Hiring at a Glance

Panama payroll has a distinctive “13th month” structure alongside annual leave rules that accrue as 30 days per 11 months of continuous work. Standard working time is structured around a 48‑hour week with defined overtime premiums (e.g., +25% day overtime and +50% night overtime). Payroll statutory costs include social security contributions to the CSS, plus education insurance contributions, and progressive income tax withholding for employees. The tax authority’s e‑Tax system (e‑Tax 2.0) and the CSS’s SIPE workflow create operational complexity, making EOR services attractive for companies that do not want to build local payroll operations.

Panama’s Labour Code provides that vacation duration/remuneration includes “30 days for each 11 continuous months of work,” at a rate of one day for each 11 days of service.

Overtime premiums are commonly structured as +25% for overtime performed in daytime hours and +50% for overtime in night hours, with other rules for mixed/night-shift extensions.

The “Décimo Tercer Mes” is an additional annual benefit paid in three parts (15 April, 15 August, 15 December) as described in Panamanian jurisprudence summaries and labour guidance, and it is operationally significant because it changes payroll timing and contribution calculations.

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Key characteristics of talent market

This report’s talent-market description for Panama is evidence-limited; official labour-market dashboards were not captured in the accessible dataset. What can be stated operationally is that the payroll environment is “multi‑fund”: payroll compliance requires correctly calculating and remitting contributions across multiple obligations (CSS, education insurance, income tax withholding) plus the 13th month structure, which materially increases payroll administration intensity compared with “single deduction” systems.

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Most In-Demand Skills in 2026

No official Panama shortage-occupation list was captured in the evidence set. The most defensible demand proxy here is the availability of software engineering salary distributions specific to Panama City and the broader Panama location, suggesting an active tech hiring market segment in the capital. Accordingly, software engineering and IT-adjacent roles (QA, data, infrastructure) are the most evidenced “in-demand” cluster within this dataset, with Panama’s broader logistics and services economy not quantified here due to missing official labour market sources.

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Top Universities Supplying Talent

This report does not assert a ranked list of Panamanian universities because authoritative university ranking sources for Panama were not captured into the evidence set before tool limits were reached. Employers should validate university pipelines via current ranking publishers and national higher‑education accreditation lists.

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Salary Benchmarks for Roles

Panamanian compensation is commonly quoted in USD or PAB (Balboa). Levels.fyi provides a Panama City software engineer distribution that can be used as an indicative benchmark; note that market ranges can differ sharply between multinational employers and local firms.

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Employer of Record vs Legal Entity Setup in Panama

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To legally hire employees, a company must

A compliant employer must implement labour law entitlements (annual leave accrual and overtime premiums) and register and report for payroll contributions. Annual leave entitlement is statutory in the labour code as 30 days per 11 months, and overtime premiums are clearly structured in labour guidance.

For social security, the employer’s payroll declaration and payment process is routed through the CSS, with employer obligations framed in the CSS regulatory materials (including obligation to deduct statutory items and deliver them to CSS within terms set by law).

For income tax withholding reporting on wages, Panama uses the “Planilla 03 / Formulario 03” reporting concept through the tax authority e‑Tax platform, with monthly submission described in local compliance publications (official tax authority pages were intermittently unavailable during research). Employers should therefore treat the e‑Tax portal workflow as a primary operational dependency.

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Cost of Entity Setup

Panamanian incorporation often does not require a legally fixed minimum share capital; a commonly cited “standard” share capital is USD 10,000, and it may not need to be deposited in a bank account at incorporation (as described in comparative legal guidance). This means entity setup cost is often driven more by legal fees, resident agent costs, and public registry fees than by paid‑in capital.

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What Hiring Through an EOR Means in Panama

An Employer of Record (EOR) in Panama becomes the legal employer registered with Caja de Seguro Social (CSS), Dirección General de Ingresos (DGI), and the Ministry of Labour and Workforce Development (MITRADEL), while the employee works exclusively for your company. You supervise daily activities and performance, but the EOR assumes all statutory employer obligations under Panamanian law.

Employment in Panama is governed primarily by:

• Código de Trabajo de Panamá
• Social Security Law (CSS regulations)
• Income tax laws administered by DGI
• Mandatory 13th month bonus law
• Collective bargaining agreements in certain industries

Foreign companies cannot legally employ workers in Panama without:

• A registered Panamanian entity
• Social security enrollment with CSS
• Payroll tax registration with DGI

An EOR provides this full employer infrastructure without requiring you to establish a Panamanian company.

