How to use an Employer of Record in Panama

Panama is more than just the perfect Central American paradise for an exotic getaway. The country is also a high-income economy with a burgeoning tech and startup scene. Panama has introduced a remote work visa program designed to add even more expats and digital nomads to the 2.5 million tourists that visit Panama yearly.

If you're looking to tap into the country’s labor force, it can be hard to know how to go about hiring employees in Panama. In addition to understanding local laws and tax practices, you’ll have to spend time and resources to open a local entity and deal with employment contacts, taxes, benefits, payroll, and employee management.

Alternatively, you could save yourself the hassle and use an employer of record (EOR) to hire in Panama on your behalf. An EOR can help you figure out local employment regulations and streamline hiring and maintaining a dream team in Panama.

In this article, we’ll explain how you can use an EOR to hire a team in Panama, the costs and benefits of using an EOR, and how you can choose the right EOR for your needs. 

Five steps to hiring employees in Panama using an employer of record

An employer of record can help you accelerate the process of hiring in Panama — but only if you select a partner equipped with the infrastructure required to create local entities, onboard employees, and manage payroll and admin functions. There are many options available today, so how do you find the EOR that is right for your business?

Here are five steps to finding a reliable employer of record to help you expand into Panama.

Step 1: Weigh up the pros and cons of each potential partner

Make a list of your business requirements, and make sure your shortlisted EORs offer the features you need. An employer of record should be able to help you create a local entity and manage all the administrative tasks that come along with hiring employees in Panama, such as:

• Securing your intellectual property and financial and HR data

• Managing payroll to ensure employees get paid on time

• Staying compliant with local labor regulations

• Offering a range of HR features for managing salaries, raises, benefits, and payroll taxes

• Integrating with the rest of your HR stack, so you can manage your team in one place

• Offering an intuitive UX that makes it easy to onboard new hires.

The best employer of record should support all the functions we listed above at a great price.

Step 2: Make sure your EOR provider owns its own entity in Panama

It’s common for EOR providers to depend on third-party providers for certain services for a fee. The problem with this is that it can end up being costly, as these third-parties might change their prices unexpectedly. Since you’re not directly interacting with those providers, you might not have control over pricing. Partnering with such EORs may even expose you to legal or security risks if the external providers they work with don’t have proper security measures in place. 

It's important to ensure that your chosen EOR has its own local entities in Panama so that you can be confident about pricing, security, and customer service.

Step 3: Check the reviews, testimonials, and coverage of your shortlist of providers

Take a look at what previous or current clients are saying about the EOR on the company website, social media, or third-party review sites. Reviewing online coverage can give you a good idea of an EOR provider’s claims, their services, and whether they’re doing a good job of client requirements (or not).

Step 4: Ensure that the EOR solution for Panama will provide a best-in-class employee experience

While an employer of record primarily helps with setting up local entities and managing HR administration on your end, a huge part of that includes making sure it provides the best experience possible for the team.

To ensure your potential EOR partner provides a positive employee experience, make sure they’re able to:

• Pay salaries on time

• Resolve employee queries quickly

• Onboard new employees and manage their data

• Provide detailed explanations for taxes and any levies that are to be withheld by the employer

How an employer of record treats employees ultimately becomes an impression of your brand. Ideally, you should partner with a provider who has a track record of treating employees well. 

Step 5: Work with your partner to make sure you always provide a fair and equitable compensation package

Compensation for remote roles can vary wildly, even for the same type of work. For instance, while a graphic designer in Panama might earn just over $18k annually, the same position in New York would cost three times more, at around $61,000 annually.

An EOR should have the capability to help you figure out wages, factoring in variables like basic market salaries, experience levels, and local cost of living. To attract and retain top talent, the EOR should be able to offer employees a competitive benefits package factoring in local labor laws, as well as the individual’s experience, role, and level.

Step 6: Make sure your partner will guard your intellectual property and maintain data security for your business

Your EOR should have security measures and infrastructure in place to protect your company’s and employee's personal and sensitive information, and offer protections against any security breaches.

Your intellectual property serves as a moat around your product and can help you maintain your market position or create leverage if you’re getting acquired. An employer of record must ensure its contracts and agreements secure the rights to the intellectual property employees produce for your business using your resources.

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What are the benefits of using an employer of record in Panama?

An employer of record maintains a local entity through which you can hire workers legally in Panama, manage their salaries and benefits, and terminate the employment relationship if necessary. This formal structure keeps you compliant with local regulations and helps avoid entanglement with labor laws.

Essentially, an employer of record represents your business in Panama and helps:

• Maintain a local entity that qualifies you to hire employees in Panama

• Outline the terms and conditions of employment, including salaries, vacations and holidays, termination terms, etc.

• Manage payroll and benefits, so workers can get paid on time

• Ensure your employees and contractors are adequately classified according to labor statutes

• Manage the termination process to ensure employees are only let go as the law permits, to avoid penalties

• Pay any necessary taxes and levies on your behalf.

How much does it cost to use an EOR in Panama?

When choosing an employer of record, you’re faced with a tough decision: do you partner with established EOR providers that charge upwards of thousands of dollars a month or work with younger upstarts that may be less pricey but don’t have the infrastructure required to scale in Panama?

On one hand, legacy EOR operators charge enterprise rates of up to $1,600 per employee per month, or a huge fraction (up to 18%) of your monthly payroll. These legacy EOR  providers may just do the bare minimum: file a few documents and create a local entity. For anything beyond that, you’re on your own. That includes figuring out a way to pay employees every month, integrating with your existing HR software, or even ensuring your company’s financial data doesn’t leak.

