A Q&A guide to employment and employee benefits law in Panama.
The Q&A gives a high level overview of the key practical issues including: permissions to work; contractual and implied terms of employment; minimum wages; restrictions on working time; illness and injury; rights of parents and carers; data protection; discrimination and harassment; dismissals; redundancies; taxation; employer and parent company liability; employee representation and consultation; consequence of business transfers; pensions; intellectual property; restraint of trade agreements and proposals for reform.
To compare answers across multiple jurisdictions, visit the Employment and Employee Benefits Country Q&A tool.
The Q&A is part of the PLC multi-jurisdictional guide to employment and employee benefits law. For a full list of jurisdictional Q&As visit www.practicallaw.com/employment-mjg.
Foreign nationals working in your jurisdiction?
Nationals of your jurisdiction working abroad?
The provisions contained in the Labour Code 1971 (Labour Code) form part of public policy and are consequently binding on all individuals and legal entities residing and/or operating in the country. Under these legal provisions, all employment relationships involving foreign nationals in Panama are regulated by the Labour Code.
Under the principle of territoriality, the provisions contained in the Labour Code are mandatory and applicable to all foreign nationals working in Panama.
The Labour Code protects nationals working abroad through the enforcement of the locus regit actum (the place governs the act) principle, which establishes that all acts and agreements are ruled by local law. As a result of this principle, whenever a Panamanian national executes a labour contract/agreement with a company established and operating in Panama to perform duties abroad, that individual will be bound and protected by the provisions of the Labour Code.
An individual must be of legal age (18 years or over) to be a manager or company director.
There are no nationality restrictions. However, the Labour Code does provide that where a company wishes to hire foreign employees to work in Panama, the foreign employees must first obtain work permits.
There are no other restrictions on who can be a manager or company director.
Panamanian law makes no provision for any grants or incentives to be made available for employing people.
See above, Grants or incentives.
Procedure for obtaining approval. All foreigners who wish to work in Panama must apply for one of the following visas:
Temporary permit for foreign personnel hired within 15% of the ordinary workforce. This residence permit customarily applies to foreign nationals that are employed as managers or employees of trust, technicians or experts. The permit is granted to those foreign nationals that do not have a personal income and are hired by a legal entity earning a minimum monthly salary of US$850 (as at 1 August 2012, US$1 was about PAB1), where the employer has already obtained a work permit from the Ministry of Labour within the 15% exemption. The permit is granted for one year, and can be renewed for up to a maximum of six years. Once the six-year period has elapsed, the foreign national can apply for permanent residence.
Temporary permit for foreign personnel hired within 10% of the ordinary workforce. This residence permit is granted to foreign personnel hired within the 10% exemption allowed by law. The permit is granted to those foreign nationals that are hired by a legal entity and earn a minimum monthly salary of US$850. The application must be approved, and must be accompanied by a resolution issued by the Ministry of Labour authorising the foreign national to work in Panama within the 10% exemption allowed by law. The permit is granted for periods of one year, and can be renewed for up to a maximum of six years. Once the six-year period has elapsed, the foreign national can apply for permanent residence.
Temporary permit for personnel hired under the Marrakech Agreement. This permit is granted to those foreign nationals who come to Panama to work for companies with no more than ten, and no less than three, full-time Panamanian employees and who receive minimum wages under the Marrakech Agreement (adopted by Law 23 of 1997). To obtain this permit the foreign national must receive a monthly salary of no less than US$1,000. The permit is granted for periods of one year, and can be renewed for up to a maximum of six years.
Temporary permit for personnel hired as executives of international companies with duties having effect abroad. This permit, also known as an Executive Visa, is granted to those foreign nationals that are hired as senior executives with representative powers, who receive their salary from abroad and will only use Panama for residence purposes. This visa enables executives to use Panama as a regional base of operations and at the same time receive all the advantages that Panama offers as an international financial and business centre. The permit is granted for a period of one year, but the applicant can request extensions for successive periods of one year each. The law does not establish limits in granting extensions for this type of visa.
Cost. The fee is US$500. The additional expenses are about US$300.
Time frame. The time frame to obtain a residence permit ranges from two to four months.
Procedure for obtaining approval. All foreign nationals wishing to work in Panama must first obtain a work permit from the Ministry of Labour. Work permits are issued for a particular type of employment, are valid for one year and can be renewed annually for up to a maximum of five years in the case of technicians. Other professions such as lawyers, dentists, engineers, architects or doctors, which are known as liberal professions, are not eligible for work permits. These professions can only be practiced by Panamanian citizens. Work permits can be issued indefinitely in the case of immigrants who have more than ten years of continuous residence in Panama.
