Panama is a country in Central America, bordered by Colombia and Costa Rica, and linking North and South America. Panama is recognized as one of Latin America’s most open economies, with a GDP of $86.26 billion in 2024 and a workforce of approximately 2.2 million people (2024).

Its strategic positioning between North and South America via the Panama Canal makes it an attractive destination for companies choosing to hire abroad, with advantages in global logistics, trade, shipping, and the services industry, which dominates Panama’s economy. Panama also benefits from a stable legal and financial environment, and labor costs are competitive in comparison with North America and Europe.

This help guide will advise companies hiring in Panama on the mandatory benefits that employees are entitled to and must receive. We’ll provide an overview of local labor laws and explain how Remote People can help with doing business in Panama via Employer of Record broker services.

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Panama Labor Law

Panama’s labor laws are primarily outlined in the Labor Code of Panama. This legislation provides a legal framework for employment relationships, including contracts, wages, working hours, and overtime. 

Other important legal acts that provide further insight into Panama’s labor laws are as follows:

  • Law No. 462 of March 18th 2025: Reforma de CSS / reforma del sistema de seguridad social
  • Social Security Law / CSS
  • Minimum Wage Regulations
  • Labor Safety & Health Regulations
  • Leave / Maternity / Paternity & Public Holidays Laws

When employing workers in Panama, it’s important to liaise with legal experts to ensure strict compliance, maintain employment practices set by the latest legislation, and simplify the process of hiring in Panama.

Mandatory Employee Benefits in Panama

Panama has many mandatory employee benefits that employers must ensure their workers receive. 

We have detailed Panama’s primary benefits in the sections below.

Social Security Contributions

Panama operates under a social security system, better known as the Panamanian Social Security Fund (CSS), or Caja de Seguro Social Panamena. 

This system is responsible for administering pensions, as well as maternity, sickness, work injury, and unemployment benefits.

The rates of social insurance in Panama are as follows:

  • Employees:9.25% of gross monthly earnings, plus 7.25% of the 13th monthly salary each year.
  • Self-employed workers: 13.5% of gross monthly declared earnings
  • Employers: 4.25% of gross monthly earnings, plus 10.75% of the 13th monthly salary each year.

Annual Paid Leave

Employees in Panama are entitled to 30 calendar days of annual leave for every 11 months of continuous service. 

Annual leave can be split into two equal parts, and employers must pay workers for annual leave at least 3 days before the leave is due to start. Employers and employees must discuss and agree on when the annual leave should be taken, with at least 2 months’ prior notice of the leave commencing.

Working Hours

Standard working hours in Panama are 44 hours per week, or 8 hours per day (usually spread over 6 days). 

Private businesses are usually open between 8 am – 5 pm Monday – Friday, and banks are open 8 am – 3 pm, with some businesses offering shorter hours on a Saturday.

Overtime Pay

Overtime is permitted in Panama, with any hours worked beyond an employee’s normal contract being considered as overtime hours. There are limits on overtime for workers under 18 in Panama of 3 hours per day or 9 hours per week. 

Any overtime hours worked are usually payable at a rate of 1.5 times an employee’s normal salary. 

Overtime worked at night is usually paid at 1.75 times an employee’s normal wage, or twice an employee’s normal wage if worked on Sundays, public holidays, or national mourning days.

Public Holiday Leave

Public holidays in Panama generally provide employees with a paid day off if they fall on a working day.

The public holidays in Panama in 2025 are as follows:

  • 1st January 2025: New Year’s Day
  • 9th January 2025: Martyrs’ Day
  • 4th March 2025: Carnival / Shrove Tuesday / Pancake Day
  • 17th April 2025: Maundy Thursday
  • 18th April 2025: Good Friday
  • 1st May 2025: Labor Day / May Day
  • 3rd November 2025: Independence Day
  • 4th November 2025: National Symbols Day
  • 5th November 2025:  Colón Day
  • 10th November 2025: Shout in Villa de los Santos
  • 28th November 2025: Independence from Spain
  • 8th December 2025: Mother’s Day
  • 20th December 2025: National Day of Mourning
  • 25th December 2025: Christmas Day

Sick Leave

Employees in Panama can take a maximum of 26 weeks of sick leave per year if they are too unwell to work. 

Of this, the first 14 days are paid in full by the employer, and the remaining days are paid at half pay.

Workers must provide a valid medical certificate signed off by a medical professional to be eligible for sick pay.

Maternity Leave

Female employees in Panama are entitled to 14 weeks of paid maternity leave if they have a baby. This is usually split as 6 weeks before birth and 8 weeks after birth. 

A worker’s job must be protected while they are on maternity leave.

Maternity leave is paid by the CSS provided that the worker has made the required contributions. If the worker doesn’t meet the required contributions, the employer is responsible for the full cost of maternity leave.

Paternity Leave

Male employees are entitled to 3 days of paid paternity leave if they have a child. This must start on the day their child is born, and the employer is responsible for paying the employee in full during this period.

Fathers are protected from unjustified dismissal for 1 year after having their child.

Pensions

The pension system in Panama is made up of 3 layers.

The first is the state/public pension, which is managed by the CSS, and provides a pension to workers/citizens in Panama after making 20 years of contributions.

The second is occupational/complementary pension plans, which are private/employer-sponsored plans that aim to supplement the existing state pension. 

The third are private/voluntary pension savings, which are additional personal pension plans set up by workers looking to allocate extra funds towards their retirement.

Severance Pay

Employees in Panama who are dismissed from their roles without fault may be eligible for severance pay.

This is usually calculated as follows, but may vary in different industries:

  • Up to 6 months’ service: 0.5 months of pay
  • Up to 9 months’ service: 0.75 months of pay
  • Up to 1 year of service: 1 month of pay
  • Up to 2 years of service: 3 months of pay
  • Up to 4 years of service: 4.5 months of pay
  • Up to 5 years of service: 5.2 months of pay
  • Up to 10 years of service: 9.75 months of pay
  • Up to 20 years of service: 14.8 months of pay

Supplementary Employee Benefits in Panama

Employers in Panama are encouraged to offer their employees supplementary benefits to retain staff members and attract new candidates to open job roles.

A few examples of supplementary benefits commonly seen in Panama include:

  • Life insurance cover
  • Private health insurance
  • Performance bonuses
  • Additional annual leave
  • Private pension plan
  • Flexible working
  • Enhanced training opportunities

Optimize Employee Benefits with Remote People

Remote People can help your business hire in Panama with Employer of Record broker services.

A Panama Employer or Record is highly experienced in hiring in this country and would act as the legal employer of workers in Panama. They ensure that all workers receive their mandatory employee benefits, and can also handle tasks around HR, payroll, employment contracts, and tax obligations. They are also very experienced in Panamanian labor laws, which can be helpful to workers who aren’t too familiar with these laws, as an EOR will ensure that all working practices adhere to local legislation.

Contact Remote People to see how we can help your business expand into Panama compliantly and efficiently.