Panama
Min. wage
(x13 payments)
Varies by region
About the minimum wage
Employer tax
~15.8-20.4%
Understand employer tax
Annual leave
30 days
Learn about annual leave
Notice period
30 days min
Termination and notice info
Updated
Sep 2026
The default and legally preferred contract type in Panama. Covers work of a permanent nature tied to the employer's ongoing operations, with no fixed end date. Termination requires just cause or statutory severance/indemnification.
Fixed-term contracts (contrato por tiempo definido) are capped at 1 year, or up to 3 years for roles requiring employer-funded specialized technical training, and may generally be renewed once. Project/task-based contracts (contrato para obra determinada) run for the duration of a defined piece of work and may also be extended once. If the relationship continues past the agreed term, or fixed-term contracts are used successively for permanent-type work, the contract is presumed converted to indefinite by law.
Panama's Labor Code sets three shift types: day shift (6am-6pm), 8 hrs/day and 48 hrs/week, overtime paid at +25%; night shift (6pm-6am), 7 hrs/day and 42 hrs/week, overtime at +50%; and mixed shift (day+night combined, becomes 'night' if it includes more than 3 night hours), 7.5 hrs/day and 45 hrs/week, overtime at +50% or +75% depending on start time. Overtime is capped at 3 hours/day and 9 hours/week, with hours beyond that cap paid at +75%.
Employers may set a trial/probation period of up to three months in the written contract or applicable collective agreement. Either party may end the relationship without notice or severance liability during this period, though the employer must still act in good faith and non-discriminatorily.
Panama requires a 13th-month bonus equal to one month's salary per year, split into three equal installments paid on 15 April, 15 August, and 15 December (Law 148 of 1971 / Código de Trabajo Art. 219). It is calculated as one day of salary for every 11 days worked in the corresponding four-month period. There is no separate statutory 14th-month payment in Panama (unlike, e.g., Guatemala or Honduras).
Panama's Labor Code requires employers to maintain at least 90% Panamanian nationals in their workforce (Panamanian citizens, foreign spouses of Panamanians, or foreigners with 10+ years of residency); no more than 10% of staff may be ordinary foreign workers, with a separate allowance for foreign technical/specialist personnel capped at 15% of total staff. A range of professions (e.g., law, medicine, accounting, and other regulated fields) are constitutionally or statutorily reserved for Panamanian nationals only, regardless of the general quota.
Employer-paid CSS (social security) quota: 13.25% of gross salary (raised from 12.25% in April 2025 under Ley 462; scheduled to rise again to 14.25% in March 2027 and 15.25% in March 2029). Plus Seguro Educativo (educational insurance): 1.50%. Plus mandatory Professional Risk Insurance (workers' compensation), which is employer-only and varies by CIIU industry risk class: roughly 1.05% for low-risk office/professional activities up to 5.67% for high-risk activities like construction. Representative total shown (1.05% risk class): 13.25% + 1.50% + 1.05% = 15.80%; total can reach ~20.42% for high-risk industries. Note: a reduced employer CSS rate of 10.75% applies specifically to the 13th-month bonus payment.
Employee-paid CSS (social security): 9.75% of gross salary (covering pension/IVM, health, and a small risk component). Plus Seguro Educativo: 1.25% of gross salary. Total: 11.00% of gross salary. Note: a reduced employee CSS rate of 7.25% applies specifically to the 13th-month bonus payment.
In addition to statutory leave, employees are entitled to the following statutory benefits:
Panama's social security system is administered by the Caja de Seguro Social (CSS) under Law 51 of 2005, as amended by Ley 462 of 2025. Both employer and employee contribute a percentage of gross monthly salary (including regular pay, commissions, overtime, and bonuses, but excluding non-taxable allowances and severance).
CSS contributions fund pensions (IVM), healthcare, maternity subsidies, sick-leave subsidies, and occupational risk coverage.
Workers' compensation in Panama is provided through the CSS's Professional Risk Insurance (Seguro de Riesgos Profesionales), funded entirely by the employer — there is no employee contribution to this component.
The applicable rate is set by CSS based on the employer's CIIU economic-activity classification and covers workplace accidents and occupational diseases, including medical care, temporary/permanent disability benefits, and death benefits for dependents.
Panama distinguishes between an unjustified-dismissal indemnification and a separate seniority premium that applies regardless of the reason for termination.
Note: secondary sources show some variance in the exact indemnification schedule (a competing days/weeks-per-year formulation also circulates) — employers should confirm the precise figures against Articles 224-225 of the Código de Trabajo or with local counsel before use in a contract.
The Décimo Tercer Mes (13th-month bonus) is mandatory for all employees under Law 148 of 1971 and Article 219 of the Código de Trabajo.
P.S. our team speaks multiple languages and we'd love to chat in your preferred language if requested.
Your employee's hours, time off, holidays, bonuses, and commissions are automatically calculated into payroll. RemoFirst will invoice you in either US Dollars (USD), Euros (EUR), British Pounds (GBP), Canadian Dollars (CAD), Australian Dollars (AUD), or Singapore Dollars (SGD) around the 15th of each month to make sure your employees are paid on time. To make it even easier, you can summarize your entire global team's salaries to aggregate them into one payment (instead of many individual payments).
Unlike full-time employees, contractors work on projects with multiple companies at a given time and are technically self-employed. Full-time employees are solely focused on their employer and usually receive benefits (such as health insurance, equity or stock options, and time off) as an additional form of compensation. While it can be cheaper to work with international contractors instead of paying benefits to a full-time employee, you run the risk of misclassification. It's recommended to work with an EOR for contractor onboarding and payments, so you can know that your international contractors are paid compliantly and on time.
Whenever the employee or employer has a question about, or anything else related to international employment, they can speak with our customer support team to get answers from our team of experts.
