Payroll and Benefits Guide Panama
Last updated: Mar 03, 2026
Contribution
| Employer Payroll Contributions | |
|
12.25%
|
Social security
|
|
1.92
|
Unemployment
|
|
1.50%
|
Education Tax
|
|
0.98-5.67%
|
Accident
|
| up to 21.34% |
Total Employment Cost |
| Employee Payroll Contributions | |
|
9.75%
|
Social security
|
|
1.25%
|
Education contribution
|
| 11.00% |
Total Employee Cost |
| Employee Income Tax | |
|
0%
|
0 – 11,000 US$
|
|
15%
|
11,000 – 50,000 US$
|
| 25% | 50,000 US$ + |
Employer taxes
Employee taxes
Minimum Wage
General
In Panama, minimum wages are dependent on the economic activity, specific occupation, and size of the establishment. Minimum wages typically range from 326.56 USD to 971.35 USD per month.
MINIMUM WAGE (PER MONTH)
Payroll
Payroll Cycle
In Panama, the payroll frequency is stipulated in the employment contract and paid on a monthly, semi-monthly, or weekly basis.
13th Salary
In Panama, 13th-month payments are mandatory and the amount of an additional month’s salary is paid in three equal installments on 15th April, 15th August, and 15th December.
Working Hours
General
The standard workday consists of eight hours per day, and a full-time work week is up to 48 hours. Employees under the age of 16 are limited to a 36-hour working week.
Overtime
The maximum legal working hours depend on the shift classification:
| Shift Type | Time Period | Maximum Daily Limit | Maximum Weekly Limit |
| Day Shift (Diurna) | 6:00 AM to 6:00 PM | 8 hours | 48 hours |
| Night Shift (Nocturna) | 6:00 PM to 6:00 AM | 7 hours | 42 hours |
| Mixed Shift (Mixta) | Combines day and night work | 7.5 hours | 45 hours |
-
Overtime Threshold: Overtime is defined as any hour worked beyond the maximum daily or weekly limits for the respective shift type.
-
Exemptions: Senior executives, managers, and other high-level positions are typically exempt from the working hours and overtime limitations.
| Aspect | Regulation Details | Notes |
| Daily Overtime Cap | Overtime is limited to 3 hours per day. | Total work, including normal hours, may not exceed 11 hours for a day shift employee. |
| Weekly Overtime Cap | Overtime is limited to 9 hours per week. | Overtime exceeding 9 hours per week is illegal, though the employer must still pay a high premium for any hours worked beyond this cap. |
| Mandatory Payment | Employers are typically required to pay for any overtime worked, even if it was not previously authorized. |
Overtime compensation is mandatory and is calculated as a minimum premium percentage of the employee’s regular hourly wage, based on the time and day the overtime is performed.
| Overtime Condition | Time Period | Minimum Premium Rate (Supplement) | Total Pay Rate |
| Daytime Overtime (Standard) | 6:00 AM to 6:00 PM | +25% of the regular hourly wage. | 125% |
| Nighttime Overtime (Standard) | 6:00 PM to 6:00 AM | +50% of the regular hourly wage. | 150% |
| Night Shift Extension (Overtime prolonging a night shift) | Extension of a night shift or mixed shift that started during the night. | +75% of the regular hourly wage. | 175% |
| Overtime Exceeding Cap | Overtime exceeding the 9-hour weekly cap. | +75% of the standard rate. | 175% |
Compensation for work performed on a mandatory rest day or public holiday is separate and generally results in a higher overall rate.
| Day/Condition | Minimum Compensation Rate (Statutory) | Notes |
| Weekly Rest Day Work (Sunday) | +50% premium over the ordinary salary PLUS a compensatory rest day. | The employee must be granted the 50% premium plus an alternative rest day. |
| Public Holiday Work | +100% premium over the ordinary salary. | All hours worked on a public holiday are paid at double the rate. |
| Overtime on Rest Day/Holiday | Applies the Rest Day/Holiday rate (200%) PLUS the applicable Daytime (25%) or Nighttime (50%) overtime premium on the Rest Day/Holiday base rate. | This can lead to rates between 225% and 250% of the ordinary rate for overtime worked on these days. |
Leave
Annual Leave (vacation)
An employee in Panama is entitled to 30 calendar days of paid annual leave following the commencement of 12 months of employment (accrued at 1 day for every 11 days worked). Employers must provide the payment of annual leave three days before the vacation and cannot be compensated in lieu of payment.
PTO carryover
In Panama, statutory annual leave does not freely carry over. Vacation must be taken when due, and accumulation is generally prohibited except in limited, legally allowed cases. However, accrued statutory leave cannot be forfeited — unused leave must be paid out on termination, and a blanket “use-it-or-lose-it” deletion is not lawful.
Public Holidays
Public holidays that fall on a Sunday are moved to the following working day.
| Date | Day | Holiday | Notes |
|---|---|---|---|
| 1 January 2026 | Thursday | New Year’s Day | Standard holiday |
| 9 January 2026 | Friday | Martyrs’ Day | Standard holiday |
| 17 February 2026 | Tuesday | Carnival Tuesday | Standard holiday |
| 2 April 2026 | Thursday | Maundy Thursday | |
| 3 April 2026 | Friday | Good Friday | Standard holiday |
| 1 May 2026 | Friday | Labour Day | Standard holiday |
| 3 November 2026 | Tuesday | Separation Day from Colombia | Standard holiday |
| 5 November 2026 | Thursday | Colón Day | Standard holiday |
| 10 November 2026 | Tuesday | Uprising of Los Santos | Standard holiday |
| 28 November 2026 | Saturday | Independence Day from Spain | Standard holiday |
| 8 December 2026 | Tuesday | Mother’s Day | Standard holiday |
| 20 December 2026 | Sunday | National Mourning Day | Standard holiday |
| 25 December 2026 | Friday | Christmas Day | Standard holiday |
Sick Days
The first 3 days of sick leave are paid by the employer. From the 4th day Social Security pays sick leave at a rate of 70% of salary, for a period of up to 26 weeks.
