Employer of Record in Panama

An Employer of Record (EOR) in Panama legally employs your workers in that country. This means the EOR handles all the local HR tasks. Think of them as your legal, on-the-ground employer for your team members. They manage payroll, taxes, benefits, and compliance with Panama's labor laws. This lets you hire talent in Panama without setting up a local entity yourself. For a practical example of how this works, you can look at services like Rivermate.

How an Employer of Record (EOR) Works in Panama

Using an EOR in Panama simplifies your expansion. Here is how it usually works:

1. You Find the Talent: You recruit and select the person you want to hire in Panama.
2. The EOR Hires Them: The EOR legally hires the employee on your behalf under a local employment contract.
3. Onboarding: The EOR manages the entire onboarding process. This includes drafting a compliant employment agreement and collecting necessary documents.
4. Day-to-Day Work: Your new team member works for you, following your company's direction and projects.
5. HR and Payroll: The EOR handles all administrative tasks. This includes running payroll, withholding taxes, and managing benefits according to Panamanian law.
6. Compliance: The EOR ensures you stay compliant with Panama's ever-changing labor regulations.

Why use an Employer of Record in Panama

An EOR helps you enter the Panamanian market quickly and safely. It removes the legal and administrative burdens of international hiring. This lets you focus on growing your business and managing your team.

Here are some key benefits:

• Avoids Entity Setup: You can hire in Panama without the time and expense of establishing a legal entity there.
• Ensures Legal Compliance: EORs are experts in Panamanian labor law. They make sure your hiring practices are fully compliant with local regulations, which you can find on the Ministry of Labor and Labor Development's website (https://www.mitradel.gob.pa/).
• Manages Payroll and Taxes: The EOR handles all payroll calculations, tax withholdings, and payments. This includes social security contributions to Panama's Social Security Fund (https://w3.css.gob.pa/).
• Provides Local Benefits: An EOR can offer your employees competitive local benefits packages. This helps you attract and retain top talent.
• Reduces Risk: You minimize legal risks associated with international employment. The EOR takes on the responsibility of a legal employer.

Rivermate's transparent pricing model eliminates complexity with a single, competitive monthly fee per employee. Unlike traditional PEO providers, our pricing in Panama includes comprehensive HR support, benefits administration, compliance management, and access to our proprietary dashboard for real-time workforce analytics. No hidden costs, no setup fees—just straightforward pricing that scales with your business needs while ensuring full legal compliance in Panama.

Hiring in Panama can be a smart move. The country's dollarized economy provides stability, and you'll find a professional, bilingual workforce, especially in sectors like finance, IT, and logistics. Panama's location and the Panama Canal make it a hub for operations and logistics. While there's a strong talent pool, it's important to understand the local labor laws to ensure a smooth hiring process.

Employment contracts & must-have clauses

In Panama, you should provide a written employment contract. All contracts must be in triplicate: one copy for you, one for the employee, and one for the Ministry of Labor.

There are three main types of employment contracts:

• Indefinite-term: This is the standard and most common type of contract.
• Fixed-term: These contracts have a specific end date and cannot exceed one year.
• Specific project: This type of contract ends when a particular project is completed.

Your employment contracts must include the following clauses:

• Full legal names and addresses of both parties.
• A clear description of the job and responsibilities.
• Work location.
• Working hours.
• Salary and payment details.
• Contract duration.

Probation periods

You can include a probationary period in an employment contract, which is typically up to three months. This period must be stated in the written contract. During the probation period, either you or the employee can end the employment relationship without cause or severance pay liability.

Working hours & overtime

The standard workweek in Panama is 48 hours, with a standard workday of 8 hours. Anything beyond these hours is considered overtime.

Here’s how overtime pay works:

The maximum amount of overtime an employee can work is three hours a day and nine hours a week.

