Panama HR Information

Updated on: 2025/08/04 14:03 (UTC)

Overview

Employment in Panama is regulated primarily by the Constitution and the Labor Code (Código de Trabajo).

Hiring

Employment Contracts

Employment contracts must generally be in writing. The employer must retain a copy of the contract, provide one to the employee at the time the contract is signed and provide another to the directorate general of labor or the regional bureau of the Ministry of Labor.

The contract must include the name, nationality, age, sex, marital status, address and identification number of each party and the names of the employee’s dependents. If the employer is a legal entity, the contract must include the name and address of the business, the name of the legal representative and the registration data in the public register. The employment contract also must specify the work the employee is hired to perform, the place of performance, the duration of the contract if it is for a fixed period, the duration of the regular working day, the wages to be paid and the date the agreement is signed.

An employment contract may be for an indefinite period of time, a fixed period of time or for the time necessary to perform a specific task. If the contract is for a fixed period of time, it may not exceed one year unless the worker has special skills, in which case the contract may not exceed three years. If an employee who was hired for a fixed period of time or to perform specific work continues to work for the employer after that period of time or specific work is completed, the employee will be considered to be working under a contract for an indefinite period of time.

For jobs involving special skills or abilities, the written employment contract may include a probationary period of not more than three months.

Restrictions on Hiring

Children under the age of 15 who have not completed their primary education may not be employed with the exception of 12 to 14 year olds who are allowed to perform light work on farms during the hours they are not in school. Youths under the age of 18 are not allowed to work in circumstances that are dangerous to their life, health or morals. Employers must consider the youth’s school day when establishing hours. Those under 16 may work six hours per day, 36 hours per week. Youths age 16 to 18 may work seven hours per day or 42 hours per week.

All but 10 percent of each employer’s workforce must consist of Panamanian citizens, foreign citizens with Panamanian spouses or foreigners who have lived in Panama for at least 10 years. Employers can apply for a permit to extend the exemption to 15 percent if these employees are managers, technical experts or other specialized personnel.

Recordkeeping

Employers must keep a written record for each employee of:

• name,
• age,
• sex,
• nationality,
• salary,
• work schedule,
• hours worked,
• holidays and
• remuneration.

Such records are subject to inspection at any time by the Ministry of Labor.

Employers who use workers under the age of 18 must keep a special record including the names of the employee and the employee’s parents or guardians, the employee’s date of birth and residence, class of work, number of hours worked, schedule, salary receipts and level of instruction received.

Background Checks

An employee or prospective employee must submit to a medical examination if requested by the employer to verify that the employee does not have a contagious disease, use drugs prohibited by law or suffer from a mental disorder that could endanger fellow workers or the employer’s equipment or facilities.

Noncompetition Agreements

There are no specific rules in Panama governing covenants not to compete. Although many employers enter into such agreements, especially with employees in higher level positions, they are generally unenforceable due to the constitutional protection of the freedom of work.

Reference Citations

Employment Contracts: Labor Code, 1971 (as amended), arts. 62-88 (Spanish)

Restrictions on Hiring Labor Code, 1971 (as amended), arts. 17, 117 (Spanish)

Recordkeeping: Labor Code, 1971 (as amended), art. 11 (Spanish)

Background Checks: Labor Code, 1971 (as amended), art. 126 (Spanish)

Immigration and Work Permits

In General

An employer that wishes to hire a foreigner must obtain authorization from the Ministry of Labor, which will entail proving that no qualified Panamanian is available to perform the job. Authorization is for one year and may be renewed for a maximum of six years.

Visas and Work Permits

An employer that wishes to hire a foreigner must obtain authorization from the Ministry of Labor, which will entail proving that no qualified Panamanian is available to perform the job.

All work permit applicants must visit the Ministry of Labor in person for biometric registration before submitting any initial or renewal work permit application. The registration system includes a scan of the applicant’s fingerprints and passport, and a photograph.

All but 10 percent of each employer’s workforce must consist of Panamanian citizens, foreign citizens with Panamanian spouses or foreigners who have lived in Panama for at least 10 years. Employers can apply for a permit to extend the exemption to 15 percent if these employees are managers, technical experts or other specialized personnel.