An EOR in Panama handles:

• Labour Code-compliant employment contracts
• Payroll processing in USD (Panama uses USD as legal tender alongside Balboa)
• Income tax withholding and reporting
• CSS social security contributions
• 13th month bonus administration
• Paid leave and holiday compliance
• Termination procedures and severance calculations
• Work permits and immigration sponsorship

This model is ideal for companies that want to hire in Panama without navigating strict social security obligations, union influence, and termination risks directly.

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Risk Involved in Both Models

Panama has a protective labour framework with strong employee rights, particularly around termination and severance.

Key characteristics:

• Mandatory written employment contracts
• High severance exposure for indefinite contracts
• Mandatory 13th month bonus
• Social security contributions via CSS
• Strong union presence in certain sectors

Compliance failures can result in:

• Retroactive social security payments
• Labour court compensation awards
• Government fines
• Reinstatement orders

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EOR Vs. Entity: When to use What?

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Why an EOR Is the Most Efficient Way to Hire in Panama

Panama is a major logistics and financial hub in Latin America, with strong talent in shipping, banking, fintech, and shared services. However, hiring is governed by strict severance rules, mandatory bonuses, and significant social security obligations.

An EOR is not merely a payroll provider. It is the legal employer recognized by CSS and MITRADEL, responsible for:

• Labour Code compliance
• Social security reporting
• Payroll tax filings
• Mandatory bonus administration
• Termination management

This allows foreign companies to operate in Panama without directly assuming employer liability under Panamanian labour law.

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#1. EOR Manages CSS Social Security Contributions

Employers in Panama must contribute to Caja de Seguro Social (CSS).

Employer contributions are approximately 12–13% of salary, while employees contribute around 9–10%.

CSS covers:

• Pensions
• Health insurance
• Occupational risk coverage

Non-compliance can lead to:

• Retroactive payment demands
• Fines and interest
• Labour inspection penalties

An EOR ensures accurate reporting and timely remittance.

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#2. EOR Handles Mandatory 13th Month Bonus (Décimo Tercer Mes)

Panama mandates a 13th month bonus paid in three installments throughout the year.

This equals one month of salary annually.

Common employer mistakes include:

• Miscalculating proportional payments
• Failing to pay on required dates

An EOR ensures accurate accrual and statutory compliance.

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#3. EOR Controls Termination and Severance Risk

Termination in Panama can be costly.

Without just cause, employers must pay:

• Notice compensation
• Seniority premiums
• Severance based on years of service

Severance formulas vary based on contract type and tenure.

Improper dismissal can lead to:

• Labour court compensation
• Reinstatement orders

An EOR manages:

• Legal termination grounds
• Severance calculation
• Labour dispute handling

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#4. EOR Ensures Compliance with Union and Sector Agreements

Certain sectors in Panama have strong union presence and collective agreements.

These agreements can regulate:

• Minimum salaries
• Overtime premiums
• Work conditions

An EOR ensures compliance with sector-specific obligations.

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EOR vs. PEO in Panama: How to Decide the Right Hiring Model?

A PEO in Panama cannot legally employ workers on behalf of foreign companies.

Without a Panamanian entity, a foreign company cannot directly hire staff.

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Payroll, Taxes, and Monthly Compliance

Personal income tax for individuals is commonly described as: 0% up to B/.11,000; 15% on income between B/.11,000 and B/.50,000; and above B/.50,000 a fixed amount plus 25% on the excess, reflecting the amended tax code position described in legal analyses. (The tax authority website pages producing the official tables were intermittently unavailable during this research, so this is cited from legal analysis pages referencing the amended article.)

Social security contributions: CSS regulatory material shows an employee contribution of 9.75% and an employer contribution of 12.25% (historic baseline), and separately identifies “special contributions” on the 13th month installments at 10.75% for employers and 7.25% for employees. A CSS press release states that, from April 2025 (paid in May 2025), the employer quota increases in a staged manner under Law 462, indicating that the employer rate can be higher than the historical 12.25% baseline (e.g., +1% phase).

Education insurance (“Seguro Educativo”) is described as 1.50% employer and 1.25% employee in major local business press, and it interacts with wage withholding and certain exclusions (e.g., treatment of the 13th month in practice varies by rule).

