Employer of Record in Panama

An Employer of Record (EOR) is a third-party organization that legally employs workers on behalf of another company. This allows businesses to hire employees in a foreign country without needing to establish their own local legal entity. The EOR takes on the responsibility for all formal employment tasks, including payroll processing, tax withholding and filing, benefits administration, and ensuring compliance with local labor laws and regulations.

For companies looking to expand or hire talent in Panama, navigating the local employment landscape can present complexities. Establishing a legal entity is often time-consuming and costly. An EOR provides a streamlined solution, enabling businesses to quickly and compliantly hire employees in Panama while the EOR manages the administrative and legal burdens associated with being the official employer.

How an EOR Works in Panama

When you partner with an EOR in Panama, your chosen candidate becomes a legal employee of the EOR entity in Panama. You retain full control over the employee's day-to-day work, tasks, and performance management. The EOR handles all the formal employment responsibilities specific to Panamanian law. This includes drafting compliant employment contracts, registering the employee with relevant social security and tax authorities, processing monthly payroll in accordance with local requirements, calculating and remitting taxes and social contributions, and administering mandatory benefits such as vacation, sick leave, and bonuses. The EOR ensures adherence to the Panamanian Labor Code, including regulations around working hours, termination procedures, and employee rights.

Benefits of Using an EOR in Panama

Utilizing an EOR offers significant advantages for companies hiring in Panama without a local presence. The primary benefit is the ability to quickly and legally onboard employees without the need for entity registration, saving substantial time and resources. An EOR mitigates compliance risks by ensuring all employment practices adhere strictly to Panamanian labor laws, which can be complex and subject to change. This protects your company from potential fines, penalties, and legal disputes. Furthermore, an EOR simplifies payroll and HR administration, allowing your internal teams to focus on core business activities rather than navigating foreign regulations. It provides a flexible and cost-effective way to test the Panamanian market or hire specialized talent without long-term commitments associated with establishing a subsidiary.

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.

Panama's recruitment landscape in 2025 is shaped by its strategic location and growing economy, particularly in logistics, finance, tourism, and a developing technology sector. While a diverse talent pool exists, competition is high for specialized skills in IT, engineering, and finance, especially in Panama City. Companies should understand local labor market dynamics, preferred recruitment channels, and salary expectations to attract and retain talent. Effective recruitment strategies are crucial for building a strong local team and achieving business objectives.

Recruiting in Panama requires a mix of online and traditional methods. Online job boards are popular, while professional networking sites are effective for targeting experienced professionals. Recruitment agencies are valuable for specialized or senior-level positions. Employee referrals also leverage existing networks. Challenges include competition for skilled talent, navigating local labor laws, and managing salary expectations. Solutions involve building a strong employer brand, partnering with local experts, and conducting thorough market research on salary benchmarks.

The typical hiring timeline ranges from 4 to 8 weeks. Salary expectations are influenced by industry, experience, and location, with competitive compensation and benefits being essential. Companies should consider partners with experience in the Panamanian market and a strong candidate network.

Panama's territorial tax system taxes income earned within the country, with foreign income generally exempt. Employers must contribute to social security (CSS) at 9.75% of gross salaries, plus occupational risk rates (0.9%-5.7%) and a 1.25% education tax. Employers are also responsible for withholding income tax from employees' salaries, based on progressive rates: 0% up to $11,000, 15% for $11,001–$50,000, and 25% over $50,000.

Employees can deduct social security contributions (8%), educational expenses, mortgage interest, medical expenses, and allowances for dependents to reduce taxable income. Employers must report and pay social security and income tax withholdings monthly (by the 10th of the following month) and file an annual income tax return by March 31. Foreign workers and companies face additional considerations like tax treaties, residency rules, and transfer pricing, requiring professional advice for compliance.

In Panama, employees are entitled to a minimum of 30 days of paid annual vacation leave after eleven months of continuous employment, with the leave to be taken within the following year. Public holidays are observed throughout the year, and employees generally receive paid time off; working on these days often warrants additional compensation. Key public holidays include New Year’s Day, Labor Day, Independence Day, and Christmas, among others.

Employees also have rights to sick leave, maternity, paternity, and adoption leave, with specific durations and benefits. For sick leave, the employer pays for the first three days, after which the Social Security Fund (CSS) covers 60% of the salary. Maternity leave lasts 14 weeks, with benefits provided by CSS, while paternity leave is typically eight days. Additional leave types include bereavement, study, and sabbatical leave, with the latter two often depending on employer policies.

Panama's labor laws mandate core employee benefits including social security contributions, education tax, occupational risk insurance, 30 days of paid annual vacation, paid public holidays, a mandatory thirteenth-month bonus, and severance pay for unjustified dismissals. Employers and employees contribute to the social security system, which covers health, disability, and retirement benefits, with employer contributions typically higher.

Beyond legal requirements, many employers enhance compensation with optional benefits such as private health insurance, life insurance, pension plans, meal and transportation allowances, and wellness programs. Private health insurance is highly valued, especially in high-skilled industries, with costs varying based on coverage and employee factors. Employers often contribute significantly to pension plans, offering both social security and private options, sometimes with tax advantages.

Benefit offerings vary by company size and industry, with larger firms generally providing more comprehensive packages. For example:

Employers should tailor benefits to local expectations and industry standards to attract and retain talent effectively.