Foreign workers in multinational companies may apply for permanent residence after five years of temporary residence while continuing to work for the same company in Panama.

On May 20, 2021, Panama introduced a new visa for foreigners seeking to work remotely in Panama for a company that does not have operations in the country. Applicants for the visa must be able to provide:

• proof of income from a foreign source of more than US$3,000 per month (or US$4,000 per month per family);
• proof of health insurance;
• a letter from the foreign employer located abroad; and
• an affidavit of nonacceptance of a job offer or agreement to provide services in Panama.

Reference Citations

Visas and Work Permits: Labor Code, 1971 (as amended), art. 17 (Spanish)

Nondiscrimination

In General

The constitution guarantees equal pay for equal work under identical conditions and specifically bars discrimination in pay on the basis of sex, nationality, age, race, social class, or political or religious ideas.

Employers must implement an in-house procedure to process and resolve complaints lodged by employees regarding sexual harassment, bullying, and racism. Employers also must devise a confidential process for investigating complaints. Complaints must be resolved within three months and conclude with a final written report that explains the results of the investigation.

Employers who violate the law can be subject to fines and sued by employees for failing to conduct an effective investigation or remedying the conduct once it has been reported.

The Labor Code prohibits all employers and employees from engaging in acts of sexual harassment. Employers are required to establish a fair, reliable and practical method of investigating complaints of sexual harassment and imposing appropriate penalties. Sexual harassment by an employer constitutes a criminal act, although according to the U.S. Department of State, only a small number of such cases are filed with the courts, and convictions for sexual harassment are rare.

The labor code prohibits discrimination against employees with HIV or a sexually transmitted disease. Such employees cannot be terminated unless for cause and with prior authorization from the Ministry of Labor.

Reference Citations

Nondiscrimination: Labor Code, 1971 (as amended), art. 128 (Spanish); Constitution of Panama, 1972 (as amended), art. 19; Law No. 7 of 2018, arts. 2-6 (Spanish); Law No. 40 of 2018, (Spanish)

Employee Privacy

Employee Data

The Panamanian criminal code prohibits the disclosure of personal information without consent.

Employee Monitoring and Surveillance

Video or electronic monitoring of employees is not addressed in Panama’s labor laws.

Reference Citations

Employee Data: Panamian Criminal Code

Compensation

Hours of Work

The constitution and the Labor Code establish a maximum workday of eight hours and a maximum workweek of 48 hours. For workers under the age of 16, the maximum workday is six hours; for workers ages 16 to 18, the maximum workday is seven hours.

Workers are entitled to a daily rest break of at least 30 minutes and a maximum of two hours.

Workers are entitled to one day of rest per week, generally on Sunday. The weekly rest period must be at least 24 hours.

Night work is defined as work performed between 6 p.m. and 6 a.m. A shift that includes more than three hours during this period is considered night work. Employees who work the night shift are limited to seven hours’ work per shift and 42 hours per week. Payment for a full seven-hour night shift must be equal to the pay for eight hours of day work. Women who are pregnant may not be required to work at night.

For workers under the age of 16, the weekly limit is 36 night work hours; for workers ages 16 to 18, the weekly limit is 42 hours.

Minimum Wage

In Panama, minimum wages vary based on region and occupation. The Ministry of Labor and Job Development separates Panama’s territory into two regions with regard to minimum wage enforcement. Region 1 consists of districts specified by the ministry and Region 2 consists of the rest of Panama’s territory. Industry-specific minimum wages for Region 1 typically are higher than those of Region 2.

The current hourly minimum wage varies from 1.55 balboas to 4.67 balboas, depending on region and occupation. Minimum wages are adjusted at least once every two years by executive decree following recommendations by a national minimum wage commission with representatives of the government, workers and employers.

Wages may be set by a collective bargaining agreement at a higher rate than the minimum wage.

Overtime

The constitution provides an entitlement to overtime pay, and the Labor Code establishes a premium of 25 percent for overtime work performed between 6 a.m. and 6 p.m. and 50 percent for work performed between 6 p.m. and 6 a.m.

