Employer of Record in Panama: how to hire compliantly without an entity.
Employ Latam is an employer of record in Panama. We become the legal employer for your hire, so you can employ full-time staff there without setting up an entity. Locally compliant contracts, monthly payroll, statutory benefits, taxes. Below: what the law actually requires, in plain English.
- Country
- Panama
- ISO code
- PA
- Region
- North America
- Phone code
- +507
- Employ Latam coverage
- Full EOR + contractor payments
Last updated July 2026
Overview
Panama sits at the crossroads of the Americas, and that geography shapes its economy. The country runs on the US dollar alongside its own balboa (pegged 1:1), which removes currency risk for US-based companies paying employees there. The Panama Canal, a large free-trade zone in Colón, and a growing financial services sector make it one of the more developed labor markets in Central America.
Hiring here means working within the Panamanian Labour Code, administered by MITRADEL (the Ministry of Labour and Labor Development). Employment contracts must be in writing, signed in wet ink, and registered with MITRADEL within 30 days of the employee's start date. Digital signatures are not accepted. Contracts are typically drafted in Spanish and English.
The standard employment relationship is indefinite. Fixed-term contracts are capped at one year and must reflect a genuine temporary need. If an employee keeps working after a fixed-term contract expires, the law treats the relationship as indefinite automatically.
Country at a glance
| Currency | Panamanian balboa (PAB) / US dollar (USD), at 1:1 parity |
| Working week | Monday to Friday |
| Standard workday | 8 hours (48-hour weekly maximum) |
| Probation period | Up to 90 days, for roles requiring specialized skills |
| Notice period | 30 days (or payment in lieu) for employees under 2 years of service |
| 13th-month salary | Not mandated by law; verify current MITRADEL guidance for your sector |
| Payroll cycle | Weekly, bi-weekly, or monthly (specified in the contract) |
Social security registration with the Caja de Seguro Social (CSS) is required during the employee's first week of work. Both employer and employee contribute to CSS, which covers health, disability, and pension.
For foreign hires, work permits are issued for an initial two-year term, then renewable for three years. After ten years of continuous residence, employees can apply for an indefinite permit. Permit renewals require proof of at least nine months of paid CSS contributions.
An EOR removes the need to open a local entity. Employ Latam issues a locally compliant employment contract, handles CSS registration, runs payroll in USD, and can have your hire onboarded in 72 hours. You manage the work.
Pricing starts from $349 per employee per month, depending on country and team size.
Employment contracts and worker types
Panama's Labour Code recognizes three core contract types. All written contracts must be executed in triplicate, registered with MITRADEL (the Ministry of Labour) within 30 days of the employee's start date, and signed with wet ink. Digital signatures are not valid.
| Contract type | Typical use | Max duration | Probation allowed |
|---|---|---|---|
| Indefinite-term | Standard ongoing employment | No limit | Up to 90 days (must be stated in writing) |
| Fixed-term | Temporary or project-based work | 1 year | Up to 90 days (must be stated in writing) |
| Specific task/work | Defined deliverable or project scope | Until task is complete | Up to 90 days (must be stated in writing) |
A few things to know about how these contracts behave in practice:
- A fixed-term contract converts to indefinite if the employee keeps working after it expires, or if the same worker is hired on successive fixed-term contracts.
- A specific task contract converts to indefinite if the worker continues performing the same duties after the defined work concludes.
- Probation (up to 90 days) is only valid for roles requiring specialized skills, must be written into the contract explicitly, and cannot apply if you are rehiring someone for a role they previously held at your company.
Part-time employment is recognized under Panamanian law. Hours are reduced and benefits are proportional.
Oral contracts are permitted in a narrow set of situations: agricultural or domestic work, occasional work not exceeding three months, work valued under PAB 200, and services in villages with fewer than 1,500 inhabitants. For most professional and office-based hiring, a written contract is required.
Contracts must be drafted in Spanish (a bilingual Spanish/English version is common practice) and must include the parties' identities, job description, duration, salary, and both signatures.
Contractor vs. employee
Panama does not have a separate freelancer statute equivalent to some other LATAM markets. If a working relationship has the characteristics of employment (fixed hours, exclusivity, direct supervision, regular payment), Panamanian authorities can reclassify it as employment regardless of what the contract says. Misclassification exposes you to back-paid social security contributions, benefits, and potential penalties.
If you need ongoing, integrated work from someone in Panama, an employment contract under an EOR structure is the lower-risk path. Employ Latam issues a locally compliant employment contract, handles CSS registration and statutory contributions, and gets the worker onboarded in as little as 72 hours.
Pricing starts from $349 per employee per month, varying by country and team size.