Maternity Leave
Maternity leave starts six weeks before the expected date of delivery and ends eight weeks after delivery for a total of 14 weeks.
Maternity pay is paid by the Social Security system (provided that the employee has accrued a total of nine monthly Social Security quotas before the seventh month of pregnancy). If the employee has not accrued the minimum, the payment will be made by the employer (calculated as the greater of the last salary or average of the last 180 workdays).
In the case of multiple, difficult birth, or pregnancy-related illness, the leave can be extended upon the presentation of a medical certificate.
Female employees are protected during their maternity leave and cannot work any rest days or overtime hours.
Adoptive mothers are entitled to 28 days of paid leave.
Paternity Leave
Employees are entitled to three days of fully compensated paternity leave following the birth of their child. The employer compensates this leave.
Parental Leave
There are no provisions in the law regarding parental leave.
Other Leave
There are no provisions in the law regarding any additional leave.
PAID MATERNITY LEAVE (DAYS)
Termination
Termination Process
The termination process varies according to the employment agreement and collective agreement in place and is based on the type of contract and reason for termination. All termination must be provided in writing and must follow the laws outlined in the Panama Labor Law; unjustified dismissals may be trialed in labor court. If the court cannot resolve the claim within 60 days, the employer may dismiss the employee.
Employees cannot be dismissed when pregnant or for their involvement in trade union activities, strikes, or complaining about their employer.
However, there are certain classifications of employees that may be dismissed without just cause (domestic workers, fishing or agricultural workers, and retail workers).
| Salary payment interval / date | Final payment on termination | Bank account/payment-method requirement |
|---|---|---|
| Pay frequency is typically monthly or as defined in the contract. Some sources note payroll may be weekly or monthly depending on employer. | On termination, employers must pay all outstanding wages, accrued vacation and bonuses, and may owe seniority/indemnity (“seniority premium”) depending on service and cause of termination. | Payment in monetary form is required. |
Notice Period
In general, notice periods cannot exceed three months and are commonly 30 days or pay in lieu when workers are dismissed ‘without just cause’. No notice is required when workers are dismissed with ‘just cause’ or during the probation period.
Severance Pay
Severance pay is not required unless the case of dismissal is due to redundancy. The severance payment for redundancy is dependent on the employee’s length of service as follows:
- Up to 6 months of employment– 0.5 months of pay
- Up to 9 months of employment- 0.75 months of pay
- Up to 1 year of employment- 1 month of pay
- Up to 2 years of employment- 3 months of pay
- Up to 4 years of employment- 4.5 months of pay
- Up to 5 years of employment- 5.2 months of pay
- Up to 10 years of employment- 9.75 months of pay
- Up to 20 years of employment- 14.8 months of pay
Probation Period
In Panama, probation periods are outlined in the employee’s employment contract/collective agreement. The probation period is up to three months.
Immigration
As a general rule, employers/companies must make up 90% of their workforce via Panamanian citizens or foreigners who are either married to a Panamanian citizen or who have resided in the country for at least ten years. They can engage an expert or foreign technical personnel, but this must not exceed 15% of the total number of workers.
Employers who need to contract foreign personnel must obtain authorization issued by the Ministry of Labor. This authorization or work permit is valid for renewable one-year periods, except for citizens of certain specific countries who may obtain a permanent work permit. Employees under the Marrakech Treaty may renew their resident permits and work permits, but only for a maximum of six years.
The Ministry of Labor has published a decree which restructures Panama’s work permit categories and implements numerous other changes to work permit regulations. Under the decree, there are overall stricter quota requirements for employers in Panama but relaxed quota requirements for short-term technicians; stricter work permit rules for SEM and EMMA visa holders, stricter documentary requirements for certain employers, and new work permit options for self-employed foreign nationals and students, among numerous other changes.
The Ministry has granted a grace period until March 31, 2023, so that foreign nationals who already hold a valid work permit in Panama or submit their work permit application on or before that date are unaffected by the changes.
VAT
General
The standard rate of movable goods and service transfer tax is 7%.
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Payroll and Benefits Guide
in Panama
What’s covered in this guide:
- Employer/employee contributions
- Minimum wage
- Working hours
- Visa requirements
And more...
Public Holidays Calendar
| Date | Day | Holiday | Notes |
|---|---|---|---|
| 1 January 2026 | Thursday | New Year’s Day | Standard holiday |
| 9 January 2026 | Friday | Martyrs’ Day | Standard holiday |
| 17 February 2026 | Tuesday | Carnival Tuesday | Standard holiday |
| 2 April 2026 | Thursday | Maundy Thursday | |
| 3 April 2026 | Friday | Good Friday | Standard holiday |
| 1 May 2026 | Friday | Labour Day | Standard holiday |
| 3 November 2026 | Tuesday | Separation Day from Colombia | Standard holiday |
| 5 November 2026 | Thursday | Colón Day | Standard holiday |
| 10 November 2026 | Tuesday | Uprising of Los Santos | Standard holiday |
| 28 November 2026 | Saturday | Independence Day from Spain | Standard holiday |
| 8 December 2026 | Tuesday | Mother’s Day | Standard holiday |
| 20 December 2026 | Sunday | National Mourning Day | Standard holiday |
| 25 December 2026 | Friday | Christmas Day | Standard holiday |
What is the spanish word for the severnce payment?
Indemnización por despido