Employees who work on a Sunday or on their weekly day of rest are entitled to an overtime premium of 50 percent plus a day off to replace the day worked. Work on a holiday or a day of national mourning qualifies the worker for a 150 percent overtime premium.

Overtime is limited to three hours per day and nine hours per week.

Pregnant women, workers in dangerous or unhealthy professions and workers under the age of 16 may not work overtime. Workers ages 16 to 18 may not work on Sundays or public holidays.

Wage Payment

Wages must be paid at least twice a month in legal tender unless payment by check is arranged in a collective agreement. Office workers may be paid by check if it is possible for the worker to cash the check within working hours. Payment in goods, vouchers, tokens or coupons is prohibited. Deductions are limited by law.

Permitted deductions include:

• income tax,
• the employee’s share of social insurance,
• repayment of debts to the employer,
• rent (up to 30 percent of salary),
• dues,
• alimony decreed by a court,
• repayment for articles bought on credit from the company (up to 10 percent of salary) and
• repayment of bank loans (up to 20 percent of salary).

Total deductions may not exceed half the employee’s pay.

Mandatory Bonuses

Employees are entitled to an annual bonus, also known as a 13th month bonus, equal to one month’s salary. The annual bonus is paid in three equal installments on April 15, Aug. 15 and Dec. 15.

Reference Citations

Hours of Work: Labor Code, 1971 (as amended), arts. 30-34 (Spanish)

Overtime: Labor Code, 1971 (as amended), art. 36 (Spanish)

Wage Payment: Labor Code, 1971 (as amended), arts. 151, 161 (Spanish)

Benefits

Vacation

Panamanian employees are entitled to 30 days of paid annual leave for every 11 months of continuous work. Payment for annual leave must be made at least three days before the leave begins. Annual leave must be taken in no more than two equal installments and without undue delay after being earned. Employers may not offer compensation in lieu of annual leave.

If an employee is hospitalized by accident or illness while on vacation, that time is considered sick leave, and the vacation is extended.

Holidays

Workers in Panama are entitled to the following 10 paid holidays:

• Jan. 1: New Year’s Day
• Jan. 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

The inauguration day of a new president is also a paid holiday, and each district and municipality has local public holidays for either its patron saints or the anniversary of its founding.

When a holiday falls on a Sunday, it is observed on the following Monday.

Employees required to work on a public holiday must be compensated at the rate of 150 percent of regular salary.

Maternity Leave

Pregnant employees are entitled to 14 weeks of paid maternity leave beginning six weeks prior to the expected due date and continuing for eight weeks after the birth. If illness results from pregnancy or childbirth, the term of maternity leave may be extended as necessary. If the birth occurs later than the expected due date, the eight weeks of paid postnatal leave run from the actual date of the birth. In the case of a stillbirth or miscarriage, the paid maternity leave is determined according to her doctor’s medical certification of the mother’s health.

If the pregnant employee has made at least nine months of contributions to social security in the 12 months prior to the seventh month of pregnancy, maternity benefits will be paid by social security. Where social security is not required to pay maternity leave benefits because the employee lacks the necessary contributions, the employer bears the entire cost of the maternity leave.

When the employee returns to work, she is entitled to a paid 15-minute break every three hours for breast-feeding or, if she prefers, a half-hour break twice a day. Employers are required to have, at minimum, adequate seating facilities for nursing mothers to feed their babies; employers with more than 20 female employees in one workplace must provide a nursery.

Paternity Leave

Working fathers are entitled to three business days of paid paternity leave, provided they give their employer:

• at least one week of notice of their spouse’s or cohabitant’s due date, and
• a birth certificate issued by the National Directorate of the Civil Registry certifying him as the father of the child.

The employee may not work for any other employer or be self-employed during his leave.

Sick Leave

Employees are entitled to 18 days of paid sick leave annually. The entitlement is doubled for employees with disabilities.

Employees with HIV or a sexually transmitted disease are entitled to up to 144 hours of leave per year based on their medical condition.

Other Leave

Child care leave. Workers are entitled to paid leave—with advance notification and subsequent verification—for medical appointments for their children under the age of 2.

