How to find a PEO payroll company in Panama

Finding the right professional employer organization, or PEO payroll company in Panama will allow you to hire qualified local staff without having to formally establish a business in the Central American country. For foreign companies with a limited-scale or short-term operation, it is often the most suitable option available.

For those planning a larger-scale involvement, using a PEO payroll company in Panama offers the opportunity to get familiar with the market before investing further. A PEO company can also be known as an employer of record (EOR), while PEO payroll services can also be referred to as payroll outsourcing.

If you are considering company formation in Panama or are otherwise looking to enter the market, read on to understand the advantages of hiring local staff through a PEO payroll company in Panama. Regardless of your long term plans, Biz Latin Hub can help you at every stage of the journey.

Why invest in Panama?

With a gross domestic product (GDP) of USD$7.6 billion in 2022 and a population of approximately 4.5 million, Panama punches above its weight. The nation recorded more than USD$2 billion of foreign direct investment (FDI) inflows in 2022, stimulated by a territorial tax system in which only income earned within the country is taxed.

The Central American country’s business-friendly approach sees it employ the lowest value-added tax (VAT) and income tax rates in Central America, while its politically stable government and secure banking sector have made it a highly popular destination for foreign investors and expats. Some of the country’s main export commodities include refined petroleum, coal tar oil, passenger and cargo ships, and gold.

Panama has an advantageous geographic location, linking Central America to South America, while also connecting the Caribbean Sea and the Atlantic Ocean via the iconic Panama Canal, through which roughly 14,000 ships transit each year, generating an estimated 8% of the nation’s GDP.

Minimum hourly wage for a PEO Payroll Company in Panama.

What is a PEO payroll company in Panama?

A PEO payroll company will support your business expansion by providing high-quality HR services that will give you time to focus on other vital aspects of your business. A PEO payroll company in Panama will be responsible for recruiting, hiring, firing, managing employee payroll, and paying all holiday and social benefits.

Operating as the official employer in the eyes of the local government, a PEO payroll company in Panama will be in charge of remunerating local personnel in the event of resignation, dismissal, maternity leave, retirement, and any other payments established by local labor regulations.

In addition, with extensive knowledge of local labor, tax, and corporate legislation, a PEO payroll company in Panama will also guarantee your business remains in good standing with authorities and will assist you with time-consuming administrative processes, such as drafting contracts and other documents and paperwork.

The graphic above highlights when it is best to use a professional employer organization in Panama, or in any country. PEO Payroll Company in Panama.
The graphic above highlights when it is best to use a professional employer organization in Panama, or in any country. PEO Payroll Company in Panama.

Panama has a well-developed legal framework governing EORs. Under Panamanian law, an EOR is known as a contratista de personal, which translates to personnel contractor. Personnel contractors are regulated by the Panamanian Labor Code and must be registered with the Ministry of Labor and Social Security.

One of the key advantages of using an EOR in Panama is that it allows companies to quickly and easily establish a presence in the country without the need to set up a separate legal entity. However, it is important to note that while EORs can help streamline the process of expanding into Panama, they are not a substitute for compliance with all applicable laws and regulations.

Employers must ensure that they are working with a reputable EOR that is in compliance with all relevant laws and regulations in Panama. This can help mitigate the risks associated with using an EOR, such as the risk of reputational damage or legal liability.

What will a PEO payroll company in Panama do?

Working with a PEO payroll company allows you to enter the Panamanian market in a short time frame, allowing you to get your commercial operations underway in a timely manner. Some of the main benefits of hiring local staff through a PEO payroll company in Panama include:

Legal Representation: Claims related to your company’s employees will be addressed to the PEO payroll company, which is equipped to represent your business and resolve many employee-related legal and administrative issues that might affect your business venture.

Legal Advice: With abundant knowledge of local civil, corporate, tax, and labor regulations, a PEO payroll company in Panama is able to provide expert advice to avoid delays and overcome challenges often faced by foreign enterprises.

Profitability: Hiring local staff through a PEO payroll company in Panama will allow you to save money and avoid additional fees that may increase the cost of developing your business operations in the country.

Employee recruitment: With years of experience helping companies find qualified personnel, a PEO payroll company will identify and recruit the most suitable staff for your company.

Visa processing: A payroll company will also monitor the work visa application process for foreign employees and reduce any chances of rejection.*

Time-saving: By outsourcing time-consuming and complex HR tasks, you will have time to manage other essential aspects of your newly established business.

What benefits are mandatory under Panama labor law?

Biz Latin Hub’s Snapshot of Employment Law in Panama


WORKING HOURS
An average working day is eight (8) hours long. The working week is divided into five (5) or six (6) consecutive working days, with a standard working week being between 40 and 48 hours. 

TYPES OF EMPLOYMENT CONTRACT

There are three (3) types of labor contracts in Panama

Fixed-term employment contract:

Can be for a period of days, weeks, months, or years. The general rule is that these types of contracts cannot exceed one (1) year. Exceptionally, they can last up to two (2) years for people with professional or technical qualifications. This type of contract can only be renewed once. 

