How to Hire Employees in Panama: Costs and Checklist

How to Hire Employees in Panama: Costs and Checklist

Allan Porras
Allan Porras May 5 2024 • 3 min read

Welcome to the dynamic world of Panamanian employment law! As your recruitment lawyer expert, I'm here to guide you through the essential steps of hiring employees compliantly. This comprehensive guide will equip you with the knowledge and resources to build your Panamanian team with confidence.

Why Panama?

Panama's strategic location, skilled workforce, and business-friendly environment make it an attractive destination for companies seeking to expand. However, navigating the legalities of hiring can be complex. This guide simplifies the process, ensuring a smooth and compliant experience.

Essential Requirements for Hiring in Panama

Before diving into the recruitment pool, ensure you have the following in place:

  1. Local Legal Entity: To hire employees, your company must be a registered legal entity in Panama. This involves setting up a corporation, foundation, or branch office. Consider consulting a Panamanian business lawyer for this step.
  2. Ministry of Labor Work Permit (for Non-Panamanians): If you're hiring foreign workers, they'll require a work permit from the Ministry of Labor (Ministerio de Trabajo y Desarrollo Laboral – MITRADEL). The process involves submitting specific documents and adhering to established quotas.
  3. Social Security Registration (Caja de Seguro Social – CSS): Once you have at least one employee, your company must register with the CSS, Panama's social security system. This registration enables your employees to access healthcare and other benefits.

The Hiring Process: A Step-by-Step Approach

  1. Job Posting and Recruitment: Advertise your open positions through online job boards, local newspapers, or recruitment agencies. Ensure your job descriptions are clear, accurate, and comply with Panamanian anti-discrimination laws.
  2. Selection and Interviews: Carefully screen resumes and conduct interviews to find the best candidate for the role.Panamanian labor laws grant certain interview rights to candidates, so familiarize yourself with these beforehand.
  3. Employment Contract: A written employment contract in Spanish is mandatory. The contract should clearly outline the terms of employment, including:
    • Job title and duties
    • Compensation (salary, bonuses, overtime pay)
    • Work schedule and holidays
    • Probation period (up to 3 months)
    • Benefits (social security, vacation pay, severance pay)
    • Termination clauses

Costs Involved in Hiring

The cost of hiring in Panama varies depending on factors like the employee's salary, company size, and use of external services. Here's a general breakdown:

  • Legal and Registration Fees: Setting up a legal entity and registering with the CSS involve government fees.
  • Work Permit Fees (if applicable): Obtaining a work permit for foreign workers incurs processing fees.
  • Payroll Taxes: Employers contribute a percentage of employee salaries towards social security and other mandatory contributions.
  • Recruitment Agency Fees (if applicable): Using a recruitment agency typically involves placement fees.

Quickstart Checklist for Compliant Hiring

  • Establish your legal entity in Panama.
  • Register with the Ministry of Labor (if hiring foreigners).
  • Register with the Caja de Seguro Social (CSS).
  • Develop clear and compliant job descriptions.
  • Conduct interviews following legal guidelines.
  • Draft a comprehensive employment contract in Spanish.
  • Understand your employer tax and contribution obligations.
  • Consider consulting with a Panamanian recruitment lawyer for complex situations.

Holidays in Panama

  • New Year's Day (January 1)
  • Martyr's Day (January 9)
  • Carnival Monday and Tuesday (dates vary)
  • Good Friday (date varies)
  • Labor Day (May 1)
  • Separation from Colombia Day (November 3)
  • Flag Day (November 4)
  • Colón Day (November 5)
  • Day of the "Primer Grito de Independencia" (November 10)
  • Independence Day (November 28)
  • Mother's Day (December 8)
  • Christmas Day (December 25)


Salary: $3000 USD.

Exchange rate: $1 USD = $1 PAB (Panamanian Balboa).

Employer Payroll Taxes

  • Social Security (CSS): Employers contribute a percentage of the employee's salary to social security. The exact rate can vary depending on the type of insurance (health, maternity, etc.) but let's assume a combined employer contribution rate of 13.5%. This translates to: PAB (3000 USD * current exchange rate) * 13.5% = PAB Employer Contribution

Employee Deductions

  • Social Security (CSS): Employees also contribute a portion of their salary to social security. Assuming a 6.75% employee contribution rate: PAB (3000 USD * current exchange rate) * 6.75% = PAB Employee Deduction

Net Pay Calculation

  • Assuming no other deductions (income tax in Panama typically applies to higher earners, not necessarily at the $3000 USD salary level), the net pay for the employee would be: PAB (3000 USD * current exchange rate) - PAB Employer Contribution - PAB Employee Deduction = PAB Net Pay

Sources and References

For further details and updates, refer to the following resources:

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