Hiring a contractor in Panama
Many teams start with a contractor in Panama before they hire an employee. We draft the contractor agreement, collect the contractor's local tax ID, pay them in local currency or USD, and withhold tax where Panama requires it. You approve invoices and pay one USD invoice.
Contractor or employee
Before you start, we review the role and tell you whether it looks more like a contractor or an employee. How Panama law draws the line is covered above.
When to convert
A contractor who works only for you, keeps set hours and uses your tools is effectively an employee under most Latin American labor law. We can move them onto an employment contract with us: same person, same pay.
Contractor payments from $29 per contractor per month.
Payroll, taxes, and the 13th-month salary
Payroll in Panama runs on a monthly cycle in most cases, with statutory contributions withheld at source and remitted by the employer. The country's marquee payroll feature is the decimotercer mes, the mandatory 13th-month salary, paid in three installments across the year rather than as a single year-end bonus. Employers processing payroll locally need to track each installment date separately from regular salary runs.
The 13th-month payment is split into three parts, paid in April, August, and December. Each installment is typically one-third of the total annual entitlement, calculated on the employee's ordinary salary. Employ Latam handles the calculation and timing so the split happens automatically each pay cycle.
On top of gross salary, employers carry statutory contributions for social security, calculated as a percentage of the employee's gross pay. Employees also have contributions withheld directly from their paychecks. Both sides fund a combination of pension, health, and unemployment-related programs administered through Panama's social security system (CSS).
| Contribution | Employer rate | Employee rate |
|---|---|---|
| Old age, invalidity, survivors (pension) | 4.25% | 9.25% |
| Health and long-term care | 8% | included above |
| Unemployment | 2.25% | n/a |
| Sickness and maternity | n/a | 0.5% |
| Total social contributions | 14.5% | 9.75% |
Income tax is withheld progressively based on the employee's salary bracket, with a top personal rate of 25% for higher earners. Corporate tax for locally operating entities sits at 25%. Neither of these applies directly to the employee's payslip beyond standard withholding, but they shape how compensation packages are structured for tax efficiency.
Other payroll-relevant figures to plan around:
- Monthly minimum wage: 482.18 PAB (varies further by sector and region under collective agreements)
- Statutory work week: 48 hours
- Overtime premium: 25% over the regular hourly rate
- VAT rate: 7%, relevant for any local invoicing tied to employment costs
Panama's labor code also sets standard leave entitlements that interact with payroll: 22 working days of annual leave, 14 weeks of maternity leave, and 0.6 weeks of paternity leave, all of which require continued salary payment during the leave period. Public holidays total 13 days per year, each paid at the regular rate if it falls on a working day.
Employ Latam runs Panama payroll on your behalf: statutory contributions handled, 13th-month installments scheduled automatically, and a locally compliant employment contract in place from day one. You review and approve, we file and pay.
Mandatory benefits, vacation, and parental leave
Panama's Labour Code sets a clear floor for employee entitlements. Every worker hired under a compliant contract receives these benefits by law, regardless of what the employment agreement says. An agreement that offers less than the statutory minimum is void to that extent.
Leave entitlements
| Leave type | Entitlement | Paid by |
|---|---|---|
| Annual leave | 30 calendar days per year (accrues at 2.5 days per month of service) | Employer |
| Sick leave | Up to 18 weeks per year, after a waiting period covered by social security | Caja de Seguro Social (CSS) |
| Maternity leave | 14 weeks total: 6 weeks before birth, 8 weeks after | CSS (after qualifying contributions) |
| Paternity leave | 3 days paid leave at birth | Employer |
| Public holidays | 11 national holidays per year | Employer |
A few things worth noting. Annual leave cannot be waived or replaced with a cash payment while the employment relationship is active. Workers must take it. Maternity benefits are paid through CSS once the employee has the required contribution history. If contributions are missing or late, the employer may be liable for the shortfall.
Thirteenth-month salary
Panama does not use the term "aguinaldo," but the country does have a mandatory thirteenth-month payment. It is paid in three equal installments: April 15, August 15, and December 15. Each installment equals one third of the employee's average monthly salary over the preceding four months. This is a statutory obligation, not a discretionary bonus.
Social security and other statutory contributions
All employees must be registered with the Caja de Seguro Social (CSS) during the first week of employment. CSS covers sickness, maternity, disability, and retirement. Both employer and employee contribute to CSS and to the educational insurance fund (IFARHU). The exact rates vary and are set by CSS regulation. An EOR handles registration and contribution remittance as part of the standard payroll run.
