Employer of Record in Panama

How an Employer of Record Works in Panama

An Employer of Record (EOR) in Panama provides a way for foreign companies to hire in the country without having to set up a local entity. The EOR takes the role of the legal employer in the country, hiring employees on behalf of international companies and dealing with onboarding and compliance, while the foreign employer can focus instead on managing day-to-day operations.

Rivermate provides EOR services in Panama. Our local experts have extensive knowledge of the country, so you can hire quickly and compliantly anywhere in Panama.

Panama labor market: At a glance

The hiring market
Greatest hiring activity:	Panama City
Hiring timelines:	About four days for standard onboarding; up to six months for foreign nationals.
In-demand sectors:	Hospitality and tourism, finance, insurance, IT.
Sectors with skills shortages:	Sales and marketing, engineering, customer service.

The salary market
Employer tax contributions:	CSS: 13.25% Educational Insurance: 1.50% Professional Risk Insurance: 0.42%–7%
Minimum wage:	Minimum wage varies. E.g. PAB 1.64 per hour for small agricultural businesses, PAB 3.58 for financial and insurance activities.
Average gross annual salary:	About PAB 9,070 per year.
Income tax brackets:	Up to PAB 11,000: 0% PAB 11,001–50,000: 15% Above PAB 50,000: 25%

What it costs to hire an employee in Panama

You need to budget for more than the salary when you hire in Panama. You must also budget for social security, mandatory bonuses, leave, and more. Here are the main costs you can expect to pay when hiring in Panama.

Salary

Salary varies widely based on role, seniority, and sector. The currency is the Panamanian balboa (PAB), which has a 1:1 value with the US dollar, and USD circulates as legal tender in the country.

There is no universal minimum wage, and the minimum rates vary depending on activity, company size, occupation, and more. Rates are generally set hourly, and you’ll need to consult the relevant category when setting salaries.

Contributions

The main contributions for employers are:

• Caja de Seguro Social (CSS): 13.25%
• Educational Insurance: 1.50%
• Professional Risk Insurance: This depends on the activity.

Employees also contribute 9.75% to CSS and 1.25% to Educational Insurance.

The severance fund (Fondo de Cesantía) generally applies to employees on indefinite-term contracts. Every quarter, employers must contribute to this fund, which covers a portion of the seniority premium (Prima de Antigüedad) and 5% of the monthly portion of severance indemnity.

Bonuses

The 13th-month bonus (Décimo Tercer Mes) is mandatory in Panama and is equal to about one month’s salary. It’s paid in three installments, in April, August, and December, and each installment is equal to one-twelfth of the eligible remuneration for the previous four-month period. There’s also a special CSS contribution rate of 10.75% for employers for this bonus.

Leave

Employees are entitled to 30 calendar days of paid leave for every 11 months of service. It accrues over time at the rate of one day of leave per 11 days of work.

They are also entitled to paid sick leave, which is paid by the employer. They can receive 12 hours of sick leave for every 26 days worked, which is equal to 144 hours per year. This can also accumulate for two years, and the employer pays the full salary from the reserve.

The CSS may pay a subsidy after this as long as the employee meets the contribution conditions, and this is equal to 70% of their average salary.

Mothers get at least 14 weeks of maternity leave, which is divided into six weeks before birth and eight weeks after birth. The CSS pays a benefit if the employee meets the contribution requirements, and the employer covers the difference between the subsidy and the employee’s normal wages. But if the CSS is not required to pay it, the employer is responsible for paying the full amount.

Overtime

Overtime is a maximum of three hours per day and nine hours per week. This is paid at a premium, which depends on when the overtime takes place. If it’s during the day, the premium is 25%; at night, or where it extends a mixed shift that started during the day, it’s 50%; where it extends a night shift or a mixed shift that started at night, it’s 75%.

Working on a Sunday or weekly rest day is paid at a 50% premium, and a national holiday has a 150% surcharge over the daily wage. In both cases, the employee is entitled to another day off if they work.

Severance

For indefinite-term contracts, employers usually need a justified reason to dismiss an employee, but there are exceptions to this under Article 212. For example, an employee with less than two years of continuous service could be dismissed without justified cause. Where an exception applies, employees usually need to provide 30 days' notice or payment in lieu, which must be in addition to the severance indemnity.

The Prima de Antigüedad must be paid whenever an indefinite-term contract ends, whatever the reason for the termination. It’s equal to one week's salary for every year of service, and partial years are paid proportionally. Additional indemnity might also be due in the case of unjustified dismissal or in the case of a legally justified resignation that’s attributable to the employer.

Employer cost calculator

Use our employer cost calculator to get a clear idea of the employment costs in Panama.

What hiring in Panama really looks like

Market condition	What an employer needs to know
Talent availability	Good, especially in Panama City.
Top-paying sectors	Energy, banking, financial services.
Skills shortages	Manufacturing, IT, finance, construction.
Key employer challenge	Finding candidates with the right specialist skills.

Hiring in Panama is relatively straightforward. The main hiring hub is Panama City, where you’ll find lots of professionals in finance, tech, and corporate services. Other regions offer talent, too, especially in tourism, logistics, and agriculture. Rivermate currently employs people in various sectors, including customer service, IT, and sales. The availability of specialist skills, however, can vary.

You can use various recruitment channels to find candidates in Panama. These include online job boards, professional networking platforms, and recruitment agencies. Empleos Panamá is a free online platform from the Ministry of Labor that you might find useful.

The initial onboarding process is generally quite quick. Once a candidate is selected, it takes about four days to complete. The employment agreement should be in writing, and it can be signed digitally, as long as it meets the legal requirements. It should be signed when the employment relationship starts.

Hiring foreign nationals leads to additional steps. Most will need a valid work permit issued by MITRADEL, and it’s the employer’s responsibility to make sure the employee maintains the required authorization.

Employers need to consider workforce-percentage restrictions. Under Article 17 of the Labor Code, foreign ordinary workers are limited to 10% of the workforce, while specialist and technical foreign workers can make up 15%. These limits apply to the relevant permit categories. Some workers may fall under different categories or exceptions. Employers should check their existing workforce composition before making a foreign hire to ensure they have capacity.

An employee may already have a permit through another company, but they might need a new permit when they move to a new employer. It can sometimes be transferred from one employer to another, but MITRADEL must authorize it. The full process for hiring a foreign worker could take up to six months, but it depends on different factors, including the visa category and immigration process.

Remote work is possible in Panama, and the Telework Law covers the requirements. It should be agreed in writing, including any relevant expenses and how they will be covered. In general, the employer must provide tools and equipment as well as cover electricity and internet expenses.

Country-specific problem that employers must know about

Getting final payments correct can be a challenge in Panama. According to our local experts, it’s one of the biggest compliance risks that employers face.

Timing is the big issue. The final settlement should be ready for payment on the last day of work. This is not something set out in the Labor Code, but a last-working-day deadline is a good idea. Overdue wages are charged 10% interest per year, and the same applies to vacation pay, benefits, and indemnities; this is calculated from the date they are due.

Employers sometimes forget to include outstanding expenses and then have to recalculate the final amount. This not only leads to additional admin, but it can also lead to an incomplete settlement and even payment disputes.

Avoid this by preparing the final settlement in advance, including salary, accrued leave, the proportional 13th-month pay, Prima de Antigüedad, severance indemnity, reimbursable business expenses, and anything else due.

The seniority premium is paid regardless of the reason for termination, while additional severance indemnity could be due based on the circumstances. It’s best to get everything complete before the last working day to avoid problems.

Key compliance risks employers must know about

Employment contracts

Most contracts must be prepared in writing and signed at the start of employment. However, an employment relationship can still exist even if no written contract is prepared. Under Article 67 of the Labor Code, three copies are needed for the employer, employee, and the Ministry of Labour.

Article 68 specifies what needs to be in the contract, including the details of both parties, a clear description of the work, the contract duration and type, the location of the work, working hours, and payment details. MITRADEL checks the contracts and records their registration. Failure to comply with the written-contract requirement can lead to fines of PAB 50–200.

Social security

You will need to register with the Social Security Fund (CSS) and make sure that all employees are covered by the social security system. If they have never been signed up, you must sign them up within six business days of the start date. This is different from the Aviso de Entrada, which should be submitted before the employee starts work to ensure they have professional risk coverage. The employer must also be registered for professional risk insurance. Failure to register the employer or employees within the required period can result in fines.

Minimum wage

There is no universal minimum wage, and the rates vary by geographical region, economic activity, company size, and occupation. You will need to identify the correct hourly rate, and you can’t just rely on a single national figure.

Working hours and overtime

Different rules apply for day shifts, night shifts, and mixed shifts. Daytime is from 6 am to 6 pm, while night lasts from 6 pm to 6 am. A shift that covers over three hours during night hours is considered a night shift. If it covers no more than three hours, it’s considered a mixed shift.

The maximum working hours are eight per day and 48 per week for day shifts; seven-and-a-half per day and 45 per week for mixed shifts; and seven per day and 42 per week for night shifts.

How Rivermate can help you stay compliant when hiring in Panama

At Rivermate, our local experts know the local labor laws in detail and will take care of the local employment administration for you. This means you can focus on running your business and finding the right talent, while we take care of the rest.

Learn more about EOR services

Benefits of hiring employees through an EOR in Panama

The main benefit of using an EOR is that you can hire employees in Panama without needing to establish your own legal entity. That means you can employ much faster and with less hassle.

Setting up a legal entity involves administrative work, registrations, and more. An EOR is an alternative for businesses that want to enter the market and hire a small team with no initial commitment.

With an EOR, you’ll get support with local employment law and compliance. The country has several specific employment requirements, and you need to understand them in detail, including employment agreements, enrolling employees in social security, sorting out professional risk coverage, local payroll reporting, and more. An EOR already has HR and employment expertise, and it can easily manage these responsibilities if you don’t already have your own legal or HR team in Panama.

EOR experts provide local hiring and onboarding support. They know the local market and the best way to attract talent. They also handle document collection, contract registration, signature collection, and registering employment agreements with the Ministry of Labor.

Also, when you hire via an EOR, you have a simple way to scale your operations and adapt over time. You could use an EOR to start building your local team and later decide whether it makes sense to establish your own entity.

Ready to start hiring in Panama?

Hiring in Panama isn't just about finding the right candidate. At Rivermate, we simplify the entire process for foreign companies by managing payroll, taxes, compliance, and more, so you can hire with complete confidence.

Talk to a Panama Hiring Expert

Sources:

https://www.mitradel.gob.pa/

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