Christmas Day	December 25

Employee Benefits

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.

Employee Termination

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.