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Employing a worker in Panama

Its geographic location, diversified economy, and openness to foreign investments are just some of the reasons why businesses are expanding into Panama. In this post, we provide information on employing a worker in Panama.

Capital GES created this postcard series to help businesses that are considering expansion and hiring global staff. In this postcard series, we provide helpful tips on international employment. Below, we answer the most common questions asked in relation to employing a worker in Panama.

Panama Overview

With just over a four million population and thriving business opportunities in banking and tech, Panama should be considered when expanding into Central America. Known for its geographic location, diversified economy, and openness to foreign investments, this country has a lot to offer new investors. While the pandemic has hit the country hard, the Panamanian economy has started to regain its growth. Its new infrastructure projects, continuous foreign investment, and diversified industries make Panama an attractive option for businesses and investors looking to expand into Central America.

Employing a worker in Panama – Employment Laws to know

However, expanding into Panama can be complex. Therefore, it is best to seek the right advice before expanding your business and hiring staff. Below, we look at the most common questions asked by clients regarding employment law in Panama.

1. Contracts

Can I trial a worker using a fixed-term employment contract, as I am not sure whether it will work out in the long term?

Fixed-term contracts are available in Panama. It’s important to note there is no probation period for fixed-term contracts. However, fixed-term contracts are only available for specific tasks and cannot be used for permanent roles. The employer must have a reason that justifies the use of a fixed-term contract.

In Panama, fixed-term contracts cannot exceed one year, but the duration for fixed-term contracts can be up to three years in the case of services that require special technical skills. Renewing successive fixed-term contracts without a valid reason may deem the employment relationship as indefinite.

Probation periods are only available for indefinite contracts and the period lasts three months. Therefore, it is best to speak to an expert when considering contracts in Panama.

2. Termination Rules and Severance Pay

What do I need to know about termination and severance pay in Panama?

Terminations are complex in Panama, so it is best to seek advice from a local expert.

Contracts may be terminated by mutual agreement, resignation, or unilaterally with just cause or without cause. In Panama, a just cause dismissal can only happen in limited and extreme circumstances as outlined in the labour code.

The employer must notify the worker in writing outlining the cause and the date that the termination was given. A dismissal that does not follow the laws outlined in the labor code is considered unjustified and the worker may be able to make a claim with a labour court.

Notice Period

For employees working less than 2 years on open-ended contracts, employers must give 30 days’ notice. Employees must give 15 days’ notice (specific rules apply for technical positions) to their employer when they decide to resign. There is no notice period for fixed-term contracts.

Severance Pay

Severance pay is due in case of termination of an indefinite-term contract without just cause and early termination of fixed-term contracts by the employer and is equivalent to:

  • 3.4 weeks of salary for each year worked.
  • Seniority premium equal to 1 week of salary per year of service worked.

Severance pay must be paid immediately after termination. As part of severance pay, an employer must also pay out the accrued 13th salary and vacations. For people working hourly and daily, a pro-rated severance vacation pay and 13th salary are due.

3. Statutory Benefits

Paid Holiday Leave

In Panama, workers are entitled to 30 days of paid holiday leave following 11 months of continuous work. Public holidays are not included.

Holiday leave must be taken in one block (or in exceptional cases it can be divided into two periods as per legislation in force).

For workers who are paid hourly and daily, their holiday leave is calculated from the hours/day’s workers. The 30 days are paid at the average hourly/daily rate, and performance bonuses are included in the calculations.

Maternity, Paternity, and Parental Leave

Maternity Leave

In Panama, workers are entitled to 14 weeks paid maternity leave. This leave takes place six weeks before the birth and eight weeks after the birth. Maternity pay is paid at 100% salary directly by the Social Security fund. To determine the date of commencement of paid compulsory leave, the worker provides the employer with a medical certificate stating the probable date of delivery.

Paternity Leave

In Panama, fathers are entitled to three days paid paternity leave which is paid by the employer. This leave shall be taken immediately after birth.

Sick Pay

Workers in Panama are entitled to 18 days paid sick leave. The worker must provide a doctor’s note to the employer in order to receive sick leave. For non-work-related illness or injury, the employer pays sick pay at 100% salary rate for the first 18 days. From the 21st day onward, the Social Security fund (at rates according to the law) covers sick pay. For work-related illness or injury, sick pay is paid by the social security fund from day one, and specific rules apply.

How Capital’s Employer of Record Solution Can Help You Hire Workers in Panama

Capital GES provides many employment services such as managing the worker’s onboarding, HR, payroll, and taxes.

If you are a business that is looking to expand internationally and want to employ workers in Panama or any other country in Latin America, Capital GES can help. To establish what services you require, contact or phone +55 31 3194 8150.

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