Adoption leave. Mothers who adopt are entitled to four weeks’ adoption leave; fathers who adopt may take two weeks off that will be deducted from annual leave.

Pensions and Social Security

Social security—funded by contributions from employers, employees and the government—provides old age, disability, survivors’, illness and maternity benefits.

Old Age Benefits. Panama introduced a system of individual accounts in 2008 as a supplement to the social insurance system. The calculation of benefits varies, depending on whether the payments are being made from the social insurance fund or from an individual account. The mixed system is mandatory for those who have entered the labor force since the beginning of 2008 and for self-employed individuals who were younger than 35 on Jan. 1, 2008.

Men at age 62 and women at age 57 who have contributed for at least 20 years (10 to 15 years for seasonal workers in the agriculture and construction sectors) qualify for payments from the social insurance system and/or an individual account. Under the social insurance system, a full pension is calculated in the amount of 60 percent of the employee’s average wages in the best 10 years of earnings. The amount increases by 1.25 percent for every year of contributions in excess 20 years.

Men at age 60 and women at age 55 with at least 180 months of contributions may retire early and receive a reduced pension.

If a retiree chooses to defer receipt of old age benefits, the amount ultimately paid by the social insurance system increases by 2 percent for each year of deferral after retirement age.

Retirees who have not accrued enough contributions to qualify for an old age pension are entitled to a lump sum old age settlement in the amount of one month’s pension for each six months of contributions under the social insurance system. Such retirees are paid a lump sum from their individual account equal to the accumulated capital and interest.

A 2010 law created a “special economic assistance program for older adults,” those at least 70 years of age, who lack retirement insurance or a pension and live under conditions of “social risk, vulnerability, marginalization and poverty.”

Survivor’s Benefits. When an employee who was entitled to or actually receiving a disability pension dies, a survivors’ pension is paid to the employee’s widow or widower. The spousal survivor benefit is equal to 50 percent of the pension to which the deceased was entitled.

Illness Benefits. Employees who have at least six months of contributions in the most recent nine months are entitled to illness benefits in the amount of 70 percent of the employee’s average earnings in the two months prior to the onset of the illness. Illness benefits are paid after a three-day waiting period for up to 52 weeks for any single illness, but may be extended with the agreement of the Social Insurance Fund.

Panamanian employees and their dependents are entitled to medical care provided by social security or the Ministry of Health. Medical benefits include all general and specialist care, including surgery, hospitalization, laboratory services, medicine, dental care and maternity care.

Workers’ Compensation

Employers are required to obtain workers’ compensation insurance from a public carrier to cover benefits for their employees who suffer work-related injuries, including injuries sustained while commuting. The employer bears the total cost of the insurance premiums. There is no minimum qualifying period for an employee.

An employee who is temporarily disabled as a result of a work-related injury is entitled to 100 percent of average earnings (in the last two months before the disability began) for the first two months and 60 percent thereafter until recovery or certification of permanent disability. An employee who is permanently and totally disabled as a result of a work-related injury is entitled to 60 percent of earnings and all necessary medical care. If the employee is permanently partially disabled, the amount of the workers’ compensation benefit is reduced in proportion to the extent of the disability.

If an employee dies as a result of a work-related injury, the employee’s widow or female partner, disabled or aged widower, children under the age of 18 and disabled children of any age are entitled to a survivors’ pension as well as a lump sum funeral benefit of 300 balboas. The pension paid to the surviving widow, partner or widower is 25 percent of the employee’s earnings, 30 percent if the surviving spouse or partner is the sole beneficiary or is disabled. The pension paid to surviving children depends on the number of children and whether the deceased employee was the sole surviving parent.

Reference Citations

Vacation: Labor Code, 1971 (as amended), arts. 52-54 (Spanish)

Holidays: Labor Code, 1971 (as amended), arts. 45-49 (Spanish)

Maternity Leave: Labor Code, 1971 (as amended), arts. 106-107 (Spanish)

Paternity Leave: Law of May 23, 2017, arts. 1-4 (Spanish)

Sick Leave: Law No. 40 of 2018, (Spanish)

Labor Relations

In General

The constitution grants all employees the right to join a union.