The Labour Code establishes that each employer can hire ordinary foreign personnel in a proportion of no more than 10% of his regular labour force. The employer can, however, hire foreign specialised or technical personnel up to a maximum of 15% of the total labour force. Additionally, a larger percentage of foreign specialists or technicians can be permitted with a prior recommendation from the respective Ministry and a prior approval from the Ministry of Labour.
In the case of "offshore" companies, work permits can be required for employees who work in a position of trust, but these permits are exempt from compliance with the percentages indicated above, because the salary of these workers is derived from a foreign source and they effectively perform their functions abroad.
With regards to the percentage of the workforce that can constitute foreign workers, under the Marrakech Agreement (containing international commitments adopted by Panama), a company with no more than ten, and no less than three, full-time Panamanian workers does not have to comply with the percentages indicated above and can have up to one full-time foreign employee.
The government has also implemented exceptions to the general law which apply to certain industrial and commercial areas as regards immigration, labour and tax benefits. Industries that can benefit from these provisions include:
Companies within the Panama-Pacific Special Economic Area.
Companies contracting with the Panama Canal Authority.
Companies established in the Free Zones Special Regime.
Headquarters of multinational companies that are based within the City of Knowledge (Panama's business, scientific and technological park).
Cost. The fee for a work permit is US$500, together with administrative expenses of approximately US$200.
Time frame. The time frame to obtain a work permit ranges from two to four months.
Generally, employers execute a written employment contract with the employee at the beginning of the labour relationship. However, the Labour Code stipulates that in the absence of a written employment contract, any facts or circumstances argued by an employee that should have appeared in a written contract will be presumed to be true.
In addition to the terms of the contract agreed between the parties, the law also implies terms of good faith, equity and custom or usage which are favourable to the employee under Article 6 of the Labour Code.
Collective bargaining agreements with trade unions are common in Panama. However, they are usually only executed within the construction, manufacturing and transportation industries.
Under Article 223 of the Labour Code, the unilateral change by the employer of the terms and conditions of employment which relate to working conditions entitles the employee to terminate the labour relationship, with the right to be indemnified for unfair dismissal.
However, if the change results in the functional or horizontal movement of the employee, it will not constitute a unilateral change provided that:
The change is compatible with the employee's position, seniority, powers, talents and skills.
The change does not result in a reduction in remuneration or wages.
The change does not negatively affect the employee's dignity or self-esteem.
The change does not put the employee at greater risk in the performance of his work.
There exists a Minimum Wage Commission (Comisión de Salario Mínimo) composed of members of employees, employers and the government that meets every two years to establish the national minimum wages. If the parties cannot reach a unanimous agreement, the government will decide the matter (Article 174, Labour Code).
Minimum wage is fixed taking into consideration the region, economic activity, location of the company and occupation. For example, the current minimum wage for some key economic sectors such as financial and insurance services is US$2.36 per hour and for manufacturing industries the rate is from US$1.76 to US$2.14 per hour depending on the specific industry. There are two regional minimum wage levels which are applied within Panama.
The Labour Code provides that the maximum working hours permitted during one day is eight hours. The maximum working hours permitted during a week is 48 hours.
Employees must be given a minimum rest break between 30 minutes to two hours during the working day.
There are no other provisions which apply specifically to shift workers.
There is no general minimum holiday entitlement, apart from the mandatory public holidays (see below, Public holidays).
All employees are entitled to the following mandatory public holidays (Labour Code):
1 and 9 January.
Tuesday of Mardi Gras.
Holy (Good) Friday.
3, 5, 10 and 28 November.
8 and 25 December.
The inaugural day when the President takes office.
See below, Entitlement to paid time off.
An employee is entitled to 18 paid days off with illness or injury per year.
An employer cannot recover any sick pay paid to employees from the state (Social Security Fund Law, Law 51 of 2005).
Parents (including maternity, paternity, surrogacy, adoption and parental rights, where applicable)?
Carers (including those of disabled children and adult dependants)?
Pregnant employees benefit from compulsory maternity leave, remunerated as regular working time, covering six weeks before childbirth. Total maternity leave must be at least 14 weeks' duration. If childbirth is delayed, the employee is entitled, after the birth, to paid leave for the following eight weeks.
