Hiring Guide: Key Intel to know before Hiring Panama Employees

The Republic of Panama, officially known as República del Panama, is uniquely split across North and South America. It houses the famous Panama Canal, making it more biodiverse than the three countries combined.

Panama is termed a high-income economy that has a strong foothold across industries such as –

• Banking
• Tourism
• Transportation
• Commerce

Currently, Panama ranks seventh among the strongest economies in Latin America. According to the World Bank report, the country attracted USD 716.08 in FDI in March 2022.​  As per the Ease Of Doing Business Report 2020, Panama ranks 86th among 190 countries. It stands at 73rd position among 131 nations in the Global Innovation Index. The country is a popular destination for FDI owing to a stable political environment, pro-business governmental stand, and a rising real estate market.

Companies can easily set up their presence in the Panama market and start hiring skilled employees the country has to offer. As of 2019, 

• 67.88% of the working population works in the service sector, 
• 14.41% in agriculture and 
• 17.72% in industry-related services. 
• The literacy rate has also spiked by 0.32%, increasing to 95.74% in 2019. 

Panama is a favorable destination for hiring when you want to expand your company internationally and even for recruitment and selection in Panama. 

Things to Know Before Hiring in Panama

Before beginning recruitment and selection in Panama, you need to learn a few vital things.

Consider the factors listed below when hiring employees in Panama:

• Top companies deciding on recruitment and selection in Panama must comply with all the laws and the Panama employment rules.
• The Panama government lays down specific limitations regarding ownership in media, medical, accounting, economic, and retail domains. In these sectors, the owner cannot be a foreigner.
• There exists a limit on the total number of foreign workers in foreign investment setups.
• Some 200 professions in Panama stand exclusively reserved for Panamanian nationals. A few domains include medical practitioners, lawyers, engineers, accountants, and customs brokers.
• With the exceptions of retail, media, and a few other exclusive professions, foreign and domestic entities can establish, own, and dispose of business in all forms related to the remunerative activity. The Panama government will not screen inbound investments.
• All procedures related to registering foreign and domestic companies and obtaining notices of operation are listed on the Ministry of Commerce and Industry website.
• While conducting recruitment and selection in Panama, remember that as a  foreigner, you do not have to be present physically, thanks to a reliable global employment solution.
• Business visas, as well as citizenship, are obtainable for significantly-sized investors.

Employment contract

An employment contract is a document that establishes an employer-employee relationship. An employee undertakes work under employer supervision, and an employer has to pay for their services.

After the hiring process in Panama, employers should draft an employment contract in Spanish and English. It must mention all vital details besides other headers, such as compensation, deduction, and the employer’s official address. Create three copies of the contract — one for the employer, one for the employee, and the last for filing with the Panamanian Ministry of Labor. 

All employment agreements need to be signed in Panama by a national or a legal resident. Digital signatures are not allowed, and wet-ink signing is the norm in Panama. The employee contract being signed needs to be the original version. You can draft contracts for indefinite periods, defined periods, or specific work. A fixed-term contract cannot exceed a year in terms of duration.

Probation 

• The probation period for work in Panama does not exceed three months.
• The employer can terminate the employee’s association without notice or severance pay during this period. 

Termination

Termination is a complex chapter in Panama. As an employer, you can terminate a contract by-

• Mutual agreement
• Unilateral understanding with a just cause, or sometimes without cause
• Resignation
• Death of the employee

According to the Panamanian labor code provisions under Article 213, cause-based dismissal occurs in limited and highly extreme circumstances.

Employers must give a termination notice at least one month before the termination to employees with less than two years of service at a company. The employer is also permitted to pay a month’s salary before providing prior notice.

If there is a justified termination cause related to work performance, an employer can dismiss the employee without notice or payment instead of the notice.

In the context of labor rights, there is no mandatory indemnity payment to be made to an employee.

Employment laws

When conducting a recruitment process in Panama, you must be aware of the country’s employment laws.

• The Constitution of the Republic of Panama and the Labor Code regulates all employment relationships in Panama. 
• The Panamanian Constitution provides for all primary, inalienable rights related to employment relationships. The country’s Labor Code is a regulatory body on detail in such relationships. 
• Per the nature of any labor dispute, resolution can occur before the Ministry of Labor’s conciliation board for unjustified dismissals or similar claims up to the amount of US$1,500.  
• Cases presented before the Ministry’s conciliation boards can be appealed before superior labor courts. 
• The Ministry’s General Directorate of Employment handles authorization in case of mass dismissals.

Working hours and breaks

• When hiring staff in Panama, you need to mention working hours in the employment contract, so staying abreast of relevant working hours and breaks is vital.
• A work day in Panama is divided into these shifts –

1. 1. 6 am-6 pm day shift
   2. 6 pm-6 am night shift

• The maximum working hours are eight hours a day or 48 hours a week.
• For a night shift, the maximum period is seven or 42 hours a week.
• For mixed shifts, the maximum duration is seven-and-a-half hours. The related weekly hours are capped at 45 hours.
• When the work time exceeds limits set forth under Section VI.i, of the Labor Law, or when it exceeds all lower limits as per contract, it constitutes overtime. In such a scenario, payment is payable over and above an employee’s hourly wage:

1. 1. 125% of ordinary wages for day shift work
   2. 150% of ordinary wages for night shift or mixed shift work
   3. 175% of ordinary wages for overtime outside hours under the mentioned shifts

Note that overtime is not allowed when the work is dangerous or unhealthy. No person under 16 years can work overtime. A maximum of three hours of overtime work is permitted in a single day. The weekly cap is set at a maximum of nine hours. Suppose any employee renders services for the overtime period above the limits mentioned here. In that case, an excess will be paid with an addition of more than 75% of the actual wage, besides the penalties the law prescribes.

