How are Salaries paid in Panama?

Panama has a well‑defined employment and payroll framework designed to protect employees while providing predictability for employers. In addition to regular salary payments, Panamanian labor law mandates specific additional payments that must be made to employees: vacation pay, the 13th‑month salary, and severance (when applicable). Understanding how these elements are accrued and paid is essential for accurate payroll planning.

Mandatory Salary Components in Panama

In Panama, the following payments are legally mandatory and form part of an employee’s total compensation:

1. Vacation Pay

Employees are entitled to paid annual vacation, calculated based on their salary and length of service. Vacation entitlement accrues monthly and is paid when the employee takes their leave or upon termination, as required by law.

2. 13th‑Month Salary (Décimo Tercer Mes)

The 13th‑month salary is a statutory bonus equivalent to one additional month of salary per year, paid in three equal installments:

• Mid‑April
• Mid‑August
• Mid‑December

This benefit is mandatory and applies to all eligible employees.

3. Severance (Upon Termination)

Severance payments apply in termination scenarios defined by labor law. The amount depends on tenure and salary and is considered a mandatory employer obligation when applicable.

Accrual Method and Employer Advantage

All mandatory additional payments (vacation, 13th‑month salary, and severance) are accrued monthly.

This means:

• Each month, a proportional amount of these benefits is set aside.
• When the payment is ultimately made to the employee, there is no sudden increase in the client’s invoice.
• Payroll costs remain stable, predictable, and evenly distributed over time.
  
  

✅ Accruing these payments is a significant advantage for employers, as it:

• Prevents cash‑flow spikes
• Improves cost forecasting
• Ensures full compliance without unexpected expenses
  
  

Payroll Process at a Glance

• Payroll frequency: monthly

• Payslip issuance:

  • Yes, a payslip is mandatory and provided to employees
  • Payslips include:
    • Gross salary
    • Net salary
    • Income tax
    • Social security contributions
    • Overtime (if applicable)
      
      

Employment Conditions in Panama

Probation Period

• Typically up to 3 months

Working Hours

Panamanian labor law defines standard working hours based on shift type:

• Day shift:

  • 8 hours per day
  • 48 hours per week

• Night shift:

  • 7 hours per day
  • 42 hours per week

• Mixed shift:

  • Up to 7.5 hours per day
  • 45 hours per week

Overtime Regulations

Overtime is strictly regulated:

• Maximum overtime:

  • 3 hours per day
  • 9 hours per week

• Overtime pay rates:

  • Daytime overtime: 125%
  • Nighttime overtime: 150%
  • Rest days or public holidays: 150%–175%

Rest Breaks

• Daily rest breaks of 30 to 60 minutes
• Weekly rest days are mandatory

Summary

Panama’s payroll system combines strong employee protections with structured cost management for employers. While vacation pay, the 13th‑month salary, and severance are mandatory, the monthly accrual mechanism ensures cost stability and financial predictability.

For employers, this means:

• No unexpected payroll spikes
• Transparent and compliant salary administration
• A balanced framework that supports long‑term workforce planning