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Panama Labor Laws – Part I

What to know before you hire

By: Staff at Panama Offshore Legal Services / E-Mail: info@pos-inc.com || Phone (507) 227–6645

It is always recommendable to hire a competent labor law lawyer before starting a a new business in
Panama. However while numerous foreigners have started companies in Panama, many do not know
the labor laws. Here are the basics you need to know before hiring people to work for your business.

An employee can be hired lated with either an oral or written employment contract. Written contracts
lock down all of the duties, responsibilities, and payments. Oral contracts can be disputed and the
Panama government usually takes the side of the Panamanian employees in disputes, unless the
employer can successfully prove otherwise.
Defining “employment”

The term “employment” is defined by whether or not a person is subordinate or economically


dependent upon another person. Independent contracts occur when an individual or company are hired
to work without subordination. That means no required work days or hours or supervision by the
payer.

Employers can hire workers for unspecified or limited time periods or for a specific project. Normally,
specified time contracts cannot be for more than one year. However, special skilled workers can be
contracted for a maximum of three years. Many workers are hired for a three month trial period
because the law provides greater rights against being fired for no cause after they have been employed
for more than three months. During this three month probation period the employer can fire the
employee for any reason.
Wages are low in Panama

The government sets the minimum wage for specific types of jobs based on geographical location.
Most unskilled workers earn a minimum hourly wage around two dollars or less. Most workers are
paid on the 15th and 30th day of every month although they can be paid weekly or if solely working
on a project at the end of the project.
Upcoming articles

The next two editions of The Visitor will contain more information on employing in Panama.
Part II: Employee rights, social security, female employees
Part III: Firing employees
Working hours

The law specifies that day time works occurs between 6 a.m. until 6 p.m. and night work occurs from
6:00 p.m. to 6:00 a.m. constituting the day and night shifts. A mixed shift is allowed, but when the
work occurs for more than three hours in the night the entire period is classified as a night shift. This is
important because night shift employees earn more money.

Eight hours is the maximum for the day shift with a work week maximum of 48 hours. Seven hours is
the maximum for the night shift with 42 hours maximum for the night shift. A mixed shift incurs a
maximum of 7 and a half hour per shift and a maximum of 45 hours per week.
When work becomes overtime

Overtime occurs when an employee works longer hours per shift or week than stated above. Overtime
pays 25% of the usual wages for day shifts and 50% of the usual wages for the night shift or mixed
shift beginning in the day but going into the night. Overtime will pay an extra 75% of the usual wages
when the night shift is extended or the mixed shift begins in the night.
Taxes withheld
All wages are subject to income taxes, social security taxes, and an education fund. Employers are
required to withhold these taxes from salaries and other compensation paid to employees who have
worked a minimum of one week. The income tax officials have charts defining the percentages of
required withholding. Monthly withheld funds are paid to the National Treasury via the Social
Security System by the fifteenth day of every month.

An unpaid day off one day per week is required (usually Sunday). Every employee receives a 30 day
paid annual vacation after working continuously for 11 months.
Mandatory days off

The following days are holidays or days of mourning which are paid days off for all employees: New
Year (January 1st), Martyrs Day (January 9th), Carnival Tuesday (Mardi Gras Fat Tuesday), Labor
Day (May 1st), Independence from Colombia Day (November 3rd & 5th), First Cry for Independence
Day (November 10th), Independence from Spain Day (November 28th), Mother’s Day (December
8th), Christmas Day (December 25th). Working on a holiday incurs a 150% increase of the usual
wages.

All employees receive a special bonus called the “13th month” (decimo) equal to one month’s salary
every year. The bonus is calculated at one day’s pay for every 11 days worked to be paid in three equal
installments: April 15th, August 15th, and December 15th.

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