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As we know that there are many doubts associated with severance payment that collaborators face at the time of ending an employment relationship, we decided to make a list of some of the most common concerns on this topic.
The answers have been developed by Lic. Nadia Cáceres, a professional in the finance area with more than 10 years of regional and local experience in managerial positions in the area of Human Resources, transformation, acquisitions, and shared services in different business industries. She has solid skills and knowledge of labor regulations (Panama Labor Code) and payroll of the entire region. Her wide knowledge of the subject under discussion and her clear way of presenting the information make it easy to understand concepts that might otherwise appear complex. If you wish to contact her directly, you can reach her by email at: nadiacaceres@nchumanos.com.
1.- What is severance pay?
Panama Labor Code, article 72 establishes that the faculty to be bound by a contract work involves claiming benefits in their own name or your rights hereunder, and the benefits that the law provides. Based on the above, when starting an employment relationship verbally or in writing, the payment of benefits or rights is implicit, that is, what we know as severance pay.
2.- What does severance pay include?
The severance pay must contain the payment of rights acquired according to the type of employment relationship agreed and the reason for its termination. If it has been terminated by dismissal, it may include compensation and other items.
3.- What documents must the employee present to claim severance pay?
In general terms, no documentation must be presented for the payment of the severance, however in case the employer refuses to make the payment, the worker must go to the Ministry of Labor, where guide will be offered on the actions to be taken to receive the payment.
4.- How long does it take for companies to pay severance?
At this point there is nothing established by law, however, in practice, it’s common to make the payment in the following 3 days, once the employment relationship has ended.
5.- Who qualifies for severance? (type of contract or termination of the employment relationship)
At the termination of any employment relationship, the payment of a settlement applies, which includes at least the payment of the acquired rights, that is, vacations, 13th month, and seniority premium, if applicable.
6.- What should be done in case of disagreement with the severance pay amount offered by the company?
Before accepting or rejecting the severance payment, my advice to all employees is to first go to the Ministry of Labor or seek advice from someone who knows about labor regulations, so they can guide you on the concepts and amounts that you should receive, in accordance with the termination of the employment relationship.
Most companies in Panama comply with the correct severance payment, however, there is nothing better than being informed, to make correct decisions. If you couldn’t get any advice, you can still receive the payment indicating that you don’t agree with the amount, and later go to the Ministry of Labor and request a summons to deliver to the employer.
7.- What documents must the employee present to the Ministry of Labor to claim the correct payment?
The worker must present the document signed when terminating the employment relationship, to establish the concepts to be received, as well as the payment receipt for the severance. We also suggest that the employee brings the social security card so that the official can calculate the amount to be received.
8.- Is this type of claim channeled through Mitradel or is there some other institution that handles these cases?
They are generally channeled through Mitradel, however in the case of claiming compensation for unjustified dismissal, a claim must be filed with the Conciliation and Decision Boards, to first determine if the dismissal is justified by Law, and according to this decision determines the payment or not of compensation, lost wages, among others.
9.- Is there any right to receive severance pay if you worked less than a month in the company?
Indeed, even with a work period of 1 month or less, the severance payment corresponds.
10.- How are verbal contracts handled in case of severance pay?
Article 69 of the Panama Labor Code establishes that in the absence of a written contract, presume certain facts or circumstances alleged by the worker to be stated in the contract. This presumption may be destroyed by evidence that doesn’t a reasonable doubt ”. Based on the above, the worker doesn’t lose the right to claim the severance, and it’s the employer who must prove the terms in which the employment relationship occurred.
My advice to all workers and employers is to sign an employment contract, in which all the conditions are clear to both parties.
11.- If a company goes bankrupt, is it possible to claim the severance? How would it be handled in those cases?
Yes, it’s possible to claim the severance, however, it involves a process, established in article 213, literal C of the Labor Code.
12.- If I have a fixed-term contract and I got fired before it ends, what would the severance be like?
In this case, if the employment relationship terminates after the end of the trial period and before the end of the contract, the worker must receive the payment of the acquired rights, as well as the payment of the time that was needed to complete the contract in compensation concept.
13.- What is the difference between severance payment for justified or unjustified dismissal?
For the purposes of the severance as such, the difference between one and another is the payment of compensation. If the worker was fired based on some of the causes described in article 213, section A of the Labor Code, and it has been duly documented and presented on time, the employee should only receive the acquired rights. Otherwise, acquired rights plus compensation must be received.
14.- If I have unused vacations during different periods, are they calculated based on the last salary for severance?
It’s correct, unused vacations even if they correspond to previous periods, at the time of severance, even during the validity of the employment relationship, must be calculated based on the last salary.
15.- How would the calculation of the severance for a domestic employee be carried out?
For the purposes of acquired rights, it’s calculated similarly to an employee hired by any company. The difference lies in the compensation, which is regulated by article 231, numeral 4 of the Labor Code.
16.- Can I receive severance even when the company didn’t enroll me in the Social Security system?
Yes, you can receive severance even when you haven’t been registered with Social Security.
17.- How is the severance pay handle for employees in suspended status?
Currently, for these cases, the authorities have issued Executive Decree 231, of December 29, 2020, in which in general terms it establishes that vacations, 13th month, seniority premium, and compensation will be calculated with the salaries of the last 6 months or the last monthly salary, before March 2020, whichever is more favorable to the worker.
18.- What is the difference between termination agreement and severance?
In general terms, severance is the payment of the corresponding rights upon termination of employment, however, some companies require the employee to sign a document known as termination agreement, indicating that the worker has received the appropriate payment and doesn’t have any claim against the company.
19.- How can it be verified that the severance payment is correct?
The Mitradel website has an option to calculate the severance, however in order for it to give a correct calculation, it’s important to have the correct information at hand, otherwise the information won’t be accurate. You can also go to Mitradel to request an official, the calculation of the severance.
20.- If a person has been working as a freelancer for a company for several years and decides to terminate the employment relationship, does the worker deserves some kind of severance?
It’s important that the parties at the time of initiating the employment relationship clarify that the relationship between the two is not an employment relationship, since there is no legal subordination or economic dependence. If this hasn’t been clarified in writing, and the "worker" can demonstrate that there are the 2 elements that make up an employment relationship "legal subordination and economic dependence", there may be for the employer the risk of a severance payment claim when ending the labor relationship. The parties must be able to justify their position in a labor process.