During maternity leave, the employer cannot alter the employment relationship or apply any sanctions or penalties on the employee. Further, a worker returning from maternity leave cannot be dismissed without justifiable reason during the first year following their return to work. These rights cannot be exchanged or avoided.
There are no specific paternity rights applicable to fathers.
There are no specific rights applicable in cases of surrogacy.
There are no specific rights for adopting parents.
There are no specific parental rights in Panama.
There are no specific rights for carers.
An employee who has been employed for more than two years is entitled to labour stability, and can only be dismissed for a justifiable reason (see Question 18).
If an employee is transferred to a new company that belongs to the same economic group or division as his former employer, the new employer assumes all existing labour obligations, dating back to the beginning of the labour relationship (Labour Code).
If the new company does not belong to the same economic group or division as the former employer, the new employer still remains liable and assumes all existing labour obligations dating back to the beginning of the labour relationship.
Temporary and agency workers are not entitled to the same benefits as permanent employees. Temporary workers are usually hired for a period of three to six months, and agree a fixed contract for their work.
Agency workers are paid by agencies that provide an outsourcing service to the employer, and cover the corresponding labour obligations.
Data protection for employees is not regulated in Panama.
Discrimination is prohibited in the workplace (Law 11 of 22 April 2005). Any violations are subject to fines imposed by the Ministry of Labour, ranging from US$500 to US$1,000.
Discrimination can be claimed on the following grounds:
An employee subject to unfair treatment or sexual harassment by an employer can terminate the labour relationship, and receive an indemnity for dismissal without cause (Labour Code).
There is no specific protection for whistleblowers.
For employees that have less than two years' service, one month's notice is required. No notice is required for employees that have over two years' service.
Employees are entitled to the following on termination of employment:
Seniority premium. This is compensation due on the termination of employment, irrespective of the reason for the termination. It is calculated at the rate of one week's wages for each complete year of service, counted from the beginning of the employment. If an employee does not complete a year of service, payment is made proportionally, by multiplying the sums earned by 1.92%.
Holiday payment in proportion to the amount of time worked. On termination of employment, the employee is paid vacation periods, representing 30 days for each period of 11 months worked or, proportionally, one day for each period of 11 days worked.
A proportional 13th month. The proportional 13th month is paid as an additional month of salary per year, paid in three instalments (in April, August and December) during the working relationship. It is a special bonus granted by the employer which does not form part of the salary. However, when the employment relationship is terminated, the employee is entitled to receive the proportion of this payment that has been accumulated throughout the year.
Employees employed for less than two years are also entitled to an advance notice payment equivalent to one month's salary.
Employees employed for more than two years are also entitled to an additional indemnity equivalent to 6.54% of all wages received during employment. However, they are not entitled to an advance notice payment.
The employer must give prior written notice to the employee of the date and specific cause(s) for dismissal or termination of the employment relationship (Labour Code). The employer has a time bar of two months within which to dismiss an employee, starting from the date the cause to dismiss arises.
An employee who has been employed for more than two years is entitled to labour stability. Labour stability is a protection granted by the Labour Code, where an employee with more than two years' service in a company can only be dismissed for a justifiable reason. The justifiable reasons are specified in the Labour Code.
If an employee who has been employed for more than two years is terminated without justifiable reason, he is entitled to certain notice and severance payments (see Question 17). He is also entitled to be reinstated under the same conditions that existed before the dismissal.
Pregnant workers and union members cannot be dismissed without justifiable reason, which must be duly proven and authorised by the Labour Courts. This approval and authorisation from the Labour Courts must be received before the employee can be dismissed. If these workers are dismissed without following the correct procedure and obtaining the Labour Court's authorisation, they can request reinstatement under the same conditions that existed before the dismissal.
There are no definitions in the Labour Code of redundancy/layoffs. There are, however, provisions in the Labour Code that permit the employer to lay off employees for economic reasons, although these layoffs must always be previously authorised by the Ministry of Labour.
If an employer needs to reduce the workforce as a result of company policy, the employees are entitled to the same benefits that would be given to an employee who is dismissed for an unjustified reason (see Question 17). If employees are made redundant for other reasons, they are entitled to the same benefits.
In practice, it is common to execute a mutual consent agreement with the employees, where these benefits are agreed between the parties. There is no set minimum, or maximum, redundancy payment that must be made.
Employees are not entitled to management representation.
Employees are not entitled to be consulted about issues that affect them.
Employee consultation or consent is not required for major transactions.
Not applicable (see Question 20).
Not applicable (see Question 20).