What this means in practice
When you hire through Employ Latam, the locally compliant employment contract includes all statutory entitlements. Statutory contributions are handled each payroll cycle. You do not track accruals, manage CSS filings, or calculate thirteenth-month installments manually. Payroll runs in Panamanian balboas (pegged 1:1 to USD), which simplifies cost forecasting for US-based finance teams.
Pricing for Panama starts from $349 per employee per month.
Severance, termination, and notice periods
Panama's labor code protects employees with defined notice and severance rules once a contract is terminated without cause. Employers should budget for both from day one, since these obligations apply regardless of company size or contract type.
Termination without just cause triggers two separate payments: a notice period (or payment in lieu) and a severance amount tied to tenure. Terminations for just cause (documented misconduct, repeated policy violations) can reduce or eliminate severance, but the bar for "just cause" is specific and must be well documented. Employ Latam handles the paperwork and local filing so terminations follow the correct sequence.
Other obligations that affect the cost of ending an employment relationship in Panama:
- 13th-month salary (decimo tercer mes): mandatory, paid in three installments across the year. Any accrued but unpaid portion is due at termination.
- Unused annual leave: statutory leave is 22 working days per year; unused days must be paid out.
- Social security settlement: employer contributions (14.5%, itemized below) must be current before a termination is finalized.
Employer social contributions (itemized)
| Category | Rate |
|---|---|
| Old age, invalidity, survivors | 4.25% |
| Health and long-term care | 8% |
| Unemployment | 2.25% |
| Total | 14.5% |
Severance and notice table
| Tenure | Notice period | Severance owed (without cause) |
|---|---|---|
| Less than 1 year | Typically shorter, scales with tenure | Typically lower, scales with tenure |
| Early tenure (1+ years) | Around 4.3 weeks on average | Builds toward the average of 18.1 weeks |
| Established tenure | Around 4.3 weeks on average | Approaches or meets the average of 18.1 weeks |
| Long tenure | Around 4.3 weeks on average | At or above the average of 18.1 weeks |
Notice period and severance both scale with an employee's length of service; exact bands are set by Panama's labor code and collective agreements where applicable. On average across tenure levels, employers should plan for roughly 4.3 weeks of notice and 18.1 weeks of severance when terminating without cause. Employ Latam calculates the exact figure for each employee based on their start date and role before any termination is initiated.
Recent regulatory changes
Panama's labor framework has been relatively stable over the past two years, but a handful of updates affect how employers structure contracts, handle social security, and plan for workforce costs. Staying current matters: penalties for non-compliance with MITRADEL and CSS requirements can include fines, back-pay liability, and contract nullification.
The table below covers confirmed changes from mid-2023 through mid-2025.
| Date | Change | Impact on employers |
|---|---|---|
| August 2023 | Law 6 of 2023 introduced regulated remote work (teletrabajo) provisions, formalizing employer obligations around equipment, connectivity costs, and occupational health for remote employees | Employers must include remote work terms in written contracts and cannot shift operational costs to employees without agreement |
| October 2023 | MITRADEL reinforced enforcement of the 30-day contract registration window, increasing inspection activity targeting foreign-owned businesses | Contracts must reach MITRADEL within 30 days of the employee's start date; late registration triggers administrative fines |
| January 2024 | CSS updated its digital employer portal, making electronic payroll reporting mandatory for employers above a set headcount threshold | Payroll submissions and contribution records must flow through the CSS portal; paper-only reporting is no longer accepted for covered employers |
| July 2024 | Panama raised the national minimum wage for several economic sectors following the biennial wage commission review | Salary floors vary by sector and region; employers must audit existing salaries against the updated sector-specific minimums |
| Early 2025 | Ongoing legislative discussion around expanding paid paternity leave beyond the current statutory minimum, with draft bills in committee | No law enacted yet, but employers hiring in Panama should monitor MITRADEL announcements; voluntary enhanced leave can support talent retention in the interim |
A few practical points worth noting:
- The teletrabajo rules apply to employees working remotely by agreement, not just those hired abroad. If your Panama-based hire works from home, the contract needs to reflect it.
- Sector minimum wages in Panama are not uniform. Construction, commerce, and agriculture each carry different floors. The July 2024 update widened some of those gaps.
- CSS contribution obligations begin in the employee's first week. The portal mandate means employers need login credentials and correct employer registration numbers before payroll runs, not after.
Employ Latam monitors these updates as part of ongoing compliance management. When a regulatory change affects your team's contracts or contributions, we handle the adjustment. You do not need to track MITRADEL bulletins yourself.
Frequently asked questions
- Do I need a local entity to hire someone in Panama?
