Contents of this guide
How many days are owed
Article 52 recognizes every worker’s right to paid annual rest, and article 54 sets its length: thirty days for each eleven continuous months of work, at one day for every eleven days of service. Article 53 adds that the right exists even if the contract does not require working all the hours of the ordinary workday or all days of the week. The Code is in Spanish and the provisions below are paraphrased.
To count time served, item 4 of article 54 includes weekly rest days, national holidays and mourning days, sick leave within the limits of article 200 and other interruptions the employer expressly authorizes. The count therefore is not limited to days actually worked at the office.
Proportional vacation
When the employment relationship ends before the worker has earned the full period, item 6 of article 54 orders payment in cash of the proportional vacation days at one day for every eleven days worked. The same rule serves to estimate how many days have accrued at any time.
| Days of service since the last rest | Vacation days accrued | Pay with a monthly salary of 1,000 balboas |
|---|---|---|
| 55 | 5 | 166.67 |
| 110 | 10 | 333.33 |
| 165 | 15 | 500.00 |
| 220 | 20 | 666.67 |
| 275 | 25 | 833.33 |
| 330 (eleven months) | 30 | 1,000.00 |
Illustrative example. The month is taken as thirty vacation days paid with one month of salary (article 54, item 2), so each day is worth one thirtieth of the monthly salary: 33.33 balboas with 1,000. If the result is not a whole number of days, the fraction is paid.
How it is paid by type of salary
Article 54 distinguishes how the rest period is paid depending on how the salary is agreed. A worker with a recent raise or variable pay does not always collect the same as one on a fixed salary.
| How the salary is paid | What is paid for vacation | Item of article 54 |
|---|---|---|
| Fixed monthly salary | One month of salary. | 2 |
| Salary agreed by the week | Four weeks and a third. | 2 |
| Salary with bonuses, commissions or other variable amounts, or a recent raise | The average of ordinary and extraordinary pay over the last eleven months, or the last base salary, whichever is more favorable to the worker. | 2 |
| Paid by the hour or by the day | Ordinary and extraordinary pay of the last eleven months is divided by the ordinary workdays served and the quotient is multiplied by the rest days owed. | 3 |
| Part of the salary in kind | The payment in kind or its cash equivalent is added to the cash pay. | 54 A |
Illustrative examples: with a base salary of 800 balboas plus commissions and an average of 1,100 balboas over the last eleven months, full vacation is paid on 1,100 because it is more favorable. With a weekly salary of 250 balboas, thirty vacation days equal four weeks and a third, that is, 1,083.33 balboas.
Item 5 adds that the sums are settled and paid three days before the date the rest period begins.
Who sets the date and other rules
- Date. Under article 57, the employer sets the time the leave begins two months ahead, trying to balance its interest with the worker’s. Setting it later than three months after the right was acquired requires the mediation of labor officials and the worker’s express consent.
- Continuity. Article 56 requires vacation to be taken without interruption. It can be split into two equal parts at most, only if a collective agreement allows it and the worker agrees each time.
- Accumulation. Article 59 allows accumulating up to two periods by an agreement notified to the labor authority, which within twenty days may prohibit it if it considers it harmful to the worker. In that case, the minimum rest in the first period is fifteen paid days.
- No cash in place of rest. The same article 59 does not allow waiving vacation in exchange for pay or compensation.
- Hospitalization. If the worker is hospitalized during the leave, article 55 does not count that time as vacation and postpones the end date. The employer must be notified within five days; a late notice gives the benefit only from the following day.
- Protection. On pain of nullity, article 60 bars the employer from starting, adopting or communicating Code measures, sanctions and actions while the worker is on vacation or on sick leave.
- Family members. When two members of one family work at the same company, article 58 says to try, on request, to schedule their leave in the same period.
Step-by-step calculation
- Count the days of service since the last rest period. Including weekly rest, holidays and sick leave within the limits of article 54, item 4.
- Divide by eleven. The result is the vacation days accrued, with fractions.
- Determine the reference salary. Fixed, weekly, variable or hourly, according to the table above.
- Get the value of one day. Monthly salary divided by thirty, or the procedure in item 3 if paid by the hour or by the day.
- Multiply the daily value by the days accrued. The product is the payment.
- Pay three days ahead. If the worker is about to go on leave, or when the relationship ends if settled in cash.
- Document it. Record dates, days and calculation base in payroll so it can be demonstrated.
Vacation in payroll
Tracking each worker’s vacation, with averages and fractions, is one of the most repetitive tasks in payroll. According to Panama Outsourcing’s website, its payroll calculation service, biweekly or monthly, includes overtime, holidays, commissions, vacation, sick leave and final settlements, with individual pay statements that detail each item. The same website offers a labor-legal advisory service that, according to its page, analyzes compliance with benefits under the Labor Code, collective agreements or internal policies. To balance the rest of payroll, Radar publishes guides on Social Security Fund contributions and the minimum wage.
Panama Outsourcing, S.A. states on its website that its payroll calculation service includes vacation, overtime, holidays, commissions, sick leave and final settlements, plus filing to the Social Security Fund’s SIPE system.
This content is informational and does not replace the advice of a labor lawyer or the Ministry of Labor and Labor Development. Reforms after Law 44 of 1995 should be confirmed in the Gaceta Oficial before applying a specific case.
Frequently asked questions
How many vacation days are owed in Panama?
Thirty days for each eleven continuous months of work, at one day for every eleven days of service, under article 54 of the Labor Code.
How is proportional vacation calculated?
The days of service since the last rest period are divided by eleven and each day is paid at one thirtieth of the monthly salary. For example, 110 days of service give 10 vacation days.
Can vacation be exchanged for money?
No. Article 59 does not allow waiving vacation in exchange for pay or compensation. Cash payment applies when the relationship ends, for the proportional days (article 54, item 6).
Can vacation be accumulated?
Yes, up to two periods, through an agreement between employer and worker notified to the labor authority, which within twenty days may prohibit accumulation if it considers it harmful to the worker (article 59).
Who decides when vacation is taken?
The employer sets the time two months ahead, trying to balance the interests of the company and the worker (article 57). Setting it more than three months after the right was acquired requires the labor authority’s mediation and the worker’s express consent.
Related articles
- Minimum wage in Panama: how it is set, regions, sectors and how it is calculated
- Social security contributions in Panama: what the employee pays, what the employer pays and what changed
- Taxes a company pays in Panama: income tax, ITBMS, dividends, Notice of Operation and payroll
Sources
- Labor Code, Cabinet Decree 252 of 1971, text with reforms up to Law 44 of 1995: articles 52 to 56 (page 19) and 57 to 60 (page 20). Compilation headed by the Ministry of Labor and Labor Development, hosted by the Judicial Branch.
- Panama Outsourcing, payroll calculation and labor-legal advisory.
- Radar Panamá, minimum wage, social security contributions and taxes a company pays.
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