Employment in Panama is governed by the Labour Code, with social security administered by the Caja de Seguro Social (CSS), which was reformed in 2025. Here is what employers need to know about leave, pay, the 13th month, tax and ending employment.
The Labour Code sets leave entitlements for all private sector employees. Maternity pay is covered largely by the CSS, with the employer paying any difference.
Calendar days of paid vacation for every 11 months of continuous work, equivalent to 1 day for every 11 days worked.
Paid by the employer. Unused days can accumulate for up to 2 years (36 days). Longer illness is covered by CSS benefits.
6 weeks before and 8 weeks after the birth, at full pay. Employees are protected from dismissal during pregnancy and for a year after returning.
Paid working days following the birth of the employee's child, under Law 27 of 2017.
Set up vacation, sick, maternity and paternity leave in IceHrm with their own accrual, carry forward and approval rules, including accumulating sick leave over two years. Employees see their live balance before they apply, and managers see who is away on a shared calendar. Leave management →
Panama has no single minimum wage. The government sets minimum rates by executive decree, normally every 2 years, and they vary by region, economic activity, occupation and company size. Check the current decree from the Ministry of Labour (MITRADEL) for each role.
And 48 hours a week. Night shifts are limited to 7 hours a day (42 a week) and mixed shifts to 7.5 hours (45 a week).
25% for daytime overtime, 50% at night, and 75% when a night or mixed shift is extended. Overtime is limited to 3 hours a day and 9 a week.
One twelfth of earnings, paid in three instalments on 15 April, 15 August and 15 December.
Capture attendance, shifts and overtime in IceHrm and feed the hours straight into payroll, so day, night and mixed shift premiums reflect what was actually worked. Time & attendance →
Panama taxes only income from Panamanian sources. Employers withhold income tax from salaries each pay period and pay it to the tax authority (DGI).
| Annual taxable income | Rate | Tax on this income |
|---|---|---|
| Up to US$11,000 | 0% | Nil |
| US$11,001 – US$50,000 | 15% | 15% of the amount over US$11,000 |
| Over US$50,000 | 25% | US$5,850 plus 25% of the amount over US$50,000 |
Law 462 of 2025 reformed the CSS and raised the employer's social security rate in steps. Contributions have no salary ceiling.
| Contribution | Employer | Employee |
|---|---|---|
| Social security (CSS) | 13.25% | 9.75% |
| Educational insurance | 1.50% | 1.25% |
| Occupational risk insurance | Varies by risk | – |
Employers should also accrue for the 13th month, vacation pay and the seniority premium, which is due whenever an indefinite contract ends.
Build Panamanian pay the way you already structure it, with your own salary components, deductions and formula columns, such as CSS and 13th month columns. Want to know how well IceHrm handles payroll calculations for Panama? Contact us or see Payroll →
After the probation period, an employer can only dismiss an employee on an indefinite contract for a justified cause set out in the Labour Code: disciplinary, non-disciplinary or economic. The reason must be given in writing. An employee who believes the dismissal was unjustified can bring a claim for reinstatement or compensation.
| Service | Compensation |
|---|---|
| Less than 1 year | 1 week per 3 months worked |
| 1 to 10 years | 3.4 weeks per year |
| Each year after 10 years | 1 week per year |
When an indefinite contract ends for any reason, the employee is entitled to a seniority premium of 1 week's wage for each year worked. An employee who resigns must give 15 days' notice. Dismissal for some non-disciplinary or economic causes requires 30 days' notice or pay in lieu.
Final pay includes accrued vacation, the proportional 13th month and the seniority premium.
Panama observes national holidays and days of national mourning, many of them in November, the month of the national celebrations.
Holidays falling on a Sunday are observed on the following Monday.
Leave groups give each office its own holiday calendar, so your team in Panama gets the right days off automatically. Holiday calendars →
Employment contracts must be in writing and in Spanish; a bilingual contract is allowed. Contracts are indefinite unless the law permits a fixed term.
A probation period of up to 3 months can be agreed in writing for jobs that require particular skills. Fixed-term contracts are generally limited to 1 year, or up to 3 years for specialised technical work, and cannot be used for permanent activities.
Send Spanish or bilingual contracts for e-signing, store them on the employee's record, and track onboarding with task lists so the CSS registration is not missed. Documents & e-signing →
This guide is general information to help you plan HR processes, not legal, tax or financial advice. Employment law and rates change regularly and awards, enterprise agreements and state rules may give employees more than the minimums shown here. Always confirm current requirements with the official sources or a qualified adviser.
Configure leave types, accrual rules and public holidays for Panama, keep employee records and contracts in one place, and run payroll with your own salary components. Want to know how IceHrm handles payroll calculations for Panama? Talk to us.
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