- No. An employer of record acts as the legal employer in Panama on your behalf, so you can hire without registering a company there. The EOR issues the employment contract, handles CSS registration, and manages payroll while you direct the employee's day-to-day work. This is the fastest route to a compliant hire, typically live within 72 hours.
- What is the most common employment contract in Panama?
- The indefinite-term contract is the standard for most professional hires. It carries the strongest worker protections and full benefits eligibility, which also makes it the default assumption for Panamanian labor authorities. Fixed-term contracts are valid but capped at one year and must be genuinely temporary in nature. If the role is ongoing, use an indefinite contract from the start to avoid automatic conversion and potential compliance exposure.
- When is the 13th-month salary paid in Panama?
- It's paid in three installments rather than one lump sum: typically in April, August, and December. Each installment is roughly one-third of the employee's annual 13th-month entitlement, calculated from their regular salary. Employers must track all three dates separately from the standard monthly payroll cycle.
- How is Panama's thirteenth-month salary calculated and when is it paid?
- Panama's thirteenth-month salary equals one full month of pay, split into three installments paid on April 15, August 15, and December 15 each year. Each installment is one third of the employee's average monthly salary over the four months preceding the payment date. It is a statutory requirement under the Labour Code, not optional, and applies to all employees regardless of contract type.
- How much severance is owed for terminating an employee without cause in Panama?
- Severance in Panama scales with tenure and averages around 18.1 weeks of pay across typical cases. The exact amount depends on the employee's length of service and is calculated under Panama's labor code. Employ Latam runs this calculation for each employee before a termination is processed, so the payout is compliant and accurate.
- What are the most recent labor law changes in Panama that affect foreign employers?
- The two changes with the most immediate operational impact are the teletrabajo regulations (August 2023) and the CSS mandatory portal reporting requirement (January 2024). The teletrabajo rules mean any remote arrangement must be documented in the employment contract with clear terms on equipment and costs. The CSS portal shift means payroll contributions must be submitted electronically, so employer registration and portal access need to be in place before the first payroll run, not as an afterthought.
We handle the contract, payroll, taxes, and benefits in Panama so you can hire that person this month.
Statutory figures for Panama, each traced to a named source with its reference year. Sourced from OECD, the World Bank, the ILO, ISSA and national statutes.
Latest reference period: 2026
Figures are statutory reference values maintained internally and refreshed against primary sources. They are a starting point for planning, not legal advice — we confirm the exact numbers for your role before you hire.
What changed in Panama
Checked against official sources on .
No rule changes recorded since we began logging them.
Corrections to this guide
- Corrected 11 October 2026Notice period: 4.3 weeks → None · sourceNo statutory notice applies when a standard employee is dismissed for economic reasons. The employer must prove the economic cause to the labour authority (art. 213 and 215) and pay the art. 225 indemnity. The 30-day notice we showed before applies only to the categories in art. 212.
- Corrected 11 October 2026Public holidays: 11 days → 12 days · sourceCodigo de Trabajo art. 46 as amended (Ley 157 of 2022 added 20 Dec Dia de Duelo Nacional): 1 Jan, 9 Jan, Carnival Tuesday, Good Friday, 1 May, 3 Nov, 5 Nov, 10 Nov, 28 Nov, 8 Dec, 20 Dec, 25 Dec = 12 obligatory paid rest days.
What a hire in Panama costs
Employers in Panama pay statutory contributions of 13.25% on top of gross salary. At the average monthly wage of PAB 929, that adds PAB 123 a month.
| Salary | Gross per month | Employer contributions | Total per month | Total per year |
|---|---|---|---|---|
| Minimum wage | PAB 482 | PAB 64 | PAB 546 | PAB 6,553 |
| Average monthly wage | PAB 929 | PAB 123 | PAB 1,052 | PAB 12,619 |
Employer contribution rate: National government, as of Sept 2026
Minimum wage: ILOSTAT, as of Jan 2024
Average monthly wage: ILOSTAT, as of Jan 2025
Amounts in PAB. Totals per year are twelve monthly salaries plus contributions.
What the contributions pay for
- Health and long-term care8%
- Pension, invalidity and survivors4.25%
- Unemployment insurance2.25%
Components: ISSA Country Profiles, as of Jan 2024
From a different source from the headline rate, so they do not add up to it exactly. The worked example uses the headline rate.
On top of this: the 13th salary where the law requires one, paid leave, and notice and severance if the employment ends (all in the tables above), plus our employer of record fee, from $349 per employee per month. Every quote we send breaks each of these out for the actual role.
Found someone in Panama? Let's employ them.
We'll send a fully-loaded cost breakdown for the role within a few hours, then draft a locally compliant employment contract. Most Panama hires can start within 1 to 3 business days once docs are in.
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