Hire in Panama through our Employer of Record (EOR)

An Employer of Record (EOR) is a third-party organization that takes on the legal and administrative responsibilities of employing workers on behalf of another company. This arrangement allows businesses to hire employees in countries where they don't have a legal entity, effectively acting as the official employer for tax, legal, and compliance purposes. EORs handle various aspects of employment, including payroll, benefits administration, tax withholding, and ensuring compliance with local labor laws.

In the context of Panama, an EOR can be particularly useful for international companies looking to expand their operations or hire talent in the country without establishing a local legal entity. This approach can be especially beneficial given Panama's unique position as a bridge between North and South America, its growing economy, and its diverse workforce.

How Does EOR Work?

When a company decides to use an EOR in Panama, the process typically unfolds as follows:

1. The client company identifies a candidate they wish to hire in Panama.
2. The EOR becomes the legal employer of the worker in Panama.
3. The EOR handles all legal and administrative tasks related to employment, including:
   • Drafting and signing employment contracts
   • Processing payroll and ensuring timely payments
   • Managing tax withholdings and social security contributions
   • Providing benefits in compliance with Panamanian labor laws
   • Handling work permits and visas if required
4. The client company maintains day-to-day management of the employee's work and responsibilities.
5. The EOR ensures ongoing compliance with local labor laws and regulations.

Benefits of Using an EOR

Utilizing an EOR in Panama offers several advantages for companies:

1. Rapid Market Entry: Companies can quickly hire employees in Panama without the need to establish a legal entity, saving time and resources.

2. Compliance Assurance: EORs are well-versed in Panamanian labor laws, ensuring that all employment practices adhere to local regulations, reducing legal risks for the client company.

3. Cost-Effective: Setting up a legal entity in Panama can be expensive and time-consuming. Using an EOR eliminates these costs and administrative burdens.

4. Flexibility: Companies can easily scale their operations up or down without the long-term commitments associated with maintaining a local entity.

5. Local Expertise: EORs provide valuable insights into Panamanian business culture, employment practices, and market conditions.

6. Risk Mitigation: By taking on the legal employer responsibilities, EORs help shield client companies from potential employment-related liabilities.

7. Focus on Core Business: With the EOR handling HR and administrative tasks, client companies can concentrate on their primary business activities and strategic goals.

8. Access to Benefits: EORs often have established relationships with local benefits providers, allowing them to offer competitive packages to employees.

9. Currency Management: EORs can handle payments in local currency, simplifying financial operations for the client company.

10. Cultural Bridge: EORs can help navigate cultural differences and communication challenges that may arise when hiring in a new country.

By leveraging an EOR's services, companies can effectively tap into Panama's diverse talent pool and growing economy while minimizing administrative burdens and compliance risks.

Panama's employment landscape is characterized by a young, increasingly educated workforce concentrated in urban areas, particularly in the service sector. The country has made significant strides in improving literacy rates and female labor force participation, although challenges persist in terms of skills mismatches and informal employment. With a growing emphasis on sectors like finance, logistics, and tourism, Panama's job market reflects its position as a regional hub for trade and services.

Overview of Labor Laws

Panama's labor laws are designed to protect workers' rights while promoting economic growth. Key aspects include:

• A standard 48-hour workweek with overtime regulations
• Mandatory annual leave and public holidays
• Social security contributions for both employers and employees
• Protections against unfair dismissal and discrimination
• Regulations on minimum wage, which varies by region and sector

Employers must be aware of these laws to ensure compliance and maintain positive employee relations.

Cultural Considerations

Understanding Panamanian work culture is crucial for successful employment relationships:

• Personal relationships are highly valued in the workplace
• Communication tends to be indirect, with an emphasis on maintaining harmony
• There's a more relaxed attitude towards time and deadlines in some contexts
• Respect for hierarchy and authority is important in organizational structures
• Networking and personal connections play a significant role in business dealings

Adapting to these cultural norms can greatly enhance workplace productivity and employee satisfaction.

