Last updated on: April 27th, 2022
The main source of employment law in Panama is the Labor Code of 1971. The Labor Code governs the terms and conditions of employment such as working hours, holidays and rest periods, wages, overtime, employment relationships. Another important source of law is the Constitution of Panama, which protects the basic rights of employers and employees.
Hours & Pay Regulations
Normal Working Hours
The working hours shall not exceed 8 hours per day and 48 hours per week. The day is divided into the following work periods:
- Daytime – This is considered as the time period between 6 am to 6 pm.
- Night-time – This is considered as the time period between 6 pm to 6 am.
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.
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 working week consists of 45 hours. Labor Code of 1971, (amended as of 1995) §§ 39.
An employer shall maintain a record consisting of name, address, duration of hours worked, overtime hours, vacation period, etc. with respect to each employee. Labor Code of 1971, §§ 128(11).
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 as 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.
- An employee is entitled to an additional 25% of ordinary wages, when the overtime work is performed between 6 am and 6 pm.
- An employee is entitled to an additional 50% of ordinary wages when the overtime work is performed between 6 am and 6 pm and mixed shifts which start in the daytime and continue for longer than usual working time.
- 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 pm and 6 am.
An employee can perform overtime work up to a maximum of 3 hours per day and 9 hours per week. Employees who perform work beyond such limits shall be paid an additional 75% of the ordinary wages for excess hours.
Exceptions – Employees are not permitted to perform overtime work except in cases of 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 employee, within the legal working hour limits, must provide services during extraordinary hours, etc. Labor Code of 1971, (amended as of 1995) §§ 33 – 38.
For more details on Overtime Calculations please open this PDF link.
Night work is considered a time period between 6 pm to 6 am. The maximum night hours shall not exceed 7 hours per day and the corresponding workweek shall not exceed 42 hours.
The 7 hours of work at night and 7.5 hours of work in the mixed shift will be remunerated as 8 hours of daytime work to calculate the legal minimum wage.
Pay – 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 pm and 6 am. Labor Code of 1971, §§ 31 – 32.
An employer shall provide unpaid rest breaks to employees for a duration which shall not be less than 30 minutes or more than 2 hours per day. The employee and employer may also agree on the distribution of such breaks in case of night and mixed shifts in a manner that such period does not exceed the working hours limit of that particular day. Labor Code of 1971, (amended as of 1995) §§ 39.
An employee shall be provided a 24 hours rest period preferably on a Sunday. However, in circumstances where it is not possible to provide the weekly rest on Sunday, the employer and employee may agree to a full period of 24 consecutive hours of rest on a different day in exchange for the Sunday rest.
When due to rotating shifts or for any other reason, an employee is required to perform work during the day and night shift consecutively, the employer shall ensure to provide at least 12 consecutive hours of rest to employees. Labor Code of 1971, (amended as of 1995) §§ 40 – 41 and 48 and 50.
Work On Rest Days
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 6 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.
For further details on Payment for Overtime work on Weekly Rest days please refer to the PDF attached under Overtime Laws.
Employees are entitled to 12 mandatory days of rest due to a national holiday or mourning:
- New Year’s Day – Jan 1
- National Martyrs’ Day – Jan 9
- Shrove Tuesday
- Good Friday
- Labour Day – May 1
- Separation Day – Nov 3
- Colon Day – Nov 5
- Los Santos Uprising Day – Nov 10
- Independence Day – Nov 28
- Mother’s Day – Dec 8
- Christmas – Dec 25
- The day the titular President of the Republic takes office.
In case, a national holiday or mourning day falls on a Sunday, the following Monday shall be provided as a mandatory weekly rest day. And in cases, where the national holiday coincides with any other mandatory weekly rest of an employee, he/she shall be granted any other day of the week as a compensatory rest day.
Pay – An employee who performs work on a national day is entitled to an additional 150% on the salary of the ordinary working day along with a compensatory rest day. This additional 150% compensation is inclusive of the remuneration of the compensatory rest day.
An employee who performs work on the compensatory rest day for working on a national holiday shall be given an additional 50% on the ordinary working day.
If the employee performs work on the following Monday or on the day granted as compensatory rest due to the coincidence of the national holiday falling on Sunday or other mandatory rest days, the employee shall be paid an additional 150% on the salary of the ordinary working day for work on the national holiday and is entitled to an additional 50% of the ordinary working day salary for work on the compensatory day off.
Pay for Overtime Work on Holiday
Employees who work overtime on national holidays or mourning days have the right to, firstly, apply the 250% surcharge and as the result, add the corresponding surcharge for the excess hours worked on an ordinary day.
For further details on Payment for Overtime work on Holiday please refer to the PDF attached under Overtime Laws.