Right to Organize

To form a union, there must be a minimum of 40 employee members. Unions must be registered with the Ministry of Labor to be legally effective.

The constitution and the Labor Code provide for the right to collective bargaining. When a collective bargaining agreement is signed, each party is entitled to receive a copy, and a copy must be forwarded to the Ministry of Labor. A collective bargaining agreement may be in effect for a minimum of two years and a maximum of four years.

Collective bargaining agreements apply to all employees who perform work covered by an agreement, whether or not they are members of the union.

Employers may not require employees to join or not to join a union, may not require employees to withdraw from a union and may not require employees to vote for a particular candidate in a union election. Employees covered by a union may not be terminated except for just cause and with prior approval of the labor courts.

Strikes and Lockouts

The constitution grants all employees the right to strike, but provides that the exercise of this right is subject to regulation and that special restrictions may apply to strikes involving public services.

The Labor Code authorizes strikes only under the following conditions:

• the employees have exhausted all applicable conciliation procedures;
• a majority of the employees in the company has approved the strike in a vote that takes place within 20 days of the completion of the conciliation process;
• the strike is declared to be for the purpose of obtaining better working conditions; obtaining a collective bargaining agreement; enforcing a collective bargaining agreement, settlement agreement or arbitration award against the employer; compelling the employer to comply with other legal obligations; or supporting a strike by other employees working in the same profession in the same district or employed by the same employer; and
• the employees have provided at least five calendar days’ notice of the strike.

If a strike does not comply with the Labor Code or if the strikers engage in acts of violence, the employer may ask a court to declare the strike illegal and require the employees to return to work within 24 hours or face termination.

The duration of a lawful strike constitutes work for purposes of calculation of annual leave, sick leave and all benefits that are based on length of service.

Successorship Clauses

Changes to the legal or financial structure of a company or the replacement of the employer are not allowed to affect working relations to the detriment of employees. Workers and their union representatives must be notified of such changes in writing within 15 days of the change. The old employer and the new employer are jointly liable for contracts made between the date of the transfer and the end of one year; after that, responsibility rests with the new employer.

Reference Citations

Right to Organize: Labor Code, 1971 (as amended), arts. 138, 335 (Spanish)

Dispute Resolution: Labor Code, 1971 (as amended), arts. 475-509 (Spanish)

Strikes and Lockouts: Labor Code, 1971 (as amended), arts. 475-509 (Spanish)

Successorship Clauses: Labor Code, 1971 (as amended), art. 14 (Spanish)

Safety, Health and Security

In General

The employer must adopt appropriate health and safety measures to prevent accidents and illnesses in the workplace.

Workplace Safety and Health

The Labor Code imposes on the employer a duty to adopt appropriate health and safety measures to prevent accidents and illnesses in the workplace and to inform workers of any dangers and of the proper precautions to be taken against them. The employer also must maintain a stock of essential medical supplies to be used in the event of a work-related accident.

Drug and Alcohol Use

The labor code prohibits employees from arriving at work intoxicated or under the influence of drugs.

Reference Citations

Workplace Safety and Health: Labor Code, 1971 (as amended), arts. 282-290 (Spanish)

Drug and Alcohol Use: Labor Code, 1971 (as amended), art. 127 (Spanish)

Termination

Termination by Employer

The Labor Code sets forth a long list of disciplinary and nondisciplinary reasons for termination that constitute just cause. Just cause exists, for example, when the employee:

• makes material misrepresentations about his or her skill level,
• engages in physical or verbal attacks against supervisors or co-workers inside or outside the workplace,
• makes unauthorized disclosures of confidential business information,
• commits inexcusable negligence in the workplace,
• refuses to obey orders,
• engages in excessive absenteeism,
• engages in acts constituting sexual harassment,
• is sentenced to prison,
• is granted a retirement or disability pension by social security or
• has been away from work for more than one year due to a non-work-related illness or injury.

The employer must give the employee prior notice of termination setting forth the act constituting just cause and the date such act occurred.

An employee may seek reinstatement or damages for a termination without just cause. If the employer fails to demonstrate just cause for the termination, the employee is entitled to receive, in addition to severance pay, up to three months’ lost wages plus an additional payment based on years of service.