Challenges of Direct Hiring

Direct hiring in Panama can present several challenges for foreign companies:

1. Navigating complex labor laws and regulations
2. Understanding and adapting to local cultural norms and expectations
3. Managing payroll and benefits in compliance with Panamanian law
4. Dealing with language barriers, especially outside major urban centers
5. Addressing skills mismatches and finding qualified candidates for specialized roles
6. Establishing a legal entity in Panama, which can be time-consuming and costly

These challenges underscore the potential benefits of partnering with an Employer of Record service, which can help navigate the complexities of hiring and managing employees in Panama while ensuring compliance with local laws and customs.

Panama's payroll and tax system is a crucial aspect of employment relationships in the country. Both employers and employees have specific responsibilities and contributions to make, ensuring compliance with local regulations and supporting the nation's social welfare programs. Let's delve into the intricacies of payroll and taxes in Panama, exploring the obligations for both employers and employees.

Employer Contributions

Employers in Panama are required to make several contributions to support their employees and comply with local regulations. These contributions play a vital role in funding social programs and ensuring worker protection.

Social Security Contributions

Employers must contribute 12.5% of an employee's gross salary to the Caja de Seguro Social (CSS). This mandatory contribution helps fund Panama's social security system, providing various benefits to workers, including healthcare and retirement pensions.

Educational Insurance Tax

To support the country's educational initiatives, employers are obligated to pay 1.5% of their employees' gross salaries as an Educational Insurance Tax. This contribution is managed by the Ministry of Education (MEDUCA) and helps improve the quality of education in Panama.

Income Tax Withholding

While not a direct contribution, employers are responsible for withholding income tax from their employees' salaries. The rates are progressive and based on the employee's income level. Employers must use the most recent tax tables provided by the Dirección General de Ingresos (DGI) to calculate the correct withholding amount.

Occupational Risk Insurance

For industries with occupational hazards, employers must pay for Occupational Risk Insurance. The rates vary depending on the industry and associated risk levels, as determined by the CSS. This insurance helps protect employees in case of work-related accidents or illnesses.

13th Month Bonus

Employers in Panama are required to pay a 13th Month Bonus, which is subject to income tax and social security contributions. This bonus is typically paid in three installments throughout the year and is an important part of the overall compensation package for employees.

Employee Contributions

Employees in Panama also have financial obligations in the form of tax deductions from their salaries. These contributions help fund social programs and support the country's tax system.

Social Security Contributions

Employees are required to contribute 7.25% of their gross salary to the CSS. This deduction is automatically withheld from their paycheck by the employer and helps fund various social security benefits, including healthcare and pensions.

Income Tax

Panama employs a progressive income tax system, where higher earners pay a larger percentage of their income in taxes. The specific rates and tax brackets are determined by the DGI and may change periodically. Employers are responsible for withholding the appropriate amount of income tax from their employees' salaries based on the official tax tables.

13th Month Bonus Considerations

It's important to note that the 13th Month Bonus is subject to both income tax and social security deductions, similar to regular salary. Employees should be aware that these deductions will apply to this additional compensation.

Understanding the payroll and tax system in Panama is crucial for both employers and employees. By fulfilling their respective obligations, they contribute to the country's social welfare programs and ensure compliance with local regulations. Employers must stay informed about any changes in tax rates or contribution requirements to maintain accurate payroll processing and reporting.

Panama offers a robust set of employee benefits, combining mandatory provisions with optional perks to create attractive compensation packages. As an Employer of Record (EOR), Rivermate expertly manages these benefits, ensuring compliance with local labor laws while helping companies provide competitive offerings to their workforce. By partnering with an EOR, businesses can navigate the complexities of Panama's benefit landscape with ease, focusing on their core operations while leaving the intricacies of benefit administration to the experts.

Mandatory Benefits

Panama's labor laws mandate a comprehensive set of benefits that employers must provide to their employees:

• Annual Leave: 30 days of paid leave after one year of service
• Public Holidays: 14 paid public holidays annually
• Sick Leave: 18 days per year, with employers covering the first 3 days
• Maternity Leave: 14 weeks, starting 6 weeks before and ending 8 weeks after childbirth
• Paternity Leave: 1 week of paid leave for fathers
• Social Security: Contributions to the Social Security System (CSS) for medical coverage, worker's compensation, and disability benefits
• Overtime Pay: Additional compensation for work beyond the standard 48-hour workweek
• 13th Month Pay: A bonus equivalent to one month's salary paid in December

