The labor framework in Panama establishes specific regulations to ensure transparency and compliance with obligations between employers and employees. These provisions include details on wages, employer contributions, and additional benefits designed to protect both parties in the employment relationship.
Salaries and gross wages
This refers to the annual compensation an employer must pay an employee as part of the employment relationship, whether in cash and/or in kind, for permanent or temporary work. It also includes payment to professionals hired under service contracts if they work more than one-third (1/3) of the daily work schedule.
Salaries and wages can be classified as:
- In cash: includes salaries paid in cash, as well as payments for commissions, vacation, and sick leave. These figures are requested on a gross basis, i.e., before deductions for the employee’s contribution to Social Security, income tax, and other mandatory deductions.
- In kind: covers goods and services provided by the employer to the employee, such as non-work-related clothing, housing, meals and beverages, merchandise, transportation, and more.
Bonuses, XIII month, and year-end bonuses
In addition to regular salaries, the employer is required to provide payments for production bonuses, gratuities, incentives, and other compensation that reward efficiency and punctuality, beyond regular wages.
- Representation expenses: refers to additional payments beyond the fixed salary received by certain employees due to the nature of their roles.
- Employer contributions (public and private): social contributions paid by employers to benefit their employees, directed to social security funds, insurance companies, or other entities managing social insurance systems. These contributions aim to benefit employees and strengthen the country’s social security system.These include:
- Social Security: employer contributions to Panama’s Social Security Fund, equivalent to 10.75% of the employee’s gross salary, as well as private insurance covering life or health.
- Educational insurance: payments made by employers for educational purposes, equivalent to 1.50% of the employee’s gross salary.
- Occupational risks: measures taken by the employer to compensate employees for workplace accidents or illnesses. The percentage is determined by Social Security based on risk levels.
Contribution percentages: employer and employee
Both employers and employees have specific obligations regarding their respective contributions. These are distributed as follows:
Employer:
- Social security: 12.25%
- Educational insurance: 1.50%
- Occupational risks: 2.1% base, with adjustments made by Social Security depending on the risk level.
Employee:
- Social security: 9.75%
- Educational insurance: 1.25%
- Income tax
Individuals shall pay income tax in accordance with the following rates:
Other employee benefits
Employers must also comply with additional benefits not directly related to the work performed but rather to social factors, including:
- Severance pay: compensation provided to an employee for damages or losses, including payments for dismissals, special retirements, maternity leave, temporary disability, common illness, old-age pensions, and occupational risks, among others.
- Seniority premium: a payment made to employees upon termination of any indefinite employment contract. Regardless of the reason for termination, the employee is entitled to one week’s salary for every year worked, starting from the beginning of the employment relationship.
- Notice pay: compensation paid by the employer to employees in the event of dismissal.
- Other benefits: includes any additional obligations not previously specified, such as death in the household, marriage bonuses, educational scholarships, and others.
Important information for starting an employment relationship
Employers and employees must meet certain requirements to formalize the employment relationship. These include:
- A registered labor contract with the Ministry of Labor (MINTRAB).
- Social Security registration.
- Copy of the employee’s national ID card (cédula).
- Address for notifications.
At Auxadi, we specialize in providing expert solutions for payroll, tax, and accounting services in Panama and across more than 50 countries worldwide. Navigating labor regulations and employer obligations can be complex, but with our experienced team, you can ensure compliance and optimize your processes seamlessly. Contact us today to simplify your payroll and tax responsibilities while focusing on growing your business with confidence.
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All information contained in this publication is up to date on 2025. This content has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this chart without obtaining specific professional advice.No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this content, and, to the extent permitted by law, AUXADI does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this chart or for any decision based on it.