If an employee who was terminated without cause was employed under a fixed-term contract or a contract to perform a specific task, the employer must pay the employee the wages the employee would have earned under the remainder of the contract.

Pursuant to the Labor Code, the just cause requirement does not apply to termination of any of the following types of employees:

• employees with less than two years of continuous service;
• domestic employees;
• certain agricultural, livestock or manufacturing employees employed by small enterprises;
• workers on ships in international service;
• apprentices and
• workers in retail sales establishments with five or fewer employees, except for insurance and real estate sales.

Although just cause is not required to terminate these types of employees, the employer nonetheless must give 30 days’ notice of termination and pay the applicable amount of severance pay. The notice period begins to run from the pay period after notice of termination is given. Because just cause is not required for termination of these types of employees, such employees are never entitled to compensation for unfair dismissal.

Employers are subject to constraints with respect to terminating the following categories of employees:

• Pregnant women may be terminated only for just cause and only after the employer has obtained prior judicial authorization. Female workers cannot be dismissed for one year following maternity leave unless there is just cause and the employer receives authorization from a labor judge.
• Employers are forbidden from terminating employees because they sought assistance from the authorities to enforce the labor laws.
• Employees represented by a union may not be terminated except for just cause and with prior approval of the labor courts.

Termination by Employee

An employee may resign without just cause by giving the employer 15 days’ notice. If the employee performs technical work, the requisite notice period is extended to two months. An employee who resigns without providing the required notice is required to pay the employer an amount equal to one week’s pay.

If an employee resigns for just cause, the employee may seek compensation for unfair dismissal. The Labor Code sets forth a long list of behavior by the employer that constitutes just cause for resignation. Just cause for resignation exists where, for example, the employer:

• misrepresents working conditions;
• fails to pay the agreed-upon salary;
• unilaterally changes the employee’s working conditions;
• engages in immoral conduct, verbal abuse or physical assault against the employee in the workplace;
• damages the employee’s tools;
• fails to maintain a workplace in compliance with health and safety regulations or commits negligent acts that endanger the employees;
• requires the employee to remain in close contact with a person who suffers from a contagious disease;
• fails to comply with legal or contractual obligations or
• induces the employee to perform an act that is illegal, immoral or contrary to the employee’s political or religious beliefs.

When an employee terminates employment, the employer must provide a certificate stating the employee’s length of service, type of work and salary.

Plant Closings and Mass Layoffs

An employer has grounds for termination of its employees when serious economic difficulties require a cessation of operations or a reduction in force. Supporting evidence must be submitted to the labor administration authorities prior to the dismissal.

When termination is made for economic reasons, employees with the least seniority must be terminated first. In addition, when deciding which employees to retain, preference must be given to Panamanian citizens over noncitizens, union members over nonmembers and employees who are efficient workers over those who are less competent at their jobs. Pregnant women must not be terminated unless absolutely necessary and only as a last resort.

Payment on Termination

When an employment contract of indefinite duration is terminated for any reason, the employee is entitled to severance pay, also known as a seniority premium, in the amount of 3.4 weeks’ wages per year for first 10 years, one week per year for each additional year.

Unemployment Insurance

Panamanian law does not provide for unemployment compensation.

Reference Citations

Termination by Employer: Labor Code, 1971 (as amended), arts. 210-229 (Spanish)

Termination by Employee: Labor Code, 1971 (as amended), art. 223 (Spanish)

Plant Closings and Mass Layoffs: Labor Code, 1971 (as amended), art. 213 (Spanish)

Personal Tax

Residency Requirements

An individual is considered to be a resident if dwelling in Panama for at least 183 days in a tax year.

Taxable Income

Residents and nonresidents are taxed only on Panama-source income. Income subject to tax includes all payments from activities in Panama regardless of the place of receipt and is taxed at progressive rates.

Tax Rates

Income tax rates are levied on a progressive scale, with rates ranging from zero to 25 percent.

Reference Citations

Tax Rates: Fiscal Code of Panama

References

In Spanish.

Law and Regulation

Constitution

Gaceta Oficial Digital

Labor Code