 Payroll

For proper processing of the payroll in Panama-

• Salary payments are made once every month.
• Weekly payout is also possible when contracted as such.

Minimum wage

• In Panama, the minimum wages depend on economic activity, specific occupations, and an establishment’s overall size.

• The minimum wage ranges from 326.56 USD to around 971. 35 USD every month.

Leaves

• All employees in Panama stand entitled to 30 days of paid annual leave after a year of employment. An employer must provide payment of this year’s leave three days before a vacation.
• Panama has 12 paid public holidays.
• Employees have a right to 18 days of paid sick leave.
• Maternity leave begins six weeks before the expected delivery date and ends around eight weeks post-delivery. It spans 14 weeks.
• Adoptive mothers can get 28 days of paid leave.
• Employees can get three days of paternity leave.
• There are no more provisions in the Panamanian law regarding additional leaves.

Holidays for employees             

The official public national holidays in Panama are- 

• January 1-New Year’s Day
• January 9- Martyrs’ Day
• Carnaval Tuesday
• Viernes Santo or Good Friday
• May 1- Labour Day
• November 3- Separation Day
• November 4-Flag Day
• November 5-Colón Day
• November 10 – “Primer Grito de Independencia de la Villa de Los Santos”
• November 28- Independence Day
• December 8- Mother’s Day and Feast of the Immaculate Conception
• December 25-Christmas Day

Social security

• The social security rate is 22%, of which the company contributes 12.25% while the employees contribute 9.75%.

Taxation

Income tax rates are progressive in Panama as per the slabs below-

The Cost of Hiring an Employee in Panama

The recruitment fees in Panama will vary as per the company and the related policies. Below is a rough round-up of probable costs employers can incur during the recruitment process in Panama or the hiring process in Panama.

Resource-related costs

• The price for advertisements or job posts on sites and social media must be accounted for.
• Magazines or newspapers attract payments for postings on open jobs

Recruitment companies

• You can outsource the entire hiring process in Panama for a cost to get more time on hand.

Legal costs

• Training costs: Training new employees is a crucial aspect to consider when hiring foreign workers in Panama. 

Annual salary

• Employers must estimate the annual costs of employee salaries before considering bonuses, deductions, and withholdings

What Does a Company Need to Hire Employees in Panama?

Employers in Panama can employ both permanent and part-time employees. For hiring new employees in Panama, a company must look at meeting all taxation and legal obligations as an employer.

• An employer must be a local and legal entity in Panama.
• An employer must also have a Ministry of Labor work permit. This is especially relevant when hiring non-Panamanian workers.
• The next step is advertising for open positions to hire from the market. Alternatively, you may also hire staff with the help of an agency. 

Various Options for Hiring Employees in Panama           

Once you understand the process for recruitment in Panama or hiring in Panama, you need to pick from the categories below to move ahead-

1. Collaborate with a global EOR service: You may partner with an employer of record (EOR) such as Multiplier. The latter handles all logistics such as compliance, benefit, compensation, payrolls, and workforce management without you needing to set up an entity directly.
2. Direct hiring: You can hire workers directly from an HR department.

The Steps to Hiring in Panama

The steps in the recruitment process in Panama are as follows:

Step 1- Advertisements

• Begin a hiring process in Panama by advertising for job openings. 
• List the requirements for a job and promote the opening across various channels. Social media is a great place to bank upon.

Step 2-Scanning applications

• Go over the applications and shortlist the ones that match your requirements for a role.

Step 3-Initial interview

• The third step in the hiring process in Panama is contacting suitable candidates.
• A casual telephonic interaction helps employers understand if a candidate is suitable for further interviewing.

Step 4- Scheduling interviews

• A hiring manager can interact with the shortlisted candidates. This helps ensure that all checks on backgrounds, interests, experiences, and competencies have seen the necessary compliances.

Step 5-Reference checks

• Employers can talk to references a candidate mentions and ask about their performance.
• As far as background checks for potential employees are concerned, the following restrictions apply:
   – Criminal records: You will only be able to access criminal records when an employee gives consent.
  – Medical history: Ask for employee consent before accessing a health report to meet all safety requirements.
  – Immigration status: This step is valid only for foreign employees. Employers must verify all prospective employees’ documents in this context. In any case, the employer must ensure the employee is authorized to work. 

Step 8-Final offer

This is the last step of the hiring process in Panama that seals the recruitment process in Panama. The HR department provides an offer letter for the final candidate. The employee accepts this offer letter before the employment contract formally begins. 

All employers must be registered with Caja de Seguro Social, the Panamanian government agency. The employer must register a new employee with the agency during the first week of the new hire’s employment.

Let Multiplier be Your EOR Platform in Panama

Recruiting, and onboarding employees is time-consuming. You may begin with advertising jobs and hiring someone after complying with Panama’s rules.

You can contact a global PEO-EOR firm such as Multiplier. Experts at Multiplier make your recruitment process in Panama hassle-free with the help of the Saas-based Employer of Record solutions. 

There is no need to establish a branch or subsidiary in the country. Multiplier helps you handle new markets and work on automated payroll and management to complete the hiring process in Panama or tackle the recruitment process in Panama.