How is vacation calculated and accrued in Panama?

This article is for customers managing employees in Panama through Remote's Employer of Record (EOR) and Payroll service. It explains why Remote's platform requires a minimum entry of 30 days of paid time off (PTO) for these employees, and how that entitlement builds up over time.

Why the minimum entry is 30 days

Panama's Labor Code (Articles 52 and 54) sets the statutory vacation entitlement at 30 calendar days of paid vacation for every 11 continuous months of work. Remote's platform reflects this legal requirement, so 30 days is entered as the employee's annual entitlement, even though the employee does not receive the full balance right away.

How vacation accrues over time

Vacation is not granted as a lump sum. It builds up gradually as the employee works:

• The employee accrues 2.723 days of vacation for every 30 days of active service.
• This rate is set so that, after 11 continuous months, the employee has accrued the full 30-day entitlement.
• Because accrual is continuous, the employee's actual balance at any point depends on how long they have worked in the current cycle, not on the 30-day target alone.

When the employee can take vacation

• The employee unlocks the right to take the full 30 days after completing 11 consecutive months of work.
• Once the employee reaches month 11, the employee and their manager must schedule the time off within the next three months. The employer cannot indefinitely delay the vacation.
• Although the law refers to a 30-day block, the employee can take vacation in smaller parts, for example five, 10, or 15 days. Each part is deducted from the accrued balance.

How vacation pay is calculated

Vacation pay replaces the employee's regular income while they are away from work, and it is paid before the vacation period starts.

• Fixed salary: If the employee's salary does not vary, vacation pay is the regular base salary covering the 30-day period.
• Variable salary: If the employee earns commissions, overtime, or bonuses, vacation pay is based on the average of their gross earnings over the last 11 months, or over the last month if that is more beneficial to the employee.

What happens to unused vacation at termination

If the employment contract ends, for example due to resignation or termination, before the employee takes their accrued vacation, the unused days must be paid out in cash as part of the final settlement (liquidación).

• Calculation: Total days worked in the current cycle, divided by 11, multiplied by the employee's daily rate.