Introduction to Payroll in Panama

Whether you're new to international hiring or you've done it for years, adding a new country to your payroll is a major task. If you've decided it's time to branch out, you need to understand the ins and outs of managing payroll in Panama.

As with any country, Panama has specific laws regarding how international companies employ and compensate workers. It also carefully regulates how businesses pay taxes and report earnings. You can work with Skuad to manage these concerns and keep your employees paid accurately and on time every time.

Skaud provides local guidance and critical knowledge on taxes, compensation, and benefits. You can work with our in-country experts to make sure you understand and comply with Panama's laws on:

• Taxes
• Compensation
• Healthcare
• Sick leave
• Parental leave
• Vacation
• Pensions
• Withholdings
• Employer contributions
• Unemployment

If you're ready to get started, you can get in touch with us today to set up payroll in Panama. Otherwise, keep reading to learn what kinds of payroll processing Panama requires and what you can do to streamline your processes.

Payroll Process in Panama

Standardizing your payroll process is crucial for ensuring that your employees are paid on time and accurately. This is particularly true when you're managing international payroll. Understanding the kinds of payroll processing Panama expects is key to standardizing your processes and keeping them in compliance.

Most payroll providers break down the process into three general phases: pre-payroll, payroll calculation, and post-payroll. These stages need to be carefully managed every pay period to make sure you pay your employees correctly.

Pre-payroll phase

The pre-payroll phase is the time to handle all of the basic setup and data collection necessary for a successful pay period. Components of the pre-payroll phase include:

Setting up your local branch

To hire an employee in Panama, you need to have a legally recognized business within the country. You need to open a local legal entity to act as the worker's official employer and register with Panama's Public Registry and the revenue agency (DGI).

You'll also need to get an employer number from the Seguro Social, Panama's social security agency. It's good practice to open a local bank account to make sure you can quickly deposit funds into your employees' accounts.

Developing local policies

Panama's employment laws are almost certainly different from your local regulations. That means you need to write new policies regarding leave and attendance to comply with local rules.

For instance, all employees in Panama are guaranteed 30 paid days of leave annually after being employed for at least a year. Similarly, you'll need to decide how to monitor attendance in advance. You may use an electronic timesheet, biometric devices, or other work monitoring solutions.

It's also good to determine your payment schedule and payday before hiring any employees. These policies will dictate how you collect employee hours and calculate pay each period, so they must be decided in advance.

Study local compensation requirements

Panama's labor laws include strict rules regarding how much an employee must be paid and what other benefits employers must provide. It's your responsibility to learn what benefits and compensation are required by law. Otherwise, you risk legal action.

Gather employee and hour information

The last step of the pre-payroll phase needs to be performed regularly. You need to collect identifying information from employees and regularly confirm that it's still accurate. For every worker, you should know:

• Their name
• Their address
• Their social security number
• Their preferred bank account
• Their role and department within your company

Last, you'll gather and validate hours from your employees every pay period. All of these details will help you keep your payroll accurate and efficient.

Payroll calculation phase

The actual payroll calculation phase may be the simplest part of the process if you're using a payroll outsourcing system. You'll input the hours your employees worked and the other information from the pre-payroll phase, and the system will calculate their paycheck, withholdings, deductions, and taxes due. If you don't work with a payroll provider, you'll need to do that manually for every Panama employee you have.

Post-payroll phase

The post-payroll phase occurs once you know how much your employees have earned for the period. There are three major elements in the post-payroll stage:

• Salary payments: When it comes to managing payroll, Panama's top priority is paying employees. After you've determined each employee's gross and net income, you need to send them their funds. The simplest way is to work with payroll solutions Panama banks accept, like Skuad, to directly deposit funds into employee accounts. Otherwise, you can work with your bank in Panama to have checks cut for each worker.
• Payroll accounting: Payroll is one of the largest expenses for most companies. Your accounting team will need to record the cost of salaries and payroll tax Panama requires each pay period to keep your books balanced.
• Payroll reporting and compliance: Part of the payroll process determines the payroll taxes Panama expects you to pay. You'll need to submit the appropriate payroll taxes in Panama to the correct government agencies before the legal due dates. You'll also need to send important documents such as returns and annual reports to employees and the government.