An employee who has been in continuous employment for 11 months, shall be entitled to a maximum of 30 days of paid vacation leave, at the rate of 1 day for every 11 days of service.
For calculating the length of the employment for entitlement to annual vacation, periods such as weekly rest, national holidays, sick leave (to the extent established in the legislation), and any other absences as may be agreed between the employer and employee, shall be taken into consideration as working days.
Annual vacation can be divided into a maximum of 2 periods if the same has been provided in the collective agreement or agreed in a prior agreement with the employee each time.
An employer shall provide the timing of vacation to employees at least 2 months in advance. After the employee becomes entitled to the vacation leave, the employer is required to provide such vacation no later than 3 months after such entitlement begins.
Annual Holiday Pay
An employee shall be paid in the below manner for annual vacation:
- If an employee’s payment is done monthly, he/she shall be paid one months’ salary.
- In case, payment agreement is weekly, in such case employee shall be paid four and a thirds’ week payment (4.333).
- In the case of employees being paid by the hour or by the day, the total ordinary and overtime remuneration received by the worker in the last 11 months of service will be divided by the number of ordinary days worked.
Example: If an employee’s weekly salary is $ 230, in such case, the payment shall be: $ 230 x 4.333 = $ 996.59
Note – Vacation pay is calculated based on employees’ ordinary and extraordinary wages plus bonuses, commissions, and other variables. Such calculation is done according to the average of the employees’ earnings in the last 11 months, or the last base salary that is paid to the employee, depending on whichever amount is more favorable to the employee.
Timing of Payment
The sums that the employee must receive will be settled and paid 3 days in advance regarding the date on which the employee begins to enjoy the annual vacation.
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 5 days of the date it occurred.
Accumulation of Vacation
An employee can accumulate vacation for up to 2 periods if agreed between 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.
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.
The minimum wage in Panama is set by activity, business size and region, with the lowest rate being US$1.55 per hour, mainly for agricultural activities. Domestic service ranges between US$275 and US$300 per month, depending on the geographic area.
An employee from the start of employment begins to establish a sick leave fund, which will consist of 12 hours for every 26 shifts worked or 104 hours a year, which the employee may use in whole or in part with full/partial pay, in case of illness or a non-work-related accident.
An employee can accumulate such leave for 2 years and use it either fully or partially during the 3rd year of service. In cases where the employee is not entitled to social security benefits and the accumulated sick leave has been exhausted, an employee will have the right to extend the sick leave by having the time deducted from his accumulated vacation time.
In case, the social security benefits are not recognized due to late payments or fault of the employer, in such cases, the employer must pay the corresponding subsidy to the employee. Labor Code of 1971, (amended as of 1995) §§ 200.
A female employee is entitled to leave for a duration comprising 6 weeks before delivery and 8 weeks after childbirth. The total duration of maternity leave shall not be less than 14 weeks in total, except in circumstances, where the delivery is delayed, in which case the female employee is entitled to extra paid leave up to 8 weeks.
The payment for maternity leave is done by the Social Security Fund. The Maternity Allowance is granted to those pregnant women who have made a minimum of 9 monthly installments in the 12 months prior to the 7th month of pregnancy, that is, up to the 6th month inclusive.
If the Social Security Fund has no obligation to provide the payment, the employer shall provide the payment in an amount equal to the difference between the economic subsidy granted by the Social Security Fund for maternity and the remuneration which an employee is entitled to during the pregnancy period.
The remuneration for maternity leave shall be based on the last salary of the employee or the average wages earned during the last 180 days if the amount is greater than the former.
In case, a female employee during maternity leave falls sick due to pregnancy or childbirth, she shall be granted paid leave for such an extended period as may be verified by a medical certificate. In such situations, an employee shall receive payment from the Social Security Fund, provided the employee is affiliated with it. If the Social Security Fund has no obligation to provide the payment during such period, the employer shall provide the payment in an amount equal to the difference between the economic subsidy granted by the Social Security Fund for maternity and the remuneration to which an employee is entitled to during the pregnancy period.
In case of abortion or any other abnormal case of delivery, the paid leave shall be arranged in accordance with the health requirements of the employee and as per the medical certificates/prescriptions provided by the physician.
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.
An employee is entitled to 3 days of paid paternity leave from the date of childbirth, as long as the employee provides his employer with (i) at least 1 week of notice of his spouse or cohabitant’s due date, and (ii) a birth certificate issued by the government authority certifying him as the father of the child. Law 27 of May 23, 2017.
Adopting mother is entitled to 4 weeks of adoption leave since the date of resolution that gives her pre-adoptive foster care. Adopting father may opt to take 2 weeks out of his annual leave. The payment for leave is made by the Social Security Fund. Act 61 of August 12 of 2008 establishing the General Law of Adoptions of the Republic of Panama, sec. 36.