The transfer of employees is not automatic. A notice of substitution of employer must be given in writing to all employees and their respective unions, no later than 15 days after the date of the transfer.
All employees are protected against dismissal, either before or after the disposal.
In the event of a failure to give notice of substitution (see above, Automatic transfer of employees), the former employer retains joint and several liability up and until that notice is given.
It is possible to harmonise employees' terms of employment with the buyer's existing employees. This is possible even where the terms of the existing employees' employment are less favourable than those of the transferred employees' previous employment.
An employer can be liable for the acts of its employees?
A parent company can be liable for the acts of a subsidiary company's employees?
The employer is liable for damages caused by the employee during the course of their employment (Civil Code 1916).
Panama law does not recognise parent company liability.
Every employer must adopt those safety measures that are necessary to effectively protect the lives and health of their employees, by (Labour Code):
Altering their premises, where necessary.
Providing safe work equipment.
Implementing methods to prevent, reduce and eliminate occupational injuries in the workplace.
Foreign nationals working in your jurisdiction?
Nationals of your jurisdiction working abroad?
All employees including foreign nationals are only taxed on remuneration earned for work done in Panama, regardless of where payment is made or received.
Nationals working abroad are not taxed in Panama on their income.
The minimum taxable base is US$11,000 per year:
Employees that earn between US$11,000 and US$50,000 per year are taxed at a rate of 15% on the amount over US$11,000.
Employees who earn more than US$50,000 pay US$5,850 on earnings up to US$50,000, plus a tax rate of 25% on the amount earned over US$50,000.
The employer contributes 12% of the employee's salary, and the employee contributes 9% of their salary, to the Social Security Fund.
The employer contributes 1.5% of the employee's salary, and the employee contributes 1.25% of their salary, to the Social Security Fund.
Contributions are made to the Social Security Fund.
The Social Security Fund contributions are not subject to tax.
The average monthly amount of the state pension paid to employees is between 60% to 70% of their monthly salary.
Is linked to the employee's salary?
Is linked to employer and/or employee contributions and investment return on those contributions?
It is not common or compulsory for employers to provide supplementary pension schemes.
It is not common or compulsory for employers to provide supplementary pension schemes.
There is no regulatory body overseeing the operation of supplementary pension schemes.
Not applicable (see above, Regulatory body).
No tax reliefs are available on contributions by the employer to supplementary pension schemes.
No tax reliefs are available on contributions by the employee to supplementary pension schemes.
There is no legal protection of employees' pension rights on a business transfer. Once the employee is transferred to another company, the employer or the employee must give notice to the Social Security Fund. The notice given to the Social Security Fund protects the employees from losing all their social security contributions.
Not applicable (see above, Automatic transfer of pension rights).
Employees who are working abroad?
Employees of a foreign subsidiary company?
An employee working abroad can participate in a pension scheme established by a parent company in Panama, provided the employer and the employee are duly registered at the Social Security Fund.
An employee of a foreign subsidiary company can participate in a pension scheme established by a parent company in Panama, provided that the company and the employee are duly registered at the Social Security Fund.
Once the employer becomes insolvent, the employee is covered for the following three months after the labour relationship is terminated. This means that the former employee is entitled to social security benefits within the following three months after the employer terminates the labour relationship. After the three-month period, the insured will need to continue paying the corresponding monthly instalments to receive those benefits, or request their new employer to continue making the payments.
It is common to reward employees with bonuses. There are no restrictions or guidelines on the granting of bonuses, and this is governed by the policies adopted by each individual employer.
The Labour Code recognises that inventions made by an employee during the course of their employment convey IP rights. If the invention is the product of the work for which the employee was hired, the employer owns the IP rights, but the employee has the right to be recognised as the inventor. If the invention is not related to the work for which the employee was hired, the IP rights belong to the employee, even if the invention was made during the course of employment.
The employee's activities are only restricted during the period of employment (Labour Code).
Once employment has been terminated, the employee is no longer bound by any activity restrictions, unless post-employment restrictions have been included in an agreement between the employee and the employer. This type of agreement can also include related remuneration for the restriction, but these types of agreement are not common in Panama.
There are currently no proposals to reform employment law or pensions law in Panama.
Description. This is the official website of the Ministry of Labour and to the best of our knowledge the information contained here is updated regularly. There are no official translations and no official website where this information can be obtained in English.
Qualified. Panama, 1996
Areas of practice. Labour; foreign trade and commercial law.
Qualified. Panama, 1989
Areas of practice. Litigation; labour and employment law; IP; environmental law.