Optional Benefits

To attract and retain top talent, many companies in Panama offer additional benefits beyond the mandatory requirements:

• Performance-based Bonuses: Incentives tied to individual or company performance
• Commuting Expenses: Reimbursement or allowances for transportation costs
• Housing Allowances: Financial support for housing, especially for expatriate employees
• Company Cars or Transportation: Provision of vehicles or transportation stipends
• Company Equipment: Laptops, phones, and other work-related tools
• Flexible Work Arrangements: Options for remote work or compressed workweeks
• Wellness Programs: Gym memberships, health screenings, or access to wellness resources
• Educational Allowances: Support for professional development and continuing education
• Additional Insurance: Private health or dental insurance plans beyond the CSS coverage

By offering a mix of mandatory and optional benefits, employers in Panama can create compelling compensation packages that support employee well-being and job satisfaction. As an EOR, Rivermate ensures that companies can efficiently manage these benefits while maintaining compliance with local regulations.

The process of termination and offboarding in Panama is governed by specific regulations that protect both employers and employees. Understanding these rules is crucial for companies operating in the country to ensure compliance and maintain positive relationships with their workforce.

Termination Process in Panama

In Panama, the termination of employment contracts is regulated by the Panamanian Labor Code. This code outlines the legal grounds for dismissal, notice requirements, and severance pay entitlements.

Lawful Grounds for Dismissal

Employers in Panama can terminate employment contracts under specific circumstances:

1. For Cause: Employers can dismiss employees immediately for serious misconduct, poor performance, or breaches of the employment contract. Examples include gross negligence, repeated absenteeism, and revealing trade secrets.

2. Economic or Structural Reasons: Employers may terminate contracts due to economic necessity, technological changes, or restructuring. However, they must obtain prior authorization from the Ministry of Labor and demonstrate genuine economic grounds.

Notice Requirements

Notice periods in Panama vary depending on the grounds for termination:

• Dismissal for cause typically doesn't require prior notice.
• For economic reasons, employers must present their justification to the Ministry of Labor in advance.
• Employees resigning must provide notice according to their contract and tenure, with 15 days being a common practice.

Severance Pay

Panama has a specific severance pay scheme based on the reason for termination and employment tenure:

• Employees dismissed for economic reasons are entitled to severance pay based on their tenure.
• Unjustified dismissals result in severance pay and notice period compensation.
• Resignations generally don't require severance pay, but employees are entitled to accrued vacation pay and yearly bonuses.

Offboarding Process

The offboarding process in Panama should include the following steps:

1. Provide written notice of termination, clearly stating the reasons for dismissal.
2. Calculate and prepare final payments, including severance pay if applicable.
3. Return company property and revoke access to systems and facilities.
4. Conduct an exit interview to gather feedback and ensure a smooth transition.
5. Update internal records and inform relevant departments about the employee's departure.

By following these guidelines, companies can ensure a compliant and professional approach to termination and offboarding in Panama, minimizing legal risks and maintaining a positive employer brand.

Panama, with its strategic location and growing economy, attracts many foreign workers seeking new opportunities. However, navigating the visa and work permit requirements can be complex. Here's a concise overview of what foreign workers need to know:

Visa Requirements

Foreign workers typically need to obtain a visa before entering Panama. The most common types for employment purposes are:

1. Business Visa: For short-term business activities, valid for up to 90 days.
2. Work Visa: Required for those intending to work in Panama long-term.

Work Permit Process

To work legally in Panama, foreign nationals must obtain a work permit. The process involves:

1. Securing a job offer from a Panamanian employer
2. Applying for a work permit through the Ministry of Labor
3. Obtaining a temporary residency permit

Key Considerations

• Quota System: Panama enforces a quota system limiting the number of foreign workers a company can employ.
• Professional Licenses: Some professions require additional licensing or certification.
• Processing Time: The entire process can take several months, so planning ahead is crucial.

Employer of Record Solution

For companies looking to hire in Panama without establishing a local entity, partnering with an Employer of Record (EOR) like Rivermate can simplify the process. An EOR handles visa applications, work permits, and ensures compliance with local labor laws.

By understanding these requirements and considering available solutions, foreign workers and companies can navigate Panama's employment landscape more effectively.