Panama Employment Law & Compliance Guide for Employers
Key employment laws in Panama: what employers need to know
Employment in Panama is governed by the Código de Trabajo [Labour Code] of 1971, with social security run by the Caja de Seguro Social (CSS), reformed by Law 462 of 2025. Foreign employers are most often surprised by the décimo tercer mes [13th-month pay] paid in three instalments, the strong protection of indefinite-term employees against dismissal, and the 10% cap on foreign staff. This page summarises the core employer rules, with links to official sources.
Panama employment rules at a glance
| Topic | What the rule is | Official source |
|---|---|---|
| Minimum wage | Set by region, economic activity and company size in Executive Decree No. 13 of 31 December 2025, in force since 16 January 2026. Rates are mostly hourly; MITRADEL's online tool gives the exact rate. The Labour Code requires a review at least every 2 years. | EY Law Alert: Panamá – Salario mínimo 2026 (professional source) |
| Standard working hours | Day work (6 am–6 pm): max 8 hours a day and 48 a week. Night work: 7 hours a day, 42 a week. Mixed shifts: 7.5 hours a day, 45 a week; a shift with more than 3 night hours counts as night work. | Código de Trabajo, Arts. 30–31 (official text, Órgano Judicial) |
| Overtime pay | Overtime premium: 25% in daytime, 50% at night, 75% when it extends a night shift. Maximum 3 overtime hours a day and 9 a week. Work on a national holiday carries a 150% surcharge. | Código de Trabajo, Arts. 33, 36 and 49 (official text, Órgano Judicial) |
| Paid annual leave | 30 days of paid vacation for every 11 months of continuous work. Pay is based on salary, or on the average of the last 11 months for variable pay. Employees who leave earlier are paid proportional vacation. | Código de Trabajo, Arts. 54 (official text, Órgano Judicial) |
| Public holidays | Labour Code: 11 paid holidays and mourning days: 1 and 9 Jan, Carnival Tuesday, Good Friday, 1 May, 3, 5, 10 and 28 Nov, 8 and 25 Dec, plus inauguration day in election years. Later law added 20 Dec (national mourning). Holiday work: 150% surcharge. | Código de Trabajo, Arts. 46–49 (official text, Órgano Judicial) |
| Sick leave | The Labour Code (Art. 200) gives employees a yearly allowance of employer-paid sick days that can be carried forward within limits; longer absences of insured workers are covered by a CSS sickness subsidy. Check the current allowance with MITRADEL. | Código de Trabajo, Arts. 54 and 200 (official text, Órgano Judicial) |
| Maternity and parental leave | 14 weeks of paid maternity leave (6 before and 8 after birth). The CSS pays a maternity subsidy for insured workers and the employer covers any difference from normal pay. Fathers are entitled to a short paid paternity leave under Law 27 of 2017. | Código de Trabajo, Arts. 107 (official text, Órgano Judicial) |
| Probation period | Up to 3 months, only if agreed in writing and only for jobs needing special skills. It is not valid when rehiring someone for a job they held before. Either party can end the contract during probation without liability. | Código de Trabajo, Arts. 78 (official text, Órgano Judicial) |
| Notice period | Indefinite-term employees can be dismissed only for a legal cause, by written notice stating the cause and date. Economic-cause dismissals must first be verified by MITRADEL. Employees who resign without cause give 15 days' written notice. | Deloitte Legal, International Employment Law Guide – Panama (professional source) |
| Severance pay | Prima de antigüedad [seniority premium]: 1 week's pay per year on any exit from an indefinite contract. Unjustified dismissal adds indemnity of 3.4 weeks' pay per year for the first 10 years, then 1 week per extra year (employment from 12 August 1995). | Deloitte Legal, International Employment Law Guide – Panama (professional source) |
| Employer social contributions | CSS 13.25% since 1 April 2025, rising to 14.25% on 1 March 2027 and 15.25% on 1 March 2029 (Law 462 of 2025); educational insurance 1.5%; plus an occupational-risk premium by activity. No salary ceiling. | PwC Worldwide Tax Summaries, Panama – Other taxes (professional source) |
| Employee social contributions | 11% of salary: CSS 9.75% and educational insurance 1.25%, withheld by the employer. No salary ceiling. | PwC Worldwide Tax Summaries, Panama – Other taxes (professional source) |
| Income tax on salaries | Territorial system, withheld monthly by the employer. Annual bands: 0% up to USD 11,000; 15% from USD 11,000 to 50,000; 25% above USD 50,000 (plus USD 5,850). The balboa is at par with the US dollar. | PwC Worldwide Tax Summaries, Panama – Taxes on personal income (professional source) |
| Mandatory bonuses and 13th-month pay | Décimo tercer mes [13th-month pay]: one-twelfth of pay earned, paid in 3 instalments on 15 April, 15 August and 15 December. Pro rata amounts are paid on exit. | MITRADEL, Cálculo de Prestaciones (official calculator) |
| Work permits for foreign nationals | Foreign employees need a work permit from MITRADEL (Executive Decree 6 of 2023) and a residence permit from the Servicio Nacional de Migración. Ordinary foreign staff are capped at 10% of the workforce and specialists or technicians at 15%. | MITRADEL, Migración Laboral (work permit categories) |
| Employment contract requirements | Written contract in three copies: one for each party and one sent to MITRADEL for registration. It must state the parties, job, place, duration, hours, pay and payment terms. Fixed terms: max 1 year (3 for special skills); misuse makes the contract indefinite. | Código de Trabajo, Arts. 67–77 (official text, Órgano Judicial) |
Employer obligations in Panama, topic by topic
Filter by primary service relevance
Does an employment contract in Panama have to be in writing, and how long can probation last?
What are the legal working hours in Panama, and how is overtime paid?
How does the minimum wage work in Panama, and what pay is mandatory?
How much paid leave do employees get in Panama?
What does an employer pay in social security and payroll tax in Panama after the 2025 CSS reform?
How much notice and severance does an employer owe when dismissing an employee in Panama?
Can a company hire a foreign national in Panama, and which permit is needed?
Is it risky to engage independent contractors instead of employees in Panama?
Key employment laws in Panama and official sources
- Código de Trabajo (Cabinet Decree No. 252 of 1971, as amended) — Main labour law: contracts, working time, leave, dismissal, seniority premium and foreign worker quotas.
- Law 44 of 1995 (Labour Code reform) — Sets the current indemnity scale and the employer-funded severance fund (fondo de cesantía).
- Executive Decree No. 13 of 31 December 2025 (minimum wages) — Sets the minimum wage rates by region, activity and company size from 16 January 2026.
- Ley Orgánica de la Caja de Seguro Social (Law 51 of 2005), as amended by Law 462 of 2025 — Governs CSS contributions and benefits, including the stepped employer rate increases to 2029.
- Executive Decree No. 6 of 13 April 2023 (labour migration) — Regulates MITRADEL work permits for foreign nationals and their permit categories.
- Código Fiscal (income tax provisions) — Sets territorial income tax and the employer’s duty to withhold tax on salaries.
- Decreto Ley 3 of 2008 (Servicio Nacional de Migración) — Governs entry and residence categories for foreign nationals, alongside MITRADEL work permits.
FAQs: hiring employees in Panama
Can a foreign company hire employees in Panama without a local entity?
Not directly as the legal employer. To run payroll, an employer must register with the CSS and tax authority and register employment contracts with MITRADEL, which requires a local presence. Foreign companies without an entity usually hire through an Employer of Record, which employs the worker under a Panamanian contract and handles payroll, 13th-month pay and CSS filings.
How much does an employee cost in Panama on top of gross salary?
In 2026 the employer pays CSS at 13.25% and educational insurance at 1.5%, plus an occupational-risk premium set by activity, with no salary ceiling. The CSS employer rate rises to 14.25% in March 2027 and 15.25% in March 2029. Add the 13th-month pay (one-twelfth of salary), 30 days’ vacation a year and quarterly cesantía fund contributions.
What is the minimum wage in Panama in 2026?
There is no single figure. Executive Decree No. 13 of 31 December 2025, in force since 16 January 2026, sets minimum rates, mostly hourly, that vary by region, economic activity and, in some sectors, company size. Employers should use MITRADEL’s online consultation tool to find the exact rate for the region, activity and province where the employee works.
How much notice and severance does an employer owe when dismissing an employee in Panama?
Indefinite-term employees can be dismissed only for a legal cause, by written notice stating the cause; economic causes must first be verified by MITRADEL. On any exit the employee gets a seniority premium of 1 week’s pay per year. An unjustified dismissal adds indemnity of 3.4 weeks’ pay per year for the first 10 years, then 1 week per year, plus accrued vacation and 13th month.
Can a company hire a foreign national in Panama, and what permit is needed?
Yes. The worker needs a work permit from MITRADEL and a residence permit from the Servicio Nacional de Migración. Ordinary foreign staff are limited to 10% of an employer’s workforce, and specialists and technicians to 15%, with some special-regime exceptions. MITRADEL also restricts certain professions to Panamanians. Work cannot start until the permit is issued.
Is it risky to engage contractors instead of employees in Panama?
Yes. If the person works under the company’s direction or depends on it economically, the Labour Code treats the relationship as employment. Reclassification can lead to CSS contributions with surcharges, 13th-month pay, vacation, the seniority bonus and indemnity on exit. Use contractors only for independent, project-based work.
Related NNRoad resources for Panama: Employer of Record in Panama · Payroll in Panama · Hiring foreign employees in Panama · Contractors and on-demand talent in Panama · Panama employer cost calculator
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Regulation Updates in Panama
Oct 2025: Internship Law Panama: New Regulations for Youth Internships in Panama 2025
On October 15, 2025, Panama’s Ministry of Labor announced a significant update to labor regulations with the Internship Law Provision. This new policy aims to promote youth employment opportunities by establishing a clear legal framework for internships among young adults in Panama.
Update first published on NNRoad in Oct 2025. The current rules are summarised in the sections above.
Sep 2025: Panama Pension Reform 2025: Strengthening Actuarial Projections
Panama Pension Reform 2025: Strengthening Actuarial Projections
Update first published on NNRoad in Sep 2025. The current rules are summarised in the sections above.
Jul 2025: Panama Raises Employer Social Security Rates Under Major Pension Reform
Law 462, enacted in March 2025, restructures Panama’s pension system with gradual employer contribution hikes, new solidarity funding, and coverage mandates for self-employed workers.
Update first published on NNRoad in Jul 2025. The current rules are summarised in the sections above.
Discover the latest employment and compliance updates in Panama — helping you stay ahead in a changing regulatory landscape.