PANAMA LABOR LAW GENERAL INFORMATION

Probatory three months period: We have a probatory three (3) months period; in this period, any of the parties can terminate the contract within this period.

Minimum wage: Labor Code establishes that the minimum wage should be set by the company's activity, region, and size. Minimum wages must be reviewed every two years by the government. The minimum monthly salary also depends on the number of hours the employee works. The law sets a maximum of 8 hours per day, 48 hours per week, and 206 hours per month. Therefore, the minimum wage amount will differ for an employee who works six days a week and only works five days.

Workday: The standard workday is eight hours, with the standard workweek up to 48 hours. The day is divided into the following work periods:

• Daytime – This is considered as the time period between 6 a.m. to 6 p.m.
• Night-time – This is considered as the time period between 6 p.m. to 6 a.m.

The hours of work within the above-mentioned work periods shall be classified as day shift and night shift. Labor Code of 1971 (amended as of 1995) §§ 31.

• Night shift (work shifts between 6 p.m. and 6 a.m.) is limited to seven hours per day and 42 hours per week.

• Mixed Shift: A mixed shift consists of hours of both day and night work, provided that the period of night work is less than 3 hours. The maximum duration of the mixed shift in a day is 7.5 hours, and the maximum workweek consists of 45 hours. Labor Code of 1971 (amended as of 1995) §§ 39.

• Night and mixed-shift work are paid as a standard eight-hour workday.

Weekly Rest: One weekly day of rest (usually Sunday) is compulsory for every employee.

Overtime: The work performed beyond 8 hours per day and 48 hours per week, or work time exceeding the lower limits as may be set by a contract, is considered overtime. At the time of payment of salary for a particular pay period, the pay for overtime work done up to 5 days prior to such date of payment should be included in the calculation of salary.

The following rules apply for overtime:

1. Employers cannot ask employees to work overtime except in specific industries or situations, such as agriculture or emergency (accident or imminent risk, danger to the existence of the workplace), or when in a collective agreement it has been agreed that all or some employees, within the legal working hour limits, must provide services during extraordinary hours, etc. Labor Code of 1971 (amended as of 1995) §§ 33 – 38.
2. In the circumstances where overtime is permitted, it cannot exceed three hours (3) per day or nine (9) hours per week. Employees who perform work beyond such limits shall be paid an additional 75% of the ordinary wages for excess hours.
3. Those working on a national public holiday are paid at double the regular pay rate by the employer.
4. An employee is entitled to an additional 25% of ordinary wages when the overtime work is performed between 6 a.m. and 6 p.m.
5. An employee is entitled to an additional 50% of ordinary wages when the overtime work is performed between 6 p.m. and 6 a.m. and mixed shifts which start in the daytime and continue for longer than usual working time.
6. An employee is entitled to an additional 75% of ordinary wages when an overtime work shift is an extension of a night shift or of a mixed shift that starts between 6 p.m. and 6 a.m.

Pay for Work on Weekly Rest

• An employee who performs work on a weekly rest day is entitled to an additional 50% premium on the salary of the ordinary working day and a compensatory rest day.
• An employee who performs work on the compensatory rest day provided for performing work on a Sunday or a mandatory rest day shall be compensated with an additional 50% over the salary of the ordinary working day.
• A 50% increase will be paid for all work performed during the employee's free days in the case of workweeks of less than six days if the work is carried out during the day working hours and a 75% increase for mixed hours or night hours.
• Pay for Overtime Work on Weekly Rest: Employees who work overtime on Sundays or any other mandatory rest day shall have the right to apply the 50% surcharge (for ordinary work on rest day) and, as a result, add the corresponding surcharge for the excess hours worked on an ordinary day. Labor Code of 1971 (amended as of 1995) §§ 40 – 41 and 48 and 50.

Recordkeeping Requirements: An employer shall maintain a record consisting of name, address, duration of hours worked, overtime hours, vacation period, etc., for each employee—Labor Code of 1971, §§ 128(11).