Panama's labor laws prioritize worker protection, covering termination, anti-discrimination, working conditions, safety, and dispute resolution. Employers must follow specific procedures for termination: providing written notice and severance pay for dismissals without just cause, with notice periods ranging from none to one month based on employment duration. Severance includes a week's salary per year of service, vacation pay, and a proportional thirteenth month bonus.

Anti-discrimination laws prohibit bias based on race, gender, religion, disability, HIV status, age, and other characteristics, with MITRADEL enforcing these protections. Employers found guilty may face fines and corrective orders. The standard workweek is 48 hours, with overtime paid at 25% above regular rates, and employees are entitled to 30 days of paid vacation and a thirteenth month bonus paid in installments.

Workplace safety regulations require employers to ensure a safe environment, provide PPE, and conduct safety inspections, while employees have rights to refuse dangerous work and report hazards. Dispute resolution is facilitated through internal procedures, mediation by MITRADEL, labor courts, or arbitration, ensuring fair handling of employment conflicts.

Panama's labor laws mandate written employment agreements that specify terms, protecting both parties and ensuring legal compliance. Agreements must follow the Labor Code, covering wages, hours, benefits, and termination procedures, with non-compliance risking penalties. Employers should draft contracts carefully and seek legal advice when needed.

There are several contract types recognized in Panama:

All employment agreements must include essential clauses such as identification, job description, work location, hours, salary, benefits, start date, contract type, termination conditions, and applicable collective agreements. These provisions ensure clarity and legal compliance, reducing disputes.

Panama is emerging as a favorable destination for remote work due to its strategic location, stable economy, and expanding technological infrastructure. The country’s legal framework is adapting to support remote work, emphasizing employees' rights to request flexible arrangements and employers' obligations to ensure safe, resource-equipped work environments. While specific remote work legislation is still developing, existing labor laws require compliance with working hours, benefits, and contractual clarity, which should be formalized through written agreements.

Flexible work options in Panama include remote work, telecommuting, and hybrid models, allowing tailored arrangements for companies. Key legal and practical considerations involve respecting labor code provisions, ensuring employee safety, and establishing clear contractual terms. The country’s growing remote work ecosystem offers opportunities for both local and international employers seeking to leverage Panama’s infrastructure and legal environment.

This environment offers a promising landscape for companies aiming to implement flexible work policies in Panama.

Panama's salary landscape is influenced by its role as a regional trade and finance hub, with significant variation across industries and regions. Salaries in Panama City tend to be higher, with typical annual ranges such as $18,000–$30,000 for accountants and up to $50,000 for software developers. Key roles like Human Resources Managers earn between $35,000–$70,000 annually, while entry-level positions like customer service agents earn around $12,000–$20,000.

Minimum wages are regulated by industry and region, with large companies in Panama City paying $500–$600 per month, and smaller firms around $450–$550. Employers must also provide mandatory bonuses, notably the thirteenth month salary paid in three installments, along with allowances for transportation, meals, and education. Payroll is typically processed bi-weekly or monthly via direct deposit, with deductions for social security, income tax, and education tax.

Terminating an employee in Panama involves strict adherence to labor laws, which differentiate between terminations with and without just cause. For dismissals without just cause, notice periods vary by employment length: none for under 3 months, 1 week for 3-6 months, 2 weeks for 6 months-2 years, and 1 month for over 2 years. Terminations with just cause require no notice but demand thorough investigation and documentation of misconduct such as dishonesty, violence, or repeated unexcused absences.

Severance pay is calculated based on the employee’s salary and tenure, including indemnity for length of service, accrued vacation pay, and proportional 13th-month bonus. For example, an employee with 3 years of service earning $500 weekly would be entitled to approximately $24,000 in severance. Employers must provide written notice, conduct investigations when applicable, and settle all dues on the termination date to ensure compliance.

Employees are protected against wrongful dismissal; claims can lead to reinstatement or compensation. Employers should meticulously document performance issues, follow procedural steps, and seek legal advice to mitigate risks.

Panama offers a favorable environment for freelancing and independent contracting, allowing businesses to access specialized skills without the overhead of traditional employment. Key to successful engagements is understanding the legal, contractual, and tax frameworks. Correct classification of workers is crucial, as misclassification can lead to penalties. Employees are governed by labor law, while contractors fall under civil or commercial law. The distinction is based on factors like control, integration, and financial risk.

Contracts in Panama should clearly define the relationship, scope of work, compensation, and include clauses on confidentiality and intellectual property (IP). IP rights typically remain with the creator unless assigned by contract. Tax obligations for contractors include income tax and potentially ITBMS, with progressive rates applied to income. Contractors must also manage their own insurance needs.

Independent contractors are prevalent in sectors like technology, creative services, consulting, and professional services, offering businesses flexibility and access to niche expertise. Proper contract structures and adherence to local regulations are essential for mitigating risks and ensuring compliance.

Panama provides various visa options for foreign workers, each with specific eligibility criteria and application procedures. Employers play a key role in sponsoring foreign employees, ensuring compliance with immigration laws. Common visa types include short-term (up to 90 days, extendable), professional, investor, pensioner/retiree, and special economic zone visas, tailored to different employment scenarios.

The work permit process requires submitting a formal labor contract, company registration proof, employee credentials, police background check, medical certificate, and valid passport. The employer initiates the application with the Ministry of Labor (MITRADEL), which reviews and approves the permit, typically taking several weeks to months. Fees vary based on permit type.

Foreign nationals working in Panama may qualify for permanent residency after several years of legal residence, with requirements including continuous stay, clean criminal record, and financial proof. The process involves submitting an application to the National Immigration Service.