Startup EOR players usually charge less compared to their legacy competitors, but may not have the infrastructure or full suite of services required to get you set up to hire in Panama. Choosing such an option might be inconvenient and costly, as you might have to rely on other platforms for certain services. 

A global employment service like Remote offers a significantly lower flat rate that covers everything you need to hire a team of 1 or 1,000 in Panama: a fully compliant local entity, robust infrastructure that integrates with your existing HR software, and one platform to manage all your employee’s hiring and payroll needs including contracts, taxes, benefits, and more.  

Compare Remote with other EOR providers and decide which option works best for your business. 

Hiring in Panama

The Panamanian Labor Code of 1971 is the country’s supreme labor law and spells out regulations that guide employment relationships, such as the minimum wage employers can pay, benefits, vacations and holidays, and acceptable terms for letting employees go.

Remote’s guide to hiring in Panama goes into the specifics of hiring employees in Panama, which we’ll review to help you understand how an EOR should help you manage the employment relationship with an employee in Panama.

Employment contracts and agreements in Panama

Contracts in Panama can either be verbal or written and are assumed to exist once there’s an exchange of services for some remuneration. Written contracts are advisable since they provide liability protection in case of any disputes. Employment contracts must include details such as:

• The employee’s personal information such as name, sex, etc.

• The names of the employee’s dependents

• The work to be performed and the method for carrying out the work

• Designated workplace

• The duration of the contract

• Effective salaries, and

• The location and date of signing

Panamanian law recognizes three main contract types, viz:

• Probationary contracts, which can’t exceed three months

• Fixed-term contracts capped at one year, and

• Indefinite term contracts

Contracts signed in person and electronically are equally valid.

Labor compliance in Panama

Businesses need to obey several labor rules regarding the treatment of their workforce to maintain good standing and avoid legal liability. These include:

• Protecting employees from any form of discrimination due to race, religion, nationality, ideology, political affiliation, sex, financial, social, or physical condition

• Ensuring working hours don’t exceed eight hours daily or 48 hours per week

• Paying workers a minimum vital and adjustable wage for their efforts

• Providing dignified and safe working conditions

• Paying a mandatory 13th-month salary over three installments in April, August, and December

Payroll and payroll taxes in Panama

Panamanian income and payroll taxes are capped at 25% and 11% respectively, which are to be withheld and remitted by the employer.

Employer payroll taxes are capped at 21.34% covering:

• social security (12.25%),

• unemployment contributions (1.92%),

• education (1.5%), and

• accident insurance (0.98% to 5.67%).

Employment benefits and compensation in Panama

More than just getting set up in Panama and paying market-rate salaries, the right mix of benefits and perks can help you attract Panama’s best brains — and stay on the right side of the law.

Maternity and paternity leave

Female employees are entitled to 14 weeks of fully paid maternity leave, starting six weeks before delivery, with benefits paid by the Social Security Fund.

Fathers are entitled to three days’ paternity leave with full wages.

Sick leave

Employees earn 12 hours of sick leave for every 26 shifts they work (a shift equals 12 hours), which equals one day of sick leave earned per month or 13 days of sick leave per year.

Vacation and holidays

Employees are entitled to 13 paid public holidays, and 30 days of paid vacation annually, after the first year with an employer.

Our philosophy here at Remote is helping visionary businesses hire the ideal team from anywhere across the globe, and a huge part of that is making sure that all employees earn livable wages, no matter where they live.

Healthcare

Although Panama has an extensive network of public hospitals that are almost free, private healthcare, which is generally faster, can be a huge perk for your Panama-based employees.

Pensions

Employer and employee social security contributions (12.25% and 9.75% respectively) fund Panama’s social security system that guarantees a pension at age 62 for men and 57 for women.

Remote can help you design and provide competitive global benefits for employees, no matter where they’re located, so that you can build a stronger workforce that sticks with you for the long term.

Severance pay and employee terminations in Panama

Employers are required to provide written notice anywhere from 15 days to two months in advance before dismissing an employee. Terminations are generally justified for employee misconduct, inability to dispense duties, or some other economic considerations.

Employees terminated without cause are entitled to 30 days’ prior notice and up to 14.8 months’ pay, depending on their tenure, detailed here in our guide to hiring in Panama.

What are the risks of employee misclassification in Panama?

Panama enforces strict protections for employees and misclassifying employees can result in fines, penalties, losing your company’s intellectual property, and an outright ban on doing business there.

Across the Latin America region, independent contractor relationships often have to pass stringent tests, such that:

• The contractor uses his own human and material resources to deliver projects

• The contractor does not receive orders from the client regarding where, when, and how services are rendered, and that

• There’s no economic dependency between both parties

An employer of record can help you distinguish between employees and contractors and figure out how to stay in compliance with local legislation in Panama.

Get started with an employer of record in Panama

Hiring an international team can give your business new opportunities and access to diverse, local talent. However, there are many challenges to global hiring — from the logistics and paperwork involved in setting up a local entity to the many admin processes involved in hiring, paying, and managing employees compliantly. 

An employer of record makes it simple to hire in Panama, and abroad, by taking on the legal responsibilities of hiring and paying employees overseas. Here’s how a global employment service like Remote can help your business go international quickly and at a fraction of the cost.

Partner with Remote and you can: 

• Own a dedicated legal entity that authorizes you to hire in Panama

• Manage payroll efficiently and ensure workers are paid on time

• Figure out compensation and benefits in line with local rules

• Stay compliant with changing local regulations

• Secure your intellectual property and protect your data from hacks and leaks

• Classify your workforce accurately to avoid penalties and fines

Remote’s team of global hiring experts can help you navigate the complexities of international hiring easily. Learn more about how Remote makes it simple to grow your team of remote employees. If you’re reading to start onboarding employees in Panama, get started with our global employment services today!

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