Background Checks

Employers may conduct background checks for labor-related reasons. The applicant must authorize the background check, whether conducted by the employer or a third party.

• Checks may include identity verification, criminal records, address history, and financial background.
• Employers must comply with Panama’s data privacy laws when handling personal information

Verification and New Hire Reporting

Employers must verify that the employee is legally authorized to work in Panama. For foreign workers, this includes:

• Valid residency visa
• Approved work permit (issued by MITRADEL)
• Employers must register the employee with the Caja de Seguro Social (CSS) for health and pension coverage.
• Employees must be registered with the Dirección General de Ingresos (DGI) for income tax purposes.
• While Panama does not have a centralized “new hire report” system like some countries, employers must maintain accurate employment records and may be subject to audits by MITRADEL or the CSS

Onboarding Process & Documentation

When onboarding a new employee in Panama, employers must collect and verify the following documents:

• National ID card (for Panamanian citizens) or passport
• Work visa or residence permit (for foreign nationals)
• Social Security Number (SSN) or equivalent
• Tax Identification Number (RUC or TIN)
• Bank account details (for payroll deposits)
• Academic certificates and diplomas
• Previous employment references or experience letters
• Medical examination certificate (often required for work permit processing)

Healthcare

The primary form of mandatory health coverage in Panama is administered by the Caja de Seguro Social (CSS). Both employers and employees are legally required to contribute to the CSS, which provides access to public healthcare services for employees and their dependents. These services include:

• Medical consultations
• Hospitalization
• Prescription medications

Limitations of Public Healthcare

• While the CSS system offers broad coverage, it is often associated with:
• Long wait times
• Limited availability of specialized care
• Overburdened facilities

Retirement

Panama’s mandatory retirement system is also managed by the CSS. Contributions are made by both employers and employees throughout the employee’s working life. Upon reaching the required age and contribution thresholds, individuals become eligible for a state pension.

Supplementary Retirement Plans

While the CSS pension provides a basic level of retirement income, many professionals seek additional financial security. Employers may offer voluntary retirement savings plans, which can include:

• Contributions to private pension funds
• Employer-matching contributions to employee savings
• Financial planning support

These supplementary plans are not legally required but are highly valued by employees. Implementing such plans requires careful planning to ensure compliance with financial regulations and alignment with company resources.

Social Security

To learn more about Panama’s Social Security Fund, visit the country’s website.

Employment Contract Details

Panama’s Labor Code recognizes several types of employment contracts, primarily categorized by their duration. Understanding the distinctions between these contract types is essential for ensuring legal compliance and fair labor practices.

Indefinite-Term Contracts

• These are the standard form of employment contracts with no predetermined end date. They continue until lawfully terminated by either the employer or the employee. Indefinite-term contracts are the default and most stable form of employment under Panamanian law.

Fixed-Term Contracts

• These contracts specify a clear start and end date. They are permitted only under certain conditions, such as for temporary or seasonal work, or in specific situations defined by law. They cannot be used to fill permanent roles on a recurring basis.

Specific Project or Service Contracts

• These contracts are tied to the completion of a defined task or project. They do not have a fixed calendar end date but instead conclude when the project is completed. The scope and duration of the project must be clearly defined in the contract.

Note: Fixed-term and project-based contracts are subject to stricter legal scrutiny to prevent misuse for roles that are essentially permanent.

Essential Clauses

• Identification of Parties: Full legal names and addresses of both the employer and the employee.
• Job Description: A clear outline of the employee’s position, duties, and responsibilities.
• Work Location: The primary place where the employee will perform their duties.
• Working Hours: The daily and weekly work schedule, including rest periods.
• Remuneration: The agreed salary or wage, method of payment, and frequency (e.g., bi-weekly or monthly).
• Start Date: The date on which the employment relationship begins.
• Contract Duration: Whether the contract is indefinite, fixed-term (with specific dates), or tied to a specific project.
• Vacation Entitlement: Reference to the legal minimum vacation days or any more favorable company policy.
• Signatures: The contract must be signed by both the employer (or an authorized representative) and the employee.

Note: While not always mandatory, it is advisable to include or reference additional terms such as benefits, holidays, and any applicable collective bargaining agreements to ensure full transparency.

Probation Period

First 3 Months

Visas

• Tourist & Business Visas: For short-term visits.
• Temporary & Permanent Residence Visas: For work, study, or long-term settlement.
• Work Visas: Include Trusted Employee and Multinational Company Visas.
• Application Process:
  • Prepare documents (passport, photos, financial proof, etc.).
  • Submit through consulate or legal representative.
  • Attend interviews if required.

Independent Contractors

Panama distinguishes clearly between employees and independent contractors, with different legal obligations and protections:

• Employees are entitled to benefits such as social security, paid leave, severance, and protection under the Labor Code.
• Independent contractors are not covered by these protections and are considered self-employed.

Contractual Requirements

• Independent contractor agreements must be in writing and clearly define the scope of work, payment terms, and duration.
• Contractors are responsible for their own tax filings and social security contributions.

Misclassification Risks

• Employers must be cautious not to misclassify employees as contractors to avoid providing benefits. Misclassification can lead to legal penalties and back payments of wages and benefits

Paid Time Off

Employees in Panama are entitled to 30 calendar days of paid annual leave after completing 12 months of continuous employment. Leave accrues at a rate of 1 day for every 11 days worked.

• Employers must pay vacation wages at least three days before the leave begins.
• Cash compensation in lieu of vacation is not permitted unless the employment relationship ends before the leave is taken.

Public Holidays

Public holidays that fall on a Sunday are moved to the following working day.

