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1. Employment laws in Panama obligate you to have all of your permanent house employees on a payroll. Panama
treats these workers with special attention regarding salaries and social security. This is unless the worker is an independent, in which case, he/she has to pay his/her own taxes, register in Social Security as an Independent and pay themselves social security benefits.
2. Permanent workers have to comply with 3 basic rules:
- That they are completely economically dependant on the employer.
- That they receive orders and specific instructions regarding a position from the employer and that the position has specific rules to follow.
- That they have a regular daily work schedule and working hours.
3. If you have a house employee that works for you, lets say, two times a week more or less, who’s schedule can be moved around to fit your or his/her necessities, in order to attend other business or clients, then these workers are not considered permanent. For these cases, you should draft a document in which it’s clearly stated that this person is an independent, that he/she has other clients and that in no way they are bound to you by a permanent contract so that you are in no obligation to cover social security, labor obligations, vacations, 13th month payment, any kind of medical attention not are you responsible for any taxes the worker owes to the government regarding income tax.
4. These workers, usually try to get the very sought after social security benefits, so sometimes they can pull a fast one and if they are ever in need of social security assistance (because they got pregnant, they got into a bar fight and were injured, etc.), they can go to a nearby social security agency and report you as a rogue employer, and social security can make up a report stating that you owe the worker social security cuotas and bill you for it. There are ways to prove all this false, but it takes a bit of time and causes great discomfort.
5. Common mistakes that people make when hiring an informal or independent worker:
- Give them vacations and vacation. Independent workers are not entitled to vacation or vacation pay for that matter.
- Give them days off. Independent workers have no days off. They are business persons, owners of their time.
- Cover medical expenses in cases they get sick or give them sick leave. Independent workers have to pay their own social security and are not entitled to sick leaves.
- Hand out bonuses, payment for extra hours, 13th month payment, etc., that would generally fit the permanent worker criteria. Independents get none of this.
- Use the word SALARY. Independents don’t get salaries; they get payment for services rendered. Never ever use the word salary when talking about payments to independent workers.
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