Employment, payroll and social security in Panama

Hiring and paying staff in Panama requires knowing the Labor Code, Social Security Fund contributions, the thirteenth-month payment, overtime and severance. Here are the Radar Panamá guides, with calculators and official sources, for employers and workers.

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Essential guides on this topic

13 Oct 2026Overtime in Panama: Day, Night and Mixed-Shift Surcharges ExplainedTable of article 33 surcharges in Panama's Labor Code, the three-hour daily and nine-hour weekly caps, Sundays and holidays, with a payroll calculation example.

13 Oct 2026Panama Social Security Fund: Payments, Contributions, AppointmentsCSS service guide with the retiree payment calendar, the plan after the 9 October earthquake, contribution checks in Mi Caja Digital and closed facilities.

10 Oct 2026Severance Pay in Panama: What Is Paid and How It Is CalculatedSeniority premium, the article 225 indemnity, proportional vacation and claim deadlines, with a worked example and a checklist for employers.

All articles on this topic

13 Oct 2026Thirteenth-Month Pay in Panama: Dates, Rules and CalculationThe three installments, their dates, the legal basis, who receives the bonus, how it is calculated with an example and…

12 Oct 2026Vacation in Panama: How Many Days Are Owed and How They Are PaidVacation days, a proportional calculation table, pay by type of salary, accumulation and the Labor Code rules for setting the…

4 Oct 2026Dismissal in Panama: Just Causes, Letter, Notice and SeveranceJust causes, what the letter must contain, notice under article 212, consequences of unjustified dismissal and protected workers, with Labor…

2 Oct 2026Social security contributions in Panama: what the employee pays, what the employer pays and what changedThe employee contributes 9.75% and the employer 13.25%, rising to 14.25% in 2027 and 15.25% in 2029 under Law 462.…

How payroll is calculated

Payroll is built in three layers. The first is the salary earned in the period, which includes ordinary and extra hours, because the Labor Code treats full wages as those received for both (Labor Code, art. 148). The second is the deductions from the worker. The third is the contributions the employer bears. The employer withholds the employee’s share when paying wages and delivers it to the CSS together with its own share, within the following month, on the dates set by the Board of Directors’ regulation (Consolidated Text of Law 51 of 2005, art. 84).

The current rates are set in article 96 of the Consolidated Text. Each contribution and how it changed after the reform is explained in Radar’s article on what the employee pays, what the employer pays and what changed in social security.

Item	Employee	Employer	Source
Social security, until 28 February 2027	9.75%	13.25%	Law 51, art. 96
Social security, from 1 March 2027	9.75%	14.25%	Law 51, art. 96
Social security, from 1 March 2029	9.75%	15.25%	Law 51, art. 96
Education insurance	1.25%	1.50%	Law 13 of 1987
On each thirteenth-month installment	7.25%	10.75%	Law 51, art. 96, items 4 and 5

An illustration with a monthly salary of 1,000 balboas, a made-up figure used only to show the method: the employee pays 97.50 to social security and 12.50 to education insurance, so takes home 890.00 before income tax. The employer pays 132.50 to social security and 15.00 to education insurance, 147.50 in addition to the salary, plus the occupational risk premium for its activity. Once the employer rate rises to 14.25% on 1 March 2027, that same employer contribution would be 157.50. The reform of the CSS was enacted as Law 462.

Gather ordinary and extra hours for the period, with the surcharges that apply.
Add commissions, bonuses and any other pay that forms part of the salary.
Calculate employee and employer contributions on that total.
Subtract the worker’s deductions to reach net pay.
File the payroll and pay the CSS within the following month.
Give the worker a pay slip and keep the calculation on file.

Some payments are excluded from the definition of salary for CSS purposes: the three thirteenth-month installments, notice pay and sums received as severance on termination, among others (Consolidated Text, art. 86). Every worker who provides services in Panama, national or foreign, falls within the mandatory scheme (art. 71), and an employer must register with the CSS within the first six business days of starting operations with employees (art. 81). Procedures and appointments are covered in Radar’s guide to CSS payments, contributions and appointments.

Key fact: In Panama the employer’s social security contribution is 13.25% of salary until 28 February 2027, 14.25% from 1 March 2027 and 15.25% from 1 March 2029, while the employee pays 9.75%, under article 96 of the Consolidated Text of Law 51 of 2005.