Public & regional holidays

Employees in Panama are entitled to paid time off for public holidays. If an employee works on a public holiday, they must be paid overtime. Here are the public holidays in Panama:

Hiring contractors in Panama

Hiring independent contractors in Panama can offer flexibility. However, it's crucial to classify workers correctly. Misclassifying an employee as an independent contractor can lead to significant penalties, including fines and back taxes.

Under Panamanian law, a worker may be considered an employee if they are economically dependent on your company or if you control their work, such as setting their hours. To avoid misclassification, it is highly recommended to have a written service agreement that clearly defines the scope of work, payment terms, and the contractor's autonomy.

An Employer of Record (EOR) can help you mitigate these risks. An EOR legally employs workers on your behalf, ensuring compliance with local labor laws. This allows you to work with talent in Panama without the need to establish a local entity and navigate complex employment regulations.

In Panama, handling compensation and payroll means navigating a system with specific rules. You need to understand the local laws for paying your team correctly and on time. This includes everything from how often you pay them to the taxes you withhold. A key feature is the "thirteenth month" salary, a mandatory bonus paid in three installments throughout the year.

Payroll cycles & wage structure

You should pay your employees monthly, and it's common to process payments on the last business day of the month. All payments must be in U.S. dollars or Panamanian balboas.

A unique part of Panama's wage structure is the mandatory 13th-month bonus. This is equal to one month's salary and you pay it to employees in three equal installments on April 15, August 15, and December 15.

Overtime & minimums

The standard work week in Panama is 48 hours, with a maximum of eight hours per day. Anything beyond these hours is overtime. You must compensate overtime at higher rates, which vary depending on when the hours are worked.

Panama's minimum wage is not a single national rate. It changes based on the region and the industry. This means you need to know the specific minimum wage for your business location and sector to ensure you comply.

Employer taxes and contributions

As an employer in Panama, you are responsible for several payroll contributions. These are calculated based on your employee's gross salary.

Employee taxes and deductions

You must withhold taxes and contributions from your employees' paychecks. These deductions are a percentage of their gross salary.

In addition to these, you also withhold income tax. Panama uses a progressive income tax system with the following brackets:

In Panama, your approach to employee benefits and leave is a mix of legal requirements and competitive extras. The labor laws set a clear foundation for what you must provide. To attract top talent, you will likely offer more than the basics. Think of the mandatory benefits as your starting point.

Statutory leave

Panamanian law outlines several types of required leave for employees.

• Annual leave: Employees get 30 days of paid vacation after every 11 months of continuous work.
• Sick leave: Employees are entitled to 18 days of paid sick leave per year. Your company pays for the first few days, and then the Social Security system covers a percentage of the salary for an extended period.
• Maternity leave: New mothers receive 14 weeks of paid maternity leave. This is typically split into six weeks before the birth and eight weeks after. Panama's Social Security Fund generally covers the pay during this time.

Public holidays & regional holidays

Your team in Panama gets paid time off for national holidays. If an employee works on a holiday, you must pay them at a higher rate. Keep in mind that some holidays may be moved to the following Monday if they fall on a Sunday. There are also regional holidays that apply to specific provinces or cities, so be sure to check local calendars.

Typical supplemental benefits

To build a competitive benefits package, you'll want to offer more than the legal minimum. Here’s a look at what is required by law versus what you might add to attract and keep great employees.

How an EOR can help with setting up benefits

Setting up a benefits plan in a new country can be complex. An Employer of Record (EOR) simplifies this process for you. An EOR acts as the legal employer for your team in Panama, handling all the administrative tasks that come with hiring.

Here’s how an EOR can help:

• Ensure compliance: An EOR guarantees that your benefits package meets all of Panama's labor laws and regulations.
• Manage administration: They handle the day-to-day tasks of benefits management, from enrolling employees in social security to managing payroll deductions.
• Offer competitive packages: EORs have local market knowledge. They can help you create a benefits plan that is attractive to top talent in Panama.
• Save you time: By outsourcing these HR functions, you can focus on your core business operations instead of navigating local laws and paperwork.

