Labor Laws

Panama has a relatively small labor pool (Government statistics for 1999 listed approximately 1.5 million persons as "employable.") and this tends to limit availability in upper-echelon positions. As a rule, Panamanians respond well to in-house training and the bilingual workforce (especially Spanish-English) is proportionately quite large.

Unionism is not as prevalent as in European countries and the United States and tends to be centered in the construction, government works and private manufacturing sectors. In Panama, union membership includes around 10% of the workforce.

Though modifications are under study, the Panamanian Labor Code still tends to be protective of the worker and somewhat prohibitive for the employer. Under the code, three types of labor contracts are recognized. The Definitive Period of Time Contract allows for employment not to exceed one year. The time period of a Defined Work Labor Contract is determined by the job performed. The Indefinite or Permanent Labor Contract is for a duration which is at yet undetermined by the parties at the time of signing. When special circumstances dictate them, probationary three-month contracts may be signed.

Mandatory employee fringe rights represent an estimated 35-40% of base pay and a Panamanian employee is guaranteed a wide range of benefits by law. Some of special note to employers include:

• An annual paid vacation of 30 days for every 11 months of continuous employment.
• A "Thirteenth Month" compensation that is aggregated at one day’s salary for every 11 days worked. The bonus is paid in three installments in April, August and December.
• Termination compensation equivalent to a week’s salary for each year worked.
• An unjustified-cause termination payment. This is a lump-sum payment, the value of which is based on labor code indemnification tables. After the amount is paid, the effected employee must be rehired if he or she desires.
• A paid maternity leave of 14 weeks.

The maximum normal workweek is 48 hours for daytime work, 42 hours for night work and 45 hours for mixed day and night work. Executive Decree No. 38 of July 22, 1998 established new minimum wage standards for three geographical regions, cross-referenced by employment sector. The resultant table places the minimum wage rate at between $0.82 and $1.33 per hour.

Foreign labor must obtain a one-year, sometimes-renewable work permit from the Bureau of Immigration. (In certain sectors and for some specialized positions, special temporary permits are granted.) For companies choosing to hire foreign labor, the rule of thumb is that the percentage of foreigners to nationals cannot exceed 10%. Due to the fact that unemployment has averaged between 12% and 14% for the last several years, foreign-labor statutes are strictly enforced in Panama and violations may result in fines and/or revocation of visa status, depending upon the individual case.

In terms of taxation, bonuses to employees in excess of one month’s salary or $750, whichever is lowest, are not deductible, nor are profit-sharing payments in excess of 10% of a company's taxable income.