Employer of Record Guide in 

Panama

Vacation Leave

• Entitlement: 30 calendar days per year after 11 months of continuous service
• Accrual: Earned proportionally throughout the year
• Scheduling: Must be taken within the following year, with employer approval of timing
• Payout: Unused vacation must be paid upon termination

Sick Leave

• Duration: Up to 26 weeks per year for the same illness
• Payment:
  • First 3 days: Employer pays 100%
  • Days 4-18: Social Security pays 70%
  • Days 19+: Social Security pays 60%
• Medical Certificate: Required from day 4 onwards

Maternity Leave

• Duration: 14 weeks total (6 weeks pre-birth, 8 weeks post-birth)
• Payment: 100% of salary paid by Social Security
• Job Protection: Position must be held during leave
• Flexibility: Pre-birth portion can be reduced to 2 weeks if desired

Paternity Leave

• Duration: 15 calendar days
• Payment: 100% of salary paid by Social Security
• Timing: Must be taken within 30 days of birth
• Documentation: Birth certificate required

Special Leave

• Bereavement: 3-5 days depending on relationship to deceased
• Marriage: 5 calendar days
• Medical Appointments: Time off for medical consultations
• Civic Duties: Time for voting, jury duty, military service

Summary

Termination Types

Termination With Cause (Just Cause):

• No severance required
• Must involve serious misconduct defined by Labour Code
• Examples: theft, fraud, repeated absences, insubordination

Termination Without Cause:

• Requires severance payment
• Most common form of employment termination
• Must follow proper notice procedures

Severance Pay Requirements

Severance is calculated based on length of service and reason for termination:

Additional Payments:

• Proportional 13th month bonus
• Unused vacation pay
• Any outstanding commissions or bonuses

Notice Requirements

• With Cause: No notice required
• Without Cause: 30 days' written notice or payment in lieu
• Mass Layoffs: Additional requirements for multiple terminations

Probationary Periods

• Duration: Up to 3 months for most positions
• Termination: Either party can terminate without cause or severance during probation
• Extension: Not permitted beyond 3 months

Final Pay Timeline

All final payments must be made within 30 days of termination, including:

• Final salary
• Severance pay
• Proportional 13th month
• Unused vacation
• Any other accrued benefits

Legal Protections

Employees cannot be terminated for:

• Pregnancy or maternity leave
• Union activities
• Filing labour complaints
• Discrimination based on protected characteristics

National Public Holidays

Panama observes the following national holidays:

Regional Holidays

Some provinces and municipalities observe additional local holidays:

• Panama City: Founding Day variations
• Interior Provinces: Saint patron days
• Indigenous Territories: Cultural celebration days

Holiday Pay Rules

• Eligibility: All employees entitled to holiday pay
• Rate: Regular daily wage
• Work Requirement: If required to work, paid at 1.5× rate plus holiday pay
• Falling on Weekend: Holiday moved to following Monday

Bridge Days

Panama occasionally declares "bridge days" (puentes) to create long weekends when holidays fall on Tuesday or Thursday, connecting them to weekends.

Required Documentation

Employment Contract Must Include:

• Job title and description
• Salary and payment terms
• Working hours and schedule
• Probationary period (if applicable)
• Termination clauses
• Benefits and vacation entitlement

Employee Documentation:

• Valid identification (cedula or passport)
• Social Security registration
• Tax identification number (RUC if applicable)
• Bank account information
• Educational certificates (if required for role)

Work Authorization

• Panamanian Citizens: No restrictions
• Foreign Workers: Must obtain work permit before starting employment
• Permanent Residents: Can work without additional permits
• Temporary Permits: Available for specific industries and skill shortages

Social Security Registration

All employees must be registered with the Social Security Fund (CSS):

• Timeline: Within 3 days of starting work
• Process: Employer submits registration forms
• Documentation: Employee provides required personal information
• Benefits: Immediate coverage for work-related injuries

Tax Registration

• Income Tax: Automatic withholding for employees earning above threshold
• Professional Services: Independent contractors need RUC registration
• Foreign Income: May require additional tax filings

Contract Language

• Official Language: Spanish is required for all employment contracts
• Translation: English versions can be provided but Spanish version governs
• Legal Compliance: Must comply with Panamanian Labour Code provisions

Onboarding Timeline

Worker Classification

Panama distinguishes between employees and independent contractors with specific legal implications:

Employees:

• Subject to Labour Code protections
• Entitled to benefits and social security
• Employer withholds taxes and contributions
• Protected against arbitrary dismissal

Independent Contractors:

• Governed by Civil Code contract law
• Responsible for own taxes and social security
• No employment law protections
• Invoice for services provided

Classification Tests:

• Subordination and control by employer
• Integration into business operations
• Exclusivity of services
• Provision of tools and materials

Note: Misclassification can result in penalties and retroactive employment obligations.

Labour Unions

• Right to Organize: Protected under constitution and labour law
• Union Formation: Minimum 20 workers required
• Collective Bargaining: Common in larger companies and public sector
• Strike Rights: Legal with proper procedures and notice

Cultural Considerations

Business Culture:

• Relationship-building is essential
• Punctuality expected but flexibility understood
• Formal communication preferred initially
• Respect for hierarchy and seniority

Work-Life Balance:

• Family time highly valued
• Long lunch breaks common (12-2 PM)
• Religious holidays widely observed
• Extended vacation periods during school holidays

Free Trade Zones

Panama operates several Free Trade Zones with special employment considerations:

• Modified minimum wages may apply
• Streamlined work permit processes for qualified foreign workers
• Special tax treatments for both employers and employees
• Export-oriented employment regulations

Remote Work Framework

Recent legislation has established guidelines for remote work:

• Written agreements required specifying remote work terms
• Equipment provision responsibilities must be defined
• Health and safety standards apply to home offices
• Right to disconnect protections for employees

What the EOR Handles

Borderless AI manages all compliance requirements including:

• Employment contract drafting in Spanish
• Social Security and tax registrations
• Payroll processing with local contributions
• Holiday and leave administration
• Termination procedures and severance calculations
• Ongoing labour law compliance monitoring