Components of severance in Panama

Always paid:

  • Pending salary from the last period worked
  • Proportional 13th-month bonus (from the start of the current installment)
  • Proportional accrued vacations (30 days per 11 months worked)
  • Seniority Premium (1 week per year + partial months)

Only for unjustified dismissal:

  • Indemnity: 3.4 weeks/year for the first 10 years + 1 week/year from year 11

Legal framework: Panama Labor Code.

Severance components explained

Proportional 13th-month bonus

Calculated from the start of the current installment to the termination date. For example, if the person leaves on June 30, the current installment is the August one (covering April-July), and the proportional Decimo is calculated for April, May, and June.

Proportional vacations

The employee accrues 30 days of vacation for every 11 months worked (Labor Code rule, approximately 1 month of vacation per year worked). Untaken accrued vacations, and the proportional fraction at the time of severance, are paid at termination.

Seniority Premium (ALWAYS paid)

1 week of salary per year worked, plus the proportional fraction of additional months. Paid without exception: resignation, dismissal (with or without cause), retirement, death. See Seniority Premium Calculator.

Unjustified dismissal indemnity

Only applies when the employer dismisses without justified cause under the Labor Code. The formula:

  • First 10 years of service: 3.4 weeks of salary per year
  • Years 11 onward: 1 week of salary per year

This indemnity is ADDITIONAL to the Seniority Premium; it does not replace it.

Worked example

Unjustified dismissal, salary B/.1,200, 3 years 6 months worked

Monthly salary: B/.1,200
Weekly salary (/ 4.33): B/.277.13
Daily salary (/ 30): B/.40.00

PROPORTIONAL DECIMO (assumes 6 months of current installment):
(B/.1,200 / 12) x 6 = B/.600.00

PROPORTIONAL VACATIONS:
Months worked = 42 (3 years 6 months)
Days accrued = (42 / 11) x 30 = 114.5 days
Value = 114.5 x B/.40 = B/.4,580.00

SENIORITY PREMIUM (ALWAYS):
3 years x B/.277.13 = B/.831.39
(6/12) x B/.277.13 = B/.138.57
Total Premium = B/.969.96

INDEMNITY (UNJUSTIFIED DISMISSAL):
3 years x 3.4 x B/.277.13 = B/.2,826.73
Years over 10 = 0
Total indemnity = B/.2,826.73

TOTAL SEVERANCE = B/.600 + B/.4,580 + B/.969.96 + B/.2,826.73
                = B/.8,976.69

Justified vs unjustified causes

The Labor Code lists specific causes that justify dismissal without indemnity (serious employee misconduct, sustained breaches, etc.). In practice, without compelling documentation, the dismissal is considered unjustified and generates indemnity.

Employees who resign or retire receive proportional Decimo + vacations + Prima, but NOT indemnity. The Prima alone, however, is significant compensation.

Other items that can enter a severance

  • Pending salary for the last period
  • Unpaid overtime
  • Pending commissions
  • Already accrued bonuses
  • Pending expense reimbursements

This calculator covers the 4 main components. For personalized calculation consult a labor advisor.

Common severance mistakes

  • Not paying Premium on resignation. Premium is ALWAYS paid regardless of termination cause.
  • Confusing Premium with indemnity. Independent and cumulative concepts.
  • Calculating vacations from the last leave. Calculated from the start of the relationship, subtracting vacations already taken.
  • Not documenting the dismissal cause. Without documentation, MITRADEL may consider the dismissal unjustified, generating additional indemnity.
  • Not signing the severance before MITRADEL. The severance must be signed for formal release effect.

Related resources

Frequently asked questions

What is paid in a Panama severance?

Always: pending salary, proportional Decimo, proportional accrued vacations, Seniority Premium. Only for unjustified dismissal: additional indemnity (3.4 weeks/year for the first 10 years, 1 week/year from year 11).

Is the Seniority Premium paid even if the employee resigns?

Yes. The Premium is ALWAYS paid regardless of termination cause: resignation, dismissal (with or without cause), retirement, death. It is a vested right from day one.

How is the unjustified dismissal indemnity calculated?

First 10 years of service: 3.4 weeks of salary per year. Years 11 onward: 1 week of salary per year. This indemnity is ADDITIONAL to the Seniority Premium; it does not replace it.

How many vacation days accrue per year?

30 days per 11 months worked (Labor Code rule). Untaken accrued vacations are paid at termination. Up to 3 periods can be accumulated.

What if the company does not pay severance on time?

The employee can file a claim with MITRADEL. The company may be required to pay severance plus interest and legal costs. The severance signed before MITRADEL has formal release effect.

Does this calculator replace a labor advisor?

No. It is a reference calculator under the Labor Code. Each case has nuances (justified causes, variable salaries, pending overtime, accrued bonuses) that require professional analysis. cifraHQ generates the severance automatically from payroll data.