• New Year’s Day
• Martyrs’ Day
• Carnival
• Holy Friday
• Labor Day
• Separation From Colombia Day
• Colon’s Day
• Day of the Saints
• Independence Day
• Mother’s Day
• Mother’s Day Holiday (Day off in lieu)
• Christmas Day

Bereavement

Employees in Panama are entitled to paid bereavement leave in the event of the death of an immediate family member, which includes:

• Spouse
• Parents
• Children
• Siblings

The standard duration of bereavement leave is three working days.

Maternity Leave

• Maternity leave spans 14 weeks, starting 6 weeks before and ending 8 weeks after childbirth.
• Leave is paid by the CSS, provided the employee has contributed at least 9 monthly quotas before the 7th month of pregnancy.
• If the employee does not meet the contribution requirement, the employer is responsible for payment, calculated as the higher of the last salary or the average of the last 180 workdays.
• In cases of multiple births, complications, or pregnancy-related illness, leave may be extended with a medical certificate.

Paternity Leave

Fathers are entitled to 3 days of fully paid paternity leave following the birth of a child. This leave is paid directly by the employer.

Parental Leave

Panama labor law has no statutory parental leave (beyond maternity and paternity provisions).

Sick Leave

• The first 3 days of sick leave are paid by the employer.
• From the 4th day onward, the Social Security Fund (CSS) covers sick leave at 70% of the employee’s salary, for up to 26 weeks.
• A medical certificate is required to validate the leave.

Termination Requirements

For termination requirement information, see Notice Period section below.

Notice Period

Panamanian labor law outlines specific notice requirements for terminating employment, depending on the employee’s length of service:

• During probation (first 3 months): No notice is required.
• 3 months to less than 1 year: Minimum of 2 weeks’ notice.
• 1 year to less than 2 years: Minimum of 1 month’s notice.
• 2 years or more: Minimum of 2 months’ notice

Alternatively, employers may choose to provide payment in lieu of notice, equivalent to the employee’s regular salary for the applicable notice period.

Severance Pay

Severance pay is required when an employee is dismissed without just cause. It consists of two components:

Antigüedad (Seniority Bonus)

• Equal to one week’s salary per year of service (or fraction exceeding 3 months).
• Capped at a maximum of 104 weeks’ salary (equivalent to 2 years).

Prima de Antigüedad (Seniority Premium)

• Begins accruing after the third year of employment.
• Calculated at one week’s salary per year of service.
• No cap on this component.

Both are calculated based on the average salary over the last six months of employment

Unemployment Insurance

Panama does not offer a general unemployment benefit that provides regular income replacement for individuals who lose their jobs.

Anti-Discrimination Practices

Panama’s labor laws strictly prohibit discrimination in all aspects of employment. Employers are legally obligated to ensure equal treatment and opportunities in hiring, promotion, training, compensation, and workplace conditions.

Discrimination is prohibited on the basis of, but not limited to:

• Race or ethnicity
• Religion or belief
• Nationality or origin
• Sex or gender
• Age
• Political opinion
• Union membership or activity
• Disability
• Marital status

Employers must foster a workplace environment that respects diversity and upholds the rights of all employees.

Workplace Safety Standards

Under Panamanian labor law, employers are legally required to ensure a safe and healthy working environment for all employees. This responsibility includes proactive risk management, adherence to industry-specific safety standards, and the implementation of effective health and safety protocols.

Workers’ Compensation

In Panama, workers’ compensation laws are primarily managed through the Social Security Fund (Caja de Seguro Social – CSS) and are designed to protect employees who suffer work-related injuries or occupational illnesses.

Coverage and Eligibility

• All employees registered with the CSS are covered for occupational risks.
• Coverage includes workplace accidents, occupational diseases, and injuries sustained during work-related activities.

Employer Obligations

• Employers must register all employees with the CSS.
• They are required to contribute to the Occupational Risk Insurance, with rates starting at 2.1% of the employee’s gross salary, adjusted based on the risk level of the job.
• Employers must also implement workplace safety measures to prevent accidents and illnesses. Benefits Provided

If an employee is injured or becomes ill due to work, they may be entitled to:

• Medical care and rehabilitation
• Temporary disability benefits (a percentage of the employee’s salary during recovery)
• Permanent disability compensation
• Survivor benefits for dependents in the event of a work-related death

Claims Process

• The incident must be reported promptly to the employer and the CSS.
• The CSS evaluates the claim and determines eligibility for benefits.
• Employers must cooperate with investigations and provide necessary documentation.

Labor Law Sanctions

Work Permit Violations: Foreign workers must obtain a work permit from the Ministry of Labor (MITRADEL), even if they have legal residency (e.g., via the Friendly Nations Visa). Employers hiring foreigners without a valid permit face fines, legal penalties, and possible suspension of business operations.

Foreign Workforce Limits: Only 10% of a company’s workforce may be foreign nationals. This limit increases to 15% for specialized or technical roles. Exceeding these limits without authorization can result in sanctions and labor audits

Employment Contracts: All employment contracts must be in writing and clearly define terms, especially for fixed-term or project-based roles. Failure to provide a written contract can result in fines and legal disputes over employment status.

Working Hours and Overtime: Legal work hours are capped at 8 hours per day and 48 hours per week. Overtime must be compensated at premium rates. Non-compliance can lead to labor inspections, fines, and back pay orders.

Minimum Wage and Social Contributions: Minimum wage varies by sector. Employers must contribute 16.75%–21.5% of gross salary to social security, unemployment, and education funds. Underpayment or failure to contribute can result in heavy fines and criminal liability.

Termination and Severance: Employers must follow strict procedures for dismissal and provide severance pay unless termination is for just cause. Unlawful termination can lead to reinstatement orders or compensation claims.