Trying to handle the entire payroll process in Panama on your own can be difficult and risky. A better solution is to work with Skuad to manage payroll in Panama. Reach out to learn more about Skuad's Panama payroll solutions.

Payroll Processing in Panama

Payroll processing in Panama is a detail-heavy process that requires you to navigate foreign bureaucracy and often a foreign language as well. The payroll compliance Panama legally requires can also change when new legislation is introduced. That's why it's so important to make sure you're prepared to handle payroll processing effectively.

Payroll Processing Company in Panama

Skuad is prepared to help you expand your company and stop worrying about payroll. With the best payroll outsourcing Panama experts, Skuad offers the payroll services Panama employees expect. You can get started for free to explore how Skuad's offerings can streamline your payroll process.

Payroll Management in Panama

Payroll management is the act of keeping accurate financial records for both your employees and the government. Payroll management is critical for complying with Panama's payroll, tax, and labor laws. Your records should include careful documentation of employee hours, benefits, taxes, and payslips for every period. Payroll solutions Panama government agencies approve will help you accomplish these tasks.

Payroll Compliance in Panama

Payroll compliance is another related topic. It refers to statutory compliance with laws related to payroll, including but not limited to:

• Corporate and income taxes: Panama requires local employers to register with the government and pay taxes on behalf of the employee. Failure to do so can lead to a penalty of 8% per month on delinquent taxes and fines.
• Employee salaries and benefits: Failure to compensate employees correctly can lead to penalties, including significant back pay and damages.‍
• Social security contributions: Companies that don't remit the appropriate funds to the Seguro Social can be heavily fined.

Payroll Components in Panama

Payroll in Panama requires juggling many considerations. Components of the overall payroll process include:

• Compensation: Panama's minimum wage varies depending on the region and industry. The absolute national minimum is 1.22 PAB per hour ($1.22), but many industries and regions have higher minimums depending on local laws and union agreements. Panama also has a 13^th salary. Employers are required to pay workers the equivalent of one month's salary divided into three payments between April, August, and December.
• Working hours: Panama's working hours are eight hours a day and 48 hours a week.
• Overtime laws: Overtime is limited to three hours a day and nine hours a week. Time worked on public holidays also counts as overtime. These hours are compensated at different rates depending on when they occur and range from 125% to 175% of the employee's regular rate.
• Social security: Employers pay a 12.25% social security tax based on the employee's gross income. They are also required to withhold a 9.75% social security tax from employees' pay each period.
• Sick leave: Panama requires companies to give every employee 18 days of paid sick leave annually.
• Parental leave: Panama's maternity leave is set at 14 weeks, six before the due day and eight afterward. Parental leave is paid by social security, not the employer, as long as the employee has been employed for at least nine months before they take leave. Paternity leave is set at three days of leave paid by the employer.
• Public holidays: Panama recognizes the following public holidays: New Year's Day (January 1), Martyr's Day (January 9), Carnival (floating), Good Friday (floating), Labor Day (May 1st), Separation Day (November 3), Colon Day (November 5), Primer Grito de Independencia de la Villa de Los Santos (November 10), Independence Day (November 28), Mother's Day (December 8), and Christmas Day (December 25).
• Payroll taxes: Employers are required to pay 1.92% unemployment taxes, 1.5% education taxes, and a variable rate accident tax in addition to social security. They also need to withhold a 1.25% education contribution and the appropriate income taxes for their employees.

Skuad can help you manage each of these components without tracking it yourself.

Conclusion

Hiring employees in Panama can be excellent for your finances. The Panama PAB is very close to the U.S. dollar, but the minimum wage is significantly lower. Still, hiring Panama employees requires you to manage your payroll.

You can either handle your payroll on your own or use the best payroll solutions Panama has to offer. Skuad can help you keep your payroll accurate and on time by connecting you with local expertise. Our team will help save time and money, stay legally compliant, and ensure your employees are paid on time. Get your free demo today to learn how Skuad will help you manage payroll in Panama.