Hiring Domestic Employees; Permanent Employees versus Contract Workers

So you want some help in the house, cleaning the pool, keeping the property in shape. Right? Have you thought about whether to hire a permanent worker or have someone come in on a contract basis? This article has to do with a broad overview of hiring permanent versus contract workers in Panama, mandatory benefits for permanent workers, and pitfalls in hiring. If you hire a domestic employee they are either under your direct supervision or they function on their own. The combination cook and maid who comes every day, has a regular set of hours, has defined duties, and always asks you what to do next is under your supervision and is a permanent employee. The man who comes weekly to clean the pool, does the job, gets paid, and leaves is a contract worker. Likewise, the woman who cleans several houses and does yours Thursday mornings is a contract worker.

  •  Definitive Period of Time Contract: employment not to exceed one year
  •  Defined Work Labor Contract: determined by the job performed
  • Indefinite or Permanent Labor Contract: duration undetermined
  • Probationary three-month contract: for new employees and special circumstances

It is wise to specify in a contract if the employee will work until a job is done, if they will work on an as needed basis, of the work will be ongoing. Writing a temporary contract and renewing periodically may protect you from charges of unjust termination if you want to let the employee go.

The main issue here is whether you have a permanent employee who deserves as much as 40% more than their base pay or if you have a contract worker whom you pay for their work but do not make social security deductions, provide paid vacations, etc.

Work Benefits in Panama for Permanent Employees


  • Annual paid vacation of 30 days for every 11 months of continuous employment
  • So called 13th month payment of one day’s salary for every eleven days worked, paid in April, August, and December
  • Payment on termination of one week’s current salary for each year worked
  • Unjustified cause of termination payment dependent upon labor code indemnification tables plus rehiring if employee desires
  • Fourteen weeks paid maternity leave

Maximum work hours are 48 a week for day work and 42 a week for night work.

If you do not want to hire a permanent employee nor deal with the fuss of doing payroll, paying 13th month payments, etc. here are some suggestions.

Make up a contract that specifies that the employee is doing contract work for you in their field of expertise. DO NOT provide bonuses, vacation time, medical costs, etc. Treat the situation like you would when you call the plumber to fix your sink. He comes and does his job at an agreed upon time. You pay him. He leaves and goes to the next job. In the contract refer to payments for services and not salary. The contract employee works for you when there is work to do. The contract employee does not get days off.

Obviously for a contract to be understandable by the employee and enforceable in Panama it needs to be in Spanish. Thus it would be best to write up what you want and take it to your attorney in Panama for his or her advice and translation.

Part of the information for this article came from Panama Legal Corp’s excellent advice in Playcommunity in this regard in October of 2008. http://www.playacommunity.com/the-news/panama-legal/five-things-you-need-to-know-about-hiring-domestic-employees-panama-labor-laws-20081031957/