For payment deadlines, CSS regulation states that employer/employee quotas must be paid monthly “no later than the last business day of the month following” the payroll month, with prórrogas possible under defined conditions.

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Salary Structure: Where Most Compliance Issues Begin

Two Panama-specific pitfalls recur: mis-handling the 13th month and misclassifying overtime windows. The 13th month is paid in three statutory tranches, which creates three separate points in the year where payroll teams must calculate additional amounts and (depending on contribution category) apply special contribution rates; errors here can understate contributions or create employee disputes.

Overtime errors commonly arise when employers do not segment the day vs night overtime premium correctly (+25% vs +50%), or fail to apply special rules for mixed/night extensions.

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What Monthly Payroll Operations Actually Involve

A compliant month requires: close attendance; compute ordinary hours and overtime; compute gross; withhold employee items (CSS employee quota, education insurance employee quota, income tax withholding when applicable); compute employer items (CSS employer quota, education insurance employer quota, risk professional premiums as applicable); pay net salary; file and pay CSS planilla within the statutory window (no later than the last business day of the next month); and file wage withholding reporting (Planilla 03) through e‑Tax based processes.

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Step-by-Step Onboarding Process With an EOR in Panama

Hiring in Panama involves tax registration, social security enrollment, and strict labour documentation.

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1. Confirm EOR Registration

Verify the EOR is registered with:

• CSS
• DGI
• MITRADEL

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2. Determine Contract Type

Panama recognizes:

• Indefinite contracts (most common)
• Fixed-term contracts
• Project-based contracts

Improper classification increases severance exposure.

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3. Validate Salary and Minimum Wage Compliance

EOR ensures:

• Salary meets legal minimum wage
• Bonus accrual is correctly structured

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4. Calculate Full Employment Cost

Includes:

• Employer social contributions
• 13th month bonus accrual
• Severance exposure

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5. Draft Labour Code-Compliant Contract

Must specify:

• Job duties
• Work schedule
• Compensation structure
• Termination provisions

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6. Register Employee with CSS

Registration must occur before employment begins.

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7. Establish Payroll and Leave Systems

EOR sets up:

• Monthly payroll
• Bonus payment schedule
• Leave tracking

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8. Immigration Compliance (If Applicable)

For foreign nationals, EOR manages:

• Work permits
• Residency documentation

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9. Execute First Payroll

Includes:

• Salary payment
• CSS contributions
• Tax reporting

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10. Ongoing Compliance Management

EOR oversees:

• Monthly payroll filings
• Social security reporting
• Labour inspections

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11. Termination and Final Settlement

EOR manages:

• Legal dismissal process
• Notice and severance calculation
• Labour dispute representation

Most employer disputes in Panama arise from termination procedures.

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Build Your Panama Team with Bolto EOR

Hiring in Panama requires careful management of social security obligations, mandatory bonuses, and strict termination rules.

Bolto’s Employer of Record model absorbs:

• Labour Code complexity
• Social security compliance risk
• Bonus and severance obligations
• Termination and litigation exposure

This allows you to expand into Panama without setting up a local entity.

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Full Legal Employer Coverage in Panama

Bolto becomes the legal employer before:

• CSS
• DGI
• MITRADEL
• Labour courts

Bolto manages:

• Contracts and compliance
• Payroll and statutory filings
• Bonus administration
• Severance calculation
• Termination execution

You manage employee performance. Bolto manages legal risk.

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Built for Fast Market Entry and Flexible Exit

With Bolto EOR:

• Hire quickly
• Avoid company registration
• Skip payroll infrastructure setup
• Exit without liquidation procedures

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Transparent Cost Structure

Bolto provides:

• Detailed statutory cost breakdowns
• Bonus and severance visibility
• Predictable EOR fees

No hidden liabilities.
No unexpected compliance penalties.

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End-to-End Employee Lifecycle Management

Bolto manages:

• Contract drafting
• Payroll and tax reporting
• Social security compliance
• Leave and bonus administration
• Termination handling

You never interact directly with Panamanian labour authorities.

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Designed for Risk-Controlled Expansion in Panama

Panama enforces strict penalties for:

• Social security underpayment
• Failure to pay 13th month bonus
• Improper termination

Bolto enables hiring in Panama without inheriting employer liability risks.