Where to start: it helps to build a spreadsheet with the columns in the table above and check it against the text of article 96 of Law 51 before running the first pay period.

Hiring and the minimum wage

The individual employment contract must be in writing, signed at the start of the relationship in three copies, one of which goes to the General Directorate of Labor or its regional offices. Exempt, among others, are contracts for farm or livestock work, domestic service and occasional jobs lasting no more than three months (Labor Code, art. 67). The minimum content covers the parties, the agreed service, the place, the duration, the working day and the salary with its form, day and place of payment (art. 68). Companies with ten or more workers must also adopt internal work rules (art. 191).

The minimum wage is the lowest sum of money payable per unit of time for a given region, activity or profession, and must be set by decree at least every two years on the recommendation of the National Minimum Wage Commission (Labor Code, arts. 173 and 174). The current table was set by Executive Decree 13 of 31 December 2025, published in Official Gazette 30438 of 6 January 2026. It fixes hourly rates by economic activity, occupation, company size and region, and takes effect on 16 January 2026 (art. 5). Its rates apply to the 2026 and 2027 period.

Where to start: it helps to locate the activity and region of the workplace in Executive Decree 13 of 2025 and compare that rate with each contract’s salary.

Thirteenth-month pay

The thirteenth month is paid in three installments. For public servants, Law 52 of 1974 sets them no later than 15 April, 15 August and 15 December each year (Law 52 of 1974, art. 2), and Radar’s article on thirteenth-month pay, dates, rules and calculation details the private-sector regime, which stems from Cabinet Decree 221 of 1971. Law 20 of 1992 restored the second installment for public and private workers from 14 August 1992 (Law 20 of 1992, art. 1).

The same law states that these sums are deductible for the employer and bear no occupational risk premium or other charge, except the social security contributions and income tax (art. 2). Under Law 51, those contributions are special ones: 7.25% from the employee and 10.75% from the employer on each installment. With a gross installment of 333.33 balboas, calculated in this invented example on 4,000 earned in the period divided by 12, the employee pays 24.17 and the employer 35.83.

Key fact: Sums paid as thirteenth-month pay are subject to social security contributions and income tax and to no other deduction, under article 2 of Law 20 of 1992.

Where to start: before each payment date it helps to run Radar’s thirteenth-month calculation guide with the actual earnings of the four-month period.

Working hours, overtime and vacation

The maximum day shift is eight hours a day and 48 a week. Night work is capped at seven hours a day and 42 a week, and mixed shifts at seven and a half hours a day and 45 a week (Labor Code, art. 31). Daytime runs from 6 in the morning to 6 in the evening and nighttime covers the rest (art. 30). Time beyond those limits is overtime and is paid with a surcharge (art. 33).

Situation	Surcharge	Reference
Overtime during the day period	25%	Art. 33, item 1
Night overtime, or extension of a mixed shift that began by day	50%	Art. 33, item 2
Extension of a night shift, or of a mixed shift that began at night	75%	Art. 33, item 3
Hours beyond three overtime hours a day or nine a week	additional 75% on the excess	Art. 36
Work on Sunday or a weekly rest day	50% on the ordinary working day	Art. 48
Work on a national holiday or mourning day	150% on the ordinary working day	Art. 49

Wages must include overtime worked up to five working days before payday (art. 37). When several surcharges stack, the Sunday or holiday surcharge applies first and the excess-hours surcharge is added to the result (art. 50). Worked figures appear in Radar’s overtime guide covering day, night and mixed shifts.

For vacation, a worker accrues thirty days for every eleven continuous months of work, at one day per eleven days of service. A monthly salary earns one month’s pay, and where pay includes commissions or variable amounts, the higher of the average of the last eleven months and the latest base salary is used. The sums are settled three days before the leave starts, and a worker whose relationship ends is paid the proportional days in cash (Labor Code, art. 54). Vacation cannot be traded for money and can be accumulated for two periods at most (art. 59). The full explanation is in the article on vacation in Panama, days owed and pay.

Where to start: it helps to record entry and exit times daily and compare them with the limits of article 31 and Radar’s surcharge table.

Termination and final settlement

When any open-ended contract ends, whatever the cause, the worker receives a seniority premium of one week of salary per year worked, with a proportional share for incomplete years (Labor Code, art. 224). For that premium the reference salary is the average of total pay over the last five years worked (art. 226).