Navigating an employee exit in Panama requires a clear understanding of the local labor laws. The process is not just about saying goodbye. You need to follow specific rules to ensure you are compliant. This involves providing proper notice, calculating final pay correctly, and handling all the necessary paperwork. Getting it wrong can lead to legal problems and extra costs.

Notice periods

When you end an employment contract without a legally recognized just cause, you must provide the employee with a notice period. This gives them time to find new work. The length of this notice depends on how long the employee has worked for you.

Here is a simple breakdown of the minimum notice you need to give:

• Less than 3 months of service: No notice required
• 3 months to less than 1 year of service: 2 weeks
• 1 year to less than 2 years of service: 1 month
• 2 or more years of service: 2 months

You can choose to pay the employee their salary for the notice period instead of having them work. This is often called payment in lieu of notice.

Severance pay

In Panama, severance pay is a key part of the final settlement for an employee terminated without just cause. It consists of two main parts.

• Seniority Bonus ("Antigüedad"): This is calculated as one week's salary for every year of service.
• Seniority Premium ("Prima de Antigüedad"): This is an additional payment. It is calculated at a rate of one week's salary for each year of service.

Along with severance, the final payment to the employee must include any earned salary, payment for unused vacation days, and a proportion of their thirteenth-month bonus.

How Rivermate handles compliant exits

Managing employee terminations in Panama can be complex. You need to follow a strict process to stay compliant. This is how we help you navigate every step.

We make sure you have all the correct documentation. This includes preparing a clear, written notice of termination. If you are terminating for just cause, the letter will state the specific reasons, referencing the correct articles of the Labor Code.

We handle all the necessary calculations for the final settlement. This ensures your employee receives the correct amount for:

• Salary up to the final day
• Payment in lieu of notice, if you choose that option
• Accrued vacation time
• Pro-rata thirteenth month bonus
• Full severance pay entitlements

We also manage the required notifications. For certain types of terminations, you must inform the Ministry of Labor. We take care of these procedural requirements for you. By managing the entire process, we help you avoid the risks of wrongful dismissal claims and ensure a smooth, compliant exit for your employee.

Getting the right visas and work permits in Panama is straightforward when you understand the process. All foreign nationals need a valid work visa to be employed in Panama. Before you can even apply for a work permit, you need to secure a residence visa. Think of it as a two-step process: first, the right to live there, then the right to work there. The employer is responsible for getting the work permit for their employees. The whole process usually takes one to three months.

Employment visas & sponsorship realities

An Employer of Record (EOR) can sponsor work visas in Panama, but there are some practical things to know. An EOR must be a legally registered entity in the country to sponsor employees. This is a key advantage if you don't have your own local entity.

However, there are limitations. Panama has a rule that only 10% of a company's workforce can be foreign nationals. This applies to EORs as well. This means that an EOR's ability to sponsor new work permits depends on its existing ratio of local to foreign employees.

Here are the most common and practical routes for employment visas:

• Friendly Nations Visa: This is a popular option for citizens of over 50 countries, including the U.S. It provides a path to permanent residency. To qualify, you generally need to show economic or professional ties to Panama.
• Professional Foreigner Visa: This visa is for highly qualified professionals with university degrees. It's initially granted for two years and can be renewed.
• Digital Nomad Visa: If you work remotely for a foreign company, Panama offers a Short-Stay Visa for Remote Workers. This allows you to live and work in Panama for up to 18 months.

Business travel compliance

For short-term business trips, you don't need a work permit. Panama allows temporary entry for certain business activities. These visits are typically for up to 90 days, and for U.S. citizens, this can be extended to 180 days.

You can enter Panama as a business visitor to:

• Attend meetings and negotiate contracts.
• Consult with a local branch, subsidiary, or parent company.
• Buy goods or services for a foreign company.
• Sell goods to businesses, but not to the general public.

It's important to be clear about the purpose of your visit. You are not allowed to engage in actual employment or receive a salary from a Panamanian source on a tourist or business visitor visa.