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Panama – Proper handling of the Christmas Bonus
Publications || 2018 || Panama – Proper handling of the Christmas Bonus

Panama – Proper handling of the Christmas Bonus

by charbds, 17 December, 2018


December 17, 2018
Irma Montenegro / imontenegro@bdsasesores.com
Attorney at Law BDS Asesores


During the year-end season, it is common for companies to pay a Christmas bonus, recognition, reward, or any other incentive to their employees, which is why it is important to take into consideration the provisions of the Labor Code and the Social Security Administration in connection with this topic for purposes of avoiding any mistakes when paying said benefits.

Firstly, we must note that the concepts of Christmas bonus and reward are synonyms in the opinion of the Social Security Administration. Thus, Article I, Title I of the General Income Regulation of said institution has defined the Christmas bonus or reward as an amount of money paid once yearly to employees in addition to their salary, as a gratuity or gift on account of religious festivities or year-end holidays.

Furthermore, the provisions of this Social Security Administration Regulation establish that Christmas bonus or rewards will not be considered salary provided that they do not exceed one month of salary; otherwise, such excess amounts will be considered salary. This means that the amount paid for Christmas bonus or reward will not be subject to deductions for social security contributions, to the extent that such amount does not exceed one month of salary.

In this same line, Article 92 of Act 51 on the Social Security Administration dated December