Indefinite-term employment contract:

These contracts will only terminate when both parties agree or when one can legally act unilaterally, such as in the case of a resignation or termination by just cause.

Specific task or project employment contract:

This is regarded as an “undetermined contract” as there is no specific or clear date for when the task or project will be completed. It is key to determine a priori clear objective markers or thresholds so there are no ambiguities regarding when the project will be completed.

Termination and severance

Under Panamanian law, an employee must provide 15 days of advance notice of their intention to vacate their role, or 60 days of notice in the event that they are a technical worker undertaking a highly-specialized role. In the event of failure to provide adequate notice, the employer can deduct an amount equal to one week of salary from any seniority payment the employee is entitled to upon leaving.

In the event that the employer wishes to terminate the contract of the employee, they must pay them any outstanding salary and compensate them for unused vacation and public holiday allowance. The employee is also entitled to a proportion of their annual bonus (thirteenth salary) based on how much of the year they have worked. 

Based on length of service, the employee is also entitled to a seniority payment equal to one week of salary for every year worked. Where that service exceeds two years, they are also eligible for additional compensation.

Only during an employee's probation period, or in the event of them being guilty of misconduct or any other behavior prohibited under the terms of their contract can an employee have their contract terminated without compensation.



VACATIONS, LEAVE, AND OTHER ABSENCES
Statutory vacation allowance / paid time off (PTO)
Thirty (30) PTO days are accrued per 11 worked months (at the rate of one day for every eleven days in service). PTO days can only be accrued for up to two (2) periods, e.g. 60 days accrued over a two (2) year period.

Under Article 59 of Panama’s labor code, vacations are granted for the worker to enjoy rest, therefore it cannot be renounced in exchange for remuneration or compensation.

Maternity and paternity leave: 

Maternity leave allowance is six (6) weeks prior to the due date and eight (8) weeks after the child is born. This is paid by the employer. Fathers are entitled to three (3) days of paid paternity leave.

Sick leave: 
Each worker is entitled to 18 days of sick leave per year. The employee is obliged to present a certificate issued by a licensed doctor or clinic to demonstrate the validity of a sick leave claim. If such proof of inability to work is not presented, the employer has the right to discount from the salary the days that the employee didn’t work. 

Bereavement:
Panama’s labor code does not specify any type of permission for the death of family members. Therefore, the granting of leave in case of bereavement must be negotiated with the employer.

v. STATUTORY CONTRIBUTIONS
Employee Deductions:
The employer will have the obligation to deduct from the employee: 
Social Security contributions must be paid  to the “Caja del Seguro Social” (CSS) at a rate of 9.75% of the gross salary. 
Educational insurance is also paid to the CSS at a rate of 1.25% of the gross salary. 
Income Tax is deducted at a rate of 15% of the gross salary, however the first $11,000 are exempt from this tax.
Employer Contributions:

Social Security contributions must be paid by the employer to the CSS at a rate of 12.25% of the employee’s gross salary.

Educational insurance is paid by the employer to the CSS at a rate of 1.5% of the employees gross salary. 

Risk or accident insurance is paid by the employer to the CSS at a general rate of 0.98%, however that percentage can be adjusted according to the level of risk associated with the job role being undertaken.
Employment law for a PEO payroll company in Panama

Labor laws in Panama include the following: 

  1. Vacations: According to article 177 of the Labor Code, workers are entitled to 30 days of paid vacations per year.
  2. Bonus salary: Employees are entitled to a bonus equal to one month of salary each year. This bonus is split into 3 parts and is paid on April 15, August 15 and December 15.
  3. Social Security: Companies in Panama must comply with social security obligations. They must make contributions towards employee health insurance to the social security authority, Caja de Seguro Social, (Social Security Fund), as well as applicable pension and unemployment support. 
  4. Maternity Leave: During pregnancy, female employees may receive a paid maternity leave of up to 6 weeks before birth, and a paid leave for up to 8 weeks afterwards.
  5. Minimum wage: This varies according to sector, type of business and location, so there is not one defined national minimum wage.
  6. Working hours: The maximum daytime working hours is 8 hours and the working week cannot exceed 48 hours. The maximum night-time working hours is 7 hours, which corresponds to 42 weekly hours. 
  7. Contract types: periods for employment contracts can be indefinite, definite (‘fixed-term’), and specified for the time the employee takes to complete a determined project.
  8. Probation periods: A maximum time limit of 3 months. If the employer isn’t satisfied with the employee’s performance or work during this time, there is no obligation to hire them. Similarly, employees have no obligation to the company if they choose not to continue working within the specified period.
  9. Union membership: The Labor Code recognizes that employees have the right to organize in unions. Employees can choose from any union registered with the government. The employer is obligated to negotiate with the union that represents their staff. In addition, labor laws in Panama recognize workers’ right to strike and establishes prior negotiation procedures between the employer and the union before the employer suspends an employee.

How to use a payroll calculator

If you want to get an idea of the possible costs involved in payroll outsourcing in Panama, using a payroll calculator is one way to get a good estimate.

