Hire in Panama

Fixed-term contracts are limited to temporary positions and must not surpass a duration of one year, except for roles necessitating specialized technical skills, which may extend up to three years.

Extensions of fixed-term contracts are permissible, but upon surpassing the extension period, the contract automatically converts to an indefinite-term contract.

Employee approval is necessary for any pre-employment assessments. The employer reserves the right to require a medical examination before or during employment to ascertain the employee’s fitness for work and ensure the safety of coworkers and company assets. With the employee’s consent, the employer may also request a criminal background check. However, a pregnancy test is not permissible.

The probationary period typically spans up to three months and is applicable to roles demanding specific skills or abilities, excluding entry-level positions.

Throughout this probationary period, the employer retains the right to terminate the contract without cause and without providing severance pay.

The maximum daily working hours are capped at eight hours, with a weekly limit set at 48 hours.

Employees are entitled to a minimum rest break of 30 minutes to two hours during the workday.

Daytime hours are defined as 6 a.m. to 6 p.m., while night-time hours span from 6 p.m. to 6 a.m. Working more than three hours during the night-time hours constitutes a night shift, with a maximum of seven hours permitted per week.

Rest days are ideally scheduled on Sundays, although a compensatory rest of 24 hours may be provided in exchange.

Overtime compensation is structured as follows:

• – A 25% wage increase for work conducted during the daytime.
• – A 50% wage increase for work performed during the night or for extended mixed shifts that began during the daytime.
• – A 75% wage increase for work that extends a night shift or mixed shift initiated during the nighttime period.
• – On National Holidays (dia de fiesta o duelo nacional), compensation includes a 150% wage increase plus compensatory rest.

Employees are limited to a maximum of three hours of overtime per shift or nine hours per week.

Employers are required to keep comprehensive records of their employees, encompassing details such as names, addresses, hours worked, overtime hours, and vacation periods. While the Labor Code stipulates that proof of wage payment won’t be demanded by authorities from an employer beyond a five-year period, the Social Security Law imposes a 20-year statute of limitation for legal actions to retrieve any outstanding social security contributions. Consequently, it is advisable for employers to maintain records relating to employees’ payroll, taxes, and social security for a minimum of 20 years.

Employees have the right to receive a thirteen-month bonus equivalent to one month’s salary, disbursed in three equal installments throughout April, August, and December.

In addition to this obligatory thirteen-month bonus, it is customary for employers to provide performance bonuses in accordance with their respective policies.

After two years of employment, an employee can only be dismissed for valid reasons, ensuring the employee’s right to job stability. Notification of dismissal, specifying the date and cause, must be provided to the employee. This notification should occur within two months of discovering the cause for dismissal.

Pregnant employees and union members are safeguarded against unjustified dismissal, requiring authorization from the Labor Courts for any termination.

The termination of employment can transpire in four manners:

1. Employee voluntarily resigns
2. Expiration of Fixed-Term Contract (FTC)
3. Mutual agreement between employer and employee
4. Termination by employer

Employees with over two years of tenure can only be dismissed for valid reasons, as stipulated in Panama’s Labor Code. These reasons include:

• Incapacity to work due to physical or mental conditions
• Unexcused absence from work, including two Mondays in a month, six within a year, or any three days in one month
• Economic circumstances adversely affecting the employer’s business
• Employee misconduct or criminal acts

The termination notice must delineate the grounds for termination. In cases of economic grounds, the employer must provide evidence and obtain approval from the Ministry of Labor. Should there be no response from the Ministry within 60 days of submission, the employer can proceed with termination while fulfilling the requisite severance payments.

Employees with less than two years of service must receive a minimum 30-day notice before termination. Failure to provide notice necessitates payment of ordinary wages equivalent to the notice period.

In the event of resignation, employees must give the employer at least 15 days’ notice, except for technical employees who are required to give a minimum of two months’ notice.

No notice is necessary under the following circumstances:

• The employee is under a fixed-term contract.
• The employee has served for over two years.

Severance pay is granted in cases of termination without just cause or premature conclusion of a fixed-term contract. Typically, it amounts to 3.4 weeks of salary per year of service, prorated accordingly.

Employees are entitled to a seniority premium, equivalent to one week of salary per year of service, irrespective of the termination reason.

Severance pay, including the accrued 13th salary and vacation pay, must be disbursed promptly upon termination.

Employees with less than two years of service receive an advance notice payment equal to one month’s salary. Those employed for over two years receive an additional indemnity equal to 6.54% of all wages earned during their tenure, without eligibility for an advance notice payment.

As per the Labor Code, employers are solely authorized to impose limitations on employees’ activities throughout the duration of their employment.

Any restrictions extending beyond employment tenure necessitate mutual agreement between employer and employee before concluding the employment relationship. While compensation can be considered for such limitations, it’s typically uncommon in Panama to implement post-employment restrictions.

After completing 11 months of continuous service, an employee is entitled to 30 days of paid annual leave, equating to one day off for every 11 days worked. Annual leave should be taken either all at once or in two separate blocks, subject to mutual agreement between the employer and employee.

Conversion of annual leave into cash payment is prohibited.

Upon the employee’s request, annual leave can be accrued for up to two years, provided that the initial 15 days have been utilized and notification is given to the labor authority.

Employees must receive payment three days before the commencement of their annual leave.

Employees are granted 18 days of paid sick leave.

Upon commencement of the employment contract, the employee starts accruing a sick leave fund, amounting to 12 hours for every 26 shifts worked or 104 hours annually. This fund can be utilized fully or partially while maintaining full pay in the event of sickness or accident. Accumulation of the sick leave fund is permissible for up to two years, extending until the third year of service.

Employees on sick leave or absent from work due to work-related accidents or illnesses are protected from termination.

Maternity Leave:

The total duration of maternity leave is 14 weeks, with six weeks to be taken before the estimated date of birth and eight weeks to be taken after childbirth. During pregnancy and maternity leave, it is forbidden for the employer to alter the terms of the employment relationship. Dismissal without cause is prohibited during pregnancy and within the first year of returning to work from maternity leave.

Breastfeeding Break:

Female employees are entitled to a paid 15-minute break every three hours, or, with the agreement of the employee, a 30-minute break twice a day, for breastfeeding purposes. This time allocated for breastfeeding is considered as part of the working hours.

Paternity Leave:

To qualify for three business days of paid paternity leave, an employee must provide the employer with at least one week’s notice of their spouse/partner’s expected delivery date and submit a government-issued birth certificate certifying paternity. Paternity leave must be taken immediately after childbirth.

Adoption Leave:

Female employees are entitled to four weeks of adoption leave from the date of assignment to pre-adoptive foster care. Male employees adopting a child can take two weeks of leave from their annual leave. Payment for adoption leave is covered by the social security fund.

Typically, Panama observes 13 public holidays throughout the year.