Last updated on: December 29th, 2021
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
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.