Use Biz Latin Hub Payroll Calculator for PEO in Panama.
Use Biz Latin Hub Payroll Calculator for PEO in Panama.

Although a payroll calculator won’t be completely accurate, it will give you the opportunity to evaluate options while varying the salary, the number of employees, the country you want to enter, and the currency you wish to work in. As such, you will be able to understand your likely costs across a range of salaries, while also being able to compare other countries as potential alternative destinations.

You can find the BLH payroll calculator at the bottom of our Hiring & PEO Services page. The calculator will allow you to make good estimations of the costs involved in hiring in Latin America and the Caribbean based on country, currency, and salary, with the calculator factoring in local statutory deductions.

To use the BLH payroll calculator, you will need to undertake the following steps:

Step 1: Select the country

Choose the country where you are doing business, or planning to launch. This feature will be useful when it comes to comparing potential alternative markets.

Step 2: Select the currency you wish to deal in

You can choose between US dollars (USD), British Sterling (GBP) and Euros, as well as the local currency for the country you are looking at, compared to what is most convenient for you. Note that for Ecuador, El Salvador, and Panama, the local currency is also USD, as they have dollarized economies.

Step 3: Indicate an employees monthly income

Here you can indicate the expected salary you will be paying an employee, in the currency of your choice.

Step 4: Calculate your estimated costs

Based on all of the information you have provided, you will receive results indicating your estimated costs, including a breakdown for estimated statutory benefits you will be liable for.

Step 5: Compare your costs to other options

With a good estimate at hand of how much your staff in Panama would be, if you are flexible about your expansion into Latin America and the Caribbean, you can use the BLH payroll calculator to compare those costs to other jurisdictions.

FAQs for a PEO payroll company in Panama

Based on our extensive experience, these are the common questions and doubts of our clients on hiring through a PEO payroll company in Panama:

1. How does one hire employees in Panama?

You have the option to employ someone in Panama either by establishing your own legal entity within the country and utilizing it for hiring purposes, or by engaging an employer of record (EOR). An EOR, a third-party entity, enables you to recruit employees in Panama by serving as the legal employer.

2. What is in a standard employment contract in Panama?

A standard Panamanian employment contract should be written in Spanish (and can also be in English) and contain the following information:

– ID and address of the employer and employee.
– A specification of whether the employee has dependents or not.
– City and date.
– Work position.
– Work functions.
– Type of contract (indefinite, definite, for a specific task).
– The location where the service will be provided.
– Salary.
– Payment frequency (monthly, bimonthly).
– Probation period (optional but recommended).
– Working hours and clarification on the period (diurnal, nocturnal, or mixed).

3. What are the mandatory employment benefits in Panama?

The mandatory employment benefits in Panama are the following:

– Social security contributions (health, pension,  educational insurance, and occupational risk).
– Vacations (30 calendar days per 11 months worked).
– Thirteen salary payments (payable on April 15th, August 15th, and December 15th of every calendar year.
– Sick leave (18 days per year).

4. What is the total cost for an employer to hire an employee in Panama?

The total cost for an employer to hire an employee in Panama can vary based on the salary. However, as an indication, the employer cost for mandatory employment benefits is 14.75% on top of the employee’s gross salary, although this can vary depending on specific conditions and agreements.

Please use our Payroll Calculator to calculate employment costs.

5. How does the process of forming a legal entity differ from hiring through an EOR?

Forming a legal entity is different to hiring an EOR in the following ways: 
– It is more time-consuming.
– Creates a permanent presence in the country.
– Expenses are deductible through a local entity.
– Enables the ability to execute contracts and agreements locally.
– Facilitates invoicing through a local entity.
– Requires compliance support.
– Empowers direct hiring of employees.

6. What sets apart a PEO from an EOR?

While a PEO functions as co-employer, an EOR assumes the role of the formal employer for your staff. Typically, an EOR provides a wider array of services compared to a PEO.

Biz Latin Hub can be your PEO Payroll Company in Panama

At Biz Latin Hub, our team of multilingual specialists is equipped to deliver excellence and help you recruit the most suitable employees to ensure the success of your commercial operations in Panama.

With our full portfolio of hiring international PEO services, we can be your single point of contact to incorporate your business in Latin America and the Caribbean.

Reach out to us now to receive personalized assistance.

Learn more about our team and expert authors.

Biz Latin Hub can help you with a PEO payroll company in Panama

The information provided here within should not be construed as formal guidance or advice. Please consult a professional for your specific situation. Information provided is for informative purposes only and may not capture all pertinent laws, standards, and best practices. The regulatory landscape is continually evolving; information mentioned may be outdated and/or could undergo changes. The interpretations presented are not official. Some sections are based on the interpretations or views of relevant authorities, but we cannot ensure that these perspectives will be supported in all professional settings.
Legal Team Panama
Legal Team Panama

Legal Team Panama is the Biz Latin Hub leading experts on doing business in Panama The Team writes on the news, doing business, law, and changing regulations. The team are experts in corporate law, Administrative law, Employment law, Immigration law and legal advisory services. Read more about them here. You can contact Legal Team Panama via our "contact us page".

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