If the dismissal is unjustified or was made without the required prior authorization, severance pay is owed in addition. For relationships begun under Law 44 of 1995, it equals 3.4 weeks of salary per year for the first ten years and one week per year after that (art. 225, section C). The amount is calculated on the average earned in ordinary and extra hours over the previous six months or thirty days, whichever favors the worker (art. 149). For example, a worker with five years of service would be owed 17 weeks of severance, on top of the premium.

Thirty days’ notice, or pay in lieu, applies to the categories that article 212 carves out of the general stability regime, such as workers with under two years of continuous service or domestic workers, and is added to the severance of article 225. A resignation without cause requires written notice fifteen days ahead, or two months for technical workers (art. 222). A claim for unjustified dismissal with back pay expires sixty business days after separation, and a claim for severance and other termination benefits alone, one year after (art. 221). Radar covers the cases in its notes on dismissal, just causes, letter, notice and severance and on severance pay and how it is calculated.

Where to start: upon an exit, it helps to list proportional vacation, proportional thirteenth month, seniority premium and, where relevant, severance and notice using Radar’s severance guide.

In-house or outsourced payroll

Running payroll inside the company or hiring a provider is an organizational choice, not a legal requirement, and either way the company remains the responsible employer. Outsourcing the payroll service is a different matter from outsourcing staff. The Labor Code prohibits arrangements in which one company supplies another with the workers it needs (art. 94). The exception, with prior authorization from the Ministry of Labor, covers companies that lend their own workers temporarily for periods not exceeding two months, with joint liability of the user company (art. 95). When a company works exclusively or mainly for another, the latter is deemed the employer and both answer jointly for benefits (art. 90).

Radar’s article on CSS filings and payments shows the obligations that stay with the employer in both models. The decision usually turns on whether a trained person and a backup are available, how complex pay types are, and whether the company can deliver attendance and salary changes on time every cycle.

Where to start: before requesting quotes, it helps to list which filings, pay slips and settlements the provider would handle and which stay in-house, checking the limits of articles 90 to 95 of the Labor Code.

Myths and facts

Believed: thirteenth-month pay carries no contributions. Law 20 of 1992 subjects it to social security contributions and income tax, and Law 51 sets 7.25% and 10.75% on each installment.
Believed: vacation can be paid out instead of taken. Article 59 of the Labor Code bars waiving it for money. Only proportional days are paid in cash when the relationship ends.
Believed: overtime has a single surcharge. Article 33 distinguishes 25%, 50% and 75% by period, and articles 48 and 49 add 50% on rest days and 150% on holidays.
Believed: the employer pays only its own share to the CSS. Article 84 of Law 51 requires withholding the employee’s share and delivering it with the employer’s.
Believed: foreigners are outside the CSS. Article 71 places nationals and foreigners who provide services in the country in the mandatory scheme.
Believed: outsourcing payroll transfers responsibility. The company remains the employer, and the Labor Code assigns joint liability in intermediary schemes.
Believed: the minimum wage is one number. The current decree sets hourly rates by activity, occupation, company size and region.

Where to start: it helps to compare the company’s current practices with this list and correct first those affecting contributions, which are the ones that later produce accumulated claims.

Frequently asked questions

How is payroll calculated in Panama?

It is calculated by adding the period’s salary, including overtime and commissions, and applying the employee and employer social security and education insurance contributions to that total. What is withheld from the worker is then subtracted to reach net pay. The method and rates are in the first section and in Radar’s article on social security contributions.

How much does the employer pay to the Social Security Fund?

The employer pays 13.25% of salary until 28 February 2027, 14.25% from 1 March 2027 and 15.25% from 1 March 2029, according to article 96 of the Consolidated Text of Law 51. The 1.50% education insurance and the occupational risk premium for the activity come on top.

When is the thirteenth month paid?

It is paid in three installments, no later than 15 April, 15 August and 15 December each year, dates that Law 52 of 1974 sets for the public sector. The private regime is summarized in the thirteenth-month guide.

How many vacation days is a worker owed?

Thirty paid days are owed for every eleven continuous months of work, at one day per eleven days of service, under article 54 of the Labor Code. Payment and examples are in the article on vacation in Panama.

What is paid when an employment relationship ends?

Pending salary, proportional vacation and proportional thirteenth month are paid, along with a seniority premium of one week per year on open-ended contracts, and severance is added if the dismissal was unjustified. This guide is informational and does not replace the advice of a labor lawyer or accountant, who can review each case against the rules in force.