Panama is an economy known for its extremely talented, skilled, and educated workforce.
With the contributions of Panamian employees, the economy has shown significant growth in the industries that include the export of commodities (such as iron, gold, and agricultural products), transportation, pharmaceuticals, and services industry (such as hospitality).
The growth of these industries has made global businesses employ the Panamian workforce. However, with the tight labor market, employers must offer competitive benefits and compensation packages. Offering a strong compensation structure help in attracting and retaining employees.
To offer the right compensation package in Panama, you must understand Panamian compensation policies, restrictions of the compensation law, and the statutory benefits for residents and foreign employees.
This article aims to cover everything you must know about the compensation structure in Panama.
What are Employee Benefits?
Employee benefits are benefits that an employer offers to their workforce in addition to their annual monetary compensation. The main purpose of an employee benefits package is to increase the economic security of a company’s workforce. This increases employee retention across the company as this acts as reward management.
Employee benefits commonly include statutory, fringe, long-term, and supplementary benefits. A well-rounded employee benefits package includes overtime pay, contributions to the retirement fund, social security contributions, performance-linked incentives, 13th-month pay, profit sharing, medical insurance, leaves, and/or life insurance.
Compensation Laws in Panama
In Panama, the compensation laws have outlined a minimum wage that differs based on different regions. The minimum wage in Panama range from USD 326.56 to USD 971.35 monthly.
13th-month pay is mandatory and must be processed in three equal installments (in April, August, and December). A 13th-month pay is an additional monthly payment offered to Panamian employees.
When an employee is dismissed, employers must offer severance pay, including pending bonuses, seniority premiums, and leave pay.
How to Design an Employee Benefits Program for Employees in Panama?
It is a relatively easy process to design an employee benefits program for your Panamian workforce. The right compensation structure in Panama is a balance between competitive employee benefits and monetary compensation. Offering the right compensation structure helps positively impact your employees and create a good workplace culture.
Therefore, you must create compensation and benefits policies in Panama that benefit your Panamian workforce and help retain your workforce.
Below are certain steps you can follow so that you can design an effective employee benefits program for your organization:
Identify objectives of the benefits
The first step when designing the right employee benefits in Panama is to identify and evaluate organizational objectives and the goals you want to achieve with the employee benefits policies.
Major goals for most organizations can be to
- Attract and retain the best candidates
- Offer employee benefits that are unique to your industry
- Offer a well-diversified employee benefits plan, including statutory, supplemental, and fringe benefits.
Identifying and evaluating the objectives that reflect the requirements of both parties can act as a guide to establishing an employee benefits plan for your workforce.
Determine expenses for employee benefits
The next step is to determine the expenses you will incur to establish a well-rounded employee benefit plan. This is because offering certain benefits can be costly.
Therefore, employers need to analyze the costs of employee benefits in Panama that they wish to offer their Panamian employees.
If your organization already has an employee benefits program, you can analyze the annual and projected costs and decide if it meets your budget. This will significantly impact offering additional perks such as employer-sponsored insurance and pension plans.
Conduct a survey
The third step is to conduct an assessment through employee benefits surveys. This will help you understand your employee’s perspective and offer competitive compensation and benefits in Panama.
The survey can include questions based on the employee benefits you want to offer your workforce.
After you conduct a survey, you can now analyze the answers you received and determine the employee expectations and the benefits program you offer.
When analyzing the survey answers, you can now offer the right mix of employee benefits that benefit your Panamian workforce and that match your budget.
Choose the right employee benefits
The fourth step is to choose a benefits plan that suits all your employees. A modern-day workplace comprises a mix of employees from different generations and regions.
Especially when catering to the Panamian workforce, it is important to consider the requirements of all generations of employees by offering attractive employee benefits in Panama.
Therefore, you must ensure that the employee benefits plan you choose strikes a balance between employee and business requirements.
Periodic evaluation of employee benefits
The last step is to manage your employee benefits plan efficiently. You can achieve this through a periodic evaluation of employee benefits.
When you conduct a periodic assessment of the employee benefits program, you get answers to questions such as employee satisfaction, organizational goals and objectives for the benefits program, and the extent of success of the employee benefits in Panama.
A few important factors that businesses also must consider when designing an employee benefits package include:
- The type of Panamian employees you want to attract
- What perks your workforce enjoys the most
- The budget allocated toward designing the right employee benefits
Working toward the abovementioned factors will help you design the compensation package to attract and retain your Panamian employees.
Types of Guaranteed Benefits in Panama
An employer must offer certain mandatory benefits to their Panamian employees, alternatively known as statutory benefits. The compensation package in Panama must include the following statutory benefits:
- Leaves: All Panamian employees have a leave entitlement of 18 paid days for any illness or injury. They are entitled to 14 public holidays, 30 days of paid time off, and 14 weeks of maternity leave.
- Overtime pay: Employees asked to work hours over a 48-hour workweek are entitled to overtime pay of
- 125% of an employee’s gross salary for work done between 6 am to 6 pm
- 150% of an employee’s gross salary for additional hours on rest days (between 6 am to 6 pm)
- 175% of an employee’s gross salary for additional hours during the nighttime.
- Severance pay: Employees dismissed due to redundancy are entitled to severance pay and seniority premium, both of which are offered based on employment tenure.
- 13th-month pay: A 13th-month pay is an additional month’s salary offered to all Panamian employees. It must be offered in three equal installments on the 15th of April, August, and December.
- Federal minimum wage: Panama has different minimum wages for different regions, which typically range between 326.56 USD to 971.35 USD per month. Employers must ensure they pay higher than the minimum wage based on where the employee works.
- Social security benefits: All employers must ensure that they contribute toward the Panamian social security. The social security system in Panama offers several benefits, which include unemployment, accident, and healthcare benefits. The contributions made by both parties must be up to 21.34% by employers and 11% by employees.
Employers must note that two currencies co-exist in Panama: United States Dollars and Panamanian Balboa. Employers need to mention the currency they process the compensation package in Panama.
Employee Benefits for Expatriates
The employee benefits in Panama for expatriate employees are the same as for resident employees.
Expatriate employees are entitled to all statutory benefits, which include social security benefits, 13th-month pay, statutory leaves, overtime pay, and annual compensation above the federal minimum wage.
They are also entitled to additional supplemental benefits that an employer offers to their resident employees, including monetary bonuses, commuting expenses reimbursement, company vehicle, housing pay, company equipment, education allowances, etc.
How are Employee Benefits Taxed in Panama?
Certain employee benefits are taxed, which include:
- 13th-month pay based on an employee’s income tax brackets. The personal income taxes in Panama are between 0 to 25%.
- Unreimbursed items, such as business-connected travel expenses, moving expenses, business entertainment expenses, etc., are taxed based on the income tax rates in Panama. The income taxes in Panama range between 0 to 25%.
Certain employee benefits are exempt, which include:
- Medical expenses are exempt; however, they must be documented by both parties (employer and employee)
- Education expenses up to USD 3,600 per student
- Charitable contributions up to USD 50,000 annually
- Retirement fund contributions are exempt for up to USD 15,000 annually
- Interest paid on mortgage loans is deducted up to USD 15,000 annually
Restrictions for Panamian Benefits and Compensation
A foreign business cannot offer compensation and benefits in Panama until a registered entity, such as a subsidiary. Without a legal entity, businesses can face delays in operating, fines and penalties, and the chances of benefitting from global expansion.
A great way to employ and offer competitive employee benefits in Panama is to outsource your HR responsibilities by working with a global PEO like Multiplier.
We work with a team of professionals to help you expand and enable the employment of Panamian employees without having to set up your own entity.
You can partner with us to generate employment contracts efficiently, onboard your Panamian employees, process their payroll, and ensure that you offer world-class employee benefits in Panama.
While we handle all compliance aspects of employing, you can focus on running your business operations.
Supplemental Benefits for Employees in Panama
A well-rounded compensation package in Panama includes annual compensation, statutory, and supplemental benefits. Commonly offered supplemental benefits for employees in Panama include:
- Monetary bonuses (such as performance-linked bonuses)
- Company vehicle
- Reimbursement of commuting expenses
- Company equipment, such as mobile phones, laptops
- Housing pay
- Education allowances
How Multiplier Can Help with Benefits Management in Panama
Although hiring and working with Panamian employees is relatively easy, offering a competitive compensation structure is also important.
A good compensation package in Panama helps attract and retain the right talent and ensures a competent workforce.
However, when working with a significant number of Panamian employees, you must have an internal team that ensures you comply with Panamian compensation and benefits policies. This can be an issue given the constant change in compensation policies and regulations.
To keep up with the changing compensation policies while offering a competitive compensation package in Panama, you can outsource these services to a global EOR. Multiplier is a global EOR solution that helps you compliantly onboard global employees, provide employment contracts that comply with the local regulations, pay your employees on time, offer a competitive benefits package, and ensure you adhere to the changing regulations.
Talk to our professionals in Panama to learn more about our services!