The Covid-19 pandemic changed our lives in many ways and has had a long-term impact on various different aspects, including how people organise their work and where the work is performed.
Working remotely is not a new phenomenon, but in the last three years there has been a massive increase in the different forms of remote work such as telework, work at home or home-based work.
Latin America has been part of these changes and Panama, home to almost 200 regional headquarters of multi-national companies, has become a key player in this process. According to a study by the Friedrich Ebert Stiftung, Panama, together with Chile, Brazil, and Uruguay, are the countries in the region with the greatest possibility of applying the telework option.[1]
First teleworking regulations
On 18 February 2020, the National Assembly passed Law 126 which introduces the first legal framework for remote working in Panama. During the pandemic, the Panamanian government also issued temporary regulations to prevent the spread of the virus. These regulations allowed the employer to unilaterally order employees to work remote but were temporary and ceased to apply once the lockdown was lifted.
Permanent regulation through an agreement between government, employers, and unions
On 16 September 2020, the Ministry of Labour convened a conference panel with the business sector and the main unions of the country to draft a decree to regulate telework on a permanent basis. The result of this conference panel has been a regulation agreed between all sectors involved, considering the needs of workers and at the same time providing the flexibility that companies need. Among other benefits this legislation covers all forms of work in places other than the employer’s office and allows the parties, employer, and employee, to work from anywhere and allowing them to choose their preferred work location.
Most important features of remote work regulation
The basic principles governing remote work in Panama are as follows:
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- Voluntary: Remote work is voluntary for both the worker and the employer. It could be part of the initial job description in the work contract, or it may be subsequently agreed in an addendum. Where telework is not part of the initial job description, if the employer makes an offer of telework, the worker may accept or refuse this offer. If the worker expresses the wish to opt for telework, the employer may accept or refuse the request.
- Employment: Regardless of the type of telework arrangements agreed, the remote worker should be recognised as an employee and enjoy the same rights as on-site employees.
- Reversible: Telework is reversible for both parties. Both the employer and the worker may request at any time to return to onsite work unless the worker has been expressly hired to telework.
- Permanent or hybrid: Allows remote work to be full-time or hybrid, some days of the week in the office and others remotely, according to the agreement between the parties.
- Working hours: The maximum limits of 48 working hours per week and eight hours per day apply, but the parties may agree on rotating schedules. In any case, the right to disconnect must be guaranteed.
- Employment contract: Teleworking must be agreed in the employment contract or in a subsequent addendum, which must be registered before the Ministry of Labour.
- Social security: Occupational diseases and accidents at work are covered by social security. Private health insurance is not mandatory.
- Privacy: The installation of any software that may violate the privacy of the worker or his family is prohibited.
- Costs: The parties are free to agree on the costs to be covered by the employer for electricity and internet. There is no minimum amount to be paid and the remote work allowance is not considered a taxable income for the employee.
- Equipment: The employer is obliged to provide the necessary equipment for the work, and cover repairs, and maintenance costs.
- Health and safety: Employers are responsible for providing guidelines on safe work practices and conducting virtual assessments on appropriate ergonomic setups to prevent musculoskeletal issues caused by poor posture, uncomfortable seating arrangements, or improper use of computer equipment.
Cross-border remote work
Because of the pandemic, many companies and employees realised that they could work from anywhere. In most cases remote work is done from home or somewhere in the same city. However, the “work from anywhere” concept has been taken literally by a growing number of employees, who may now be working from a variety of locations, locally or abroad.
Cross-border remote work pose unique challenges for employers and employees, as they need to comply with different countries’ laws and the work the employee performs in another country may have potential contingencies for the company.
Employers and employees need to understand and comply with the immigration requirements of the remote work location to avoid legal issues. Any person who is going to work in Panama cannot remain in the country as a tourist on a permanent basis and must apply for a residence permit (visa). There is a special residence permit for remote workers that is granted for a period of nine months. Basic requirements include a minimum monthly income of US$3,000 which must come from a foreign source and the functions performed must have effects outside of Panama. Performing representative role of the foreign company in Panama may nullify the permit.
Although this visa was approved by decree in May 2021, the possible labour and tax implications have not been brought to court yet. Tax implications in Panama could include, among others, income tax and social security contributions.
Other types of visas and work permits that may be applicable, depending on the nationality of the employee, require the worker to enter into an employment contract governed by Panamanian law, which in turn requires the company to be registered in Panama or retain the services of a payroll outsourcing company holding a Placement Agency License issued by the Ministry of Labour, to act as the employer.
There are also Permanent Establishment (PE) risks for the foreign company by virtue of the remote worker’s activities. Employees acting as a representative of the foreign company by contracting on behalf of them could be interpreted as a permanent establishment of the foreign company in Panama. The length of time the foreigner stays in Panama may also have tax implications. The specific and detailed circumstances of each case should be subject to a careful and complete evaluation to assess the risks.
Final considerations
Remote work is a reality for many companies and a trending topic among new generations of employees. We strongly recommend taking early advice on these legal issues to avoid unexpected legal consequences. A proper agreement containing clear rules and ensuring compliance with the law is extremely important. Companies should establish clear policies on whether they want to allow the practice of cross-border remote work and if they decide to do so, should take legal advice, define expectations, and provide guidance to the employees.
Author: Maria Teresa Mendoza, Partner, Labor Law.
This article was originally published on CorporateLiveWire, Expert Guide, August 2023.
Footnotes
[1] Patiño, Ana. A glance at the telework in Panama. Friedrich Ebert Stiftung, August 2021.