What Employers Need To Know About Labor Regulations In The Republic Of Panama

Author:Ms Maria Teresa Mendoza
Profession:Morgan & Morgan


Panama's Labor Code, in effect since April 1972, with some changes in the last years, regulates the relationship between capital and labor, based on the principles of social justice established in the Political Constitution of the Republic and it creates a special State protection as a benefit of the employees. The State will intervene to promote employment, create the necessary conditions which ensure that all employees have a decorous existence and to ensure that the capital has an equitable return for its investment, within a scheme that fosters harmonious labor relations that permit permanent growth of productivity.

The provisions of the Labor Code are of public order and they bind all persons, natural or legal, enterprises, undertakings and establishments that are at present established or that may be established within the national territory.

Public servants will be governed by the rules of the civil service, except in those cases in which this Code specifically determines the application of some provisions to them.

Cases not provided for, either in the Code or supplementary legal provisions, shall be decided in accordance with the general principles of the labor law provisions of the Code which govern similar cases or matters, equity and custom.

Immigration and hiring foreign professionals

To legally work in Panama, as general rule, foreigners are required to obtain a Visa and a Work Permit, in separate processes, before the Immigration authorities and in the Ministry of Labor. Some foreigners are exempted to obtain a Work Permit, such as companies that have a multinational headquarters license (SEM Companies), issued by the Ministry of Commerce.

Under Panamanian law there are limits to the hiring of foreign employees. The general rule is that 10% of the workforce can be foreigners and up to 15% if the expatriates are technical or trusted employees. However, there are certain types of visas and work permits which do not apply to these limits.

Terms of employment

All employees are required to sign a written employment contract, that must be sealed before the Ministry of Labor. In the absence of a written contract, facts and circumstances alleged by the employee, will be presumed to be true.

The general rule is that work contracts must be for an indefinite period, except for temporary positions, such as, vacations, sick leave replacement, or specific time for a task.

The parties can agree in the contract a probationary period up to the term of three months. During this period, the employer can terminate the contract without any cause, and without paying a severance.


Wages in Panama can be fixed by unit of time (month, fortnight, week, day or hour), or by specific job. Any additional payment, such as gratuities, bonus, premiums, commissions, profit sharing, salaries in kind, and any other benefit, due to the employment relationship, are considered as part of the salary.

Wages must be paid to the employees at least twice a month.

Collective agreements

A collective Agreement has the purpose of establishing labor and employment conditions, by an employer and by a union.

All the employers who have employees' members of a union, must negotiate a collective agreement when the union present a request, either directly to the employer, or through a conciliatory procedure proposed in the Ministry of Labor.

Clauses of the collective labor agreement will apply to all categories of employees, unless the agreement expressly indicates the contrary.

The collective agreement cannot be established under conditions less favorable for the employees than those established by law, the contracts, rules or common practices in effect in the respective company.

All collective agreements bind the parties and the persons in whose name they are made or to whom they apply. It also applies to the future members of the employer.

The provisions of individual labor contracts contrary to or incompatible with the collective agreement, shall be ineffective and automatically substituted by the provisions of the collective agreement. The provisions which are more favorable to the employees shall not be considered contrary to the collective agreement.

The duration of the collective agreement shall not be less than two years, not more than four years.

Once the date fixed has expires, it will continue to be in force until a new one replacing has been concluded, without prejudice to the right of the employees to propose a new negotiation.

Pension and benefits

In any case in which, due to delay or omission of the employer, the Caja de Seguro Social is not obliged to recognized the benefits to which such special legislation refers, such benefits shall be paid in full by the employer.

The compensation to which employees are entitled under are as follows:

In case of temporary disability for the performance of his usual occupation, the employee shall be entitled to daily compensation equal to his wages during the first two months of disability; and equivalent to fifty percent of the same during the following ten months if the injured person shall continue to be disabled all that time, in accordance with a medical opinion rendered for that purpose. Said compensation shall be paid by the employer on the same days and conditions in which the wages shall be paid, and it shall be fixed at not less than 1 balboa per day; however, when the wage are less than that sum, they shall be paid in full. If after the lapse of one year the temporary disability of the employee has not ceased, compensation shall be governed by the provision related permanent disabilities. In case of partial permanent disability, the employee shall be entitled to a pension for three years computed in the basis of his monthly salary, according to the percentage of disability in accordance with the rules established. In case of total permanent disability, the employee shall be entitled to be paid a pension during three years, once it is established, computed on the basis of 60% of his annual wage; during the following two years to a pension equal to 40% of his annual wage; and two more years at thirty percent. The pensions established in paragraphs 2 and 3 shall not ne cumulative and the time lapsed under one permanent disability shall be credited to the other in case that a partial permanent disability may change to a total permanent disability.

Injuries which, without producing disability, result in serious mutilation of disfigurement of the victim, shall be considered, for purposes of the corresponding indemnity (compensation) the same as partial permanent disability.

Whenever professional risk causes the death of the employee, the persons who are hereinafter said for shall be entitled to a pension under the following conditions:

A pension of 20% percent of the annual wage of the victim during six years for the spouse or surviving member of the marriage or the woman who lived with the employee as a marital partner, or who was divorced, or separated physically due to causes attributable to him, provided the union or marriage had...

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