Mandatory Bonus: Employers should consider that employees receive 12 months of salary plus an additional XIII months as a mandatory bonus.

Vacations: In Panama, workers are eligible for 30 days of vacation following 11 months of uninterrupted work or one day for every 11 days of work. An employer may not pay out vacation time as cash except at the end of a work contract. Employees may split their vacation into a maximum of two periods.

• Illness during Vacation Period: In case the employee is hospitalized due to illness or accident during the time in which he/she is on vacation, the period of such hospitalization and subsequent disability shall not be considered part of the vacation, postponing the date of termination of the vacations by the duration of the hospitalization. In such situations, the employer must be notified of the hospitalization within five days of the date it occurred.
• Accumulation of Vacation: An employee can accumulate vacation for up to 2 periods if agreed between the employee and employer. An employee shall not be allowed leave for more accumulated periods but can be paid the corresponding amount. In the first period, an employee can take 15 paid vacation days; the rest of the days will be enjoyed in the next period.

Overtime, commissions, allowances, bonuses, or similar must be in addition to the basic salary.

Maternity Leave: Women are entitled to 14 weeks of maternity leave, fully paid by the social security system and not by the employer. These benefits should be requested at least one month before the intended beginning of the leave.

Paternity Leave: The government of Panama has recently enforced a law that grants three days of paternity leave to the fathers of a newborn. Valid for both public and private employees, the law requires fathers to show the corresponding official birth certificate of their new child.

Breastfeeding Break:

A female employee shall be granted paid 15 minutes break every 3 hours, or if the employee agrees otherwise, to take 30 minutes to break two times a day for feeding the child. The time spent during such intervals shall be considered as part of the working hours. Labor Code of 1971, (amended as of 1995) §§ 107 – 114.

Termination of Employment: In case of termination of employment, an employee shall be made a payment for the vacation period not taken in cash at the rate of 1 day for every 11 days of work. To calculate payment in such cases, an employee must count the days that have elapsed and then divide by 11 to know how many vacation days shall be paid. Labor Code of 1971 (amended as of 1995) §§ 52 – 61.

Paid Public Holidays: Panama has several paid national holidays, and the day of a president's inauguration (Día de toma de posesión del Presidente) is also a paid holiday. Paid Public Holidays in Panama are:

1. January 1 – New Year's Day/Año Nuevo
2. January 9 – Martyrs' Day/Día de los mártires
3. February/March – Carnival Tuesday/Martes de Carnaval
4. March/April – Easter holidays: Good Friday, Holy Saturday, and Easter Sunday/Pascua: Viernes y Sábado Santos y Domingo de Resurrección
5. May 1 – Labor Day/Día del Trabajador
6. November 3 – Colombia Independence Day/Independencia de Colombia
7. November 4 – Flag Day/Día de la Bandera
8. November 5 – Colón Province Separation Movement/Movimiento de separación en Colón
9. November 10 – First Cry of Independence from Spain/Primer Grito de Independencia de España
10. November 28 – Panama Independence Day/Independencia de Panamá (from Spain)
11. December 8 – Mother's Day/Día de la Madre
12. December 25 – Christmas Day/Navidad

Taxes: Also, employer and employee are responsible for the following taxes:

• Panama Social Security Tax: These are payments made monthly by employers and employees on the payroll of companies to guarantee the functioning of the social security system and retirement benefits at the national level. Employers and employees pay social security taxes when the employee receives their payment. Employers pay 12.25%, and employee pays 9.75%. XIII Month, the employer paid 10.75% and the employee 7.25%
• Educational Tax: A 1.25% of an employee's wages are withheld as an "educational tax" while the employer pays 1.5%.
• Professional Risk: 0.98% to 5.6% of the remuneration paid by the employer and depend on the activity and the risk that this activity involved. Source: Decree 68 of 1970 and Art. 36 and Annex of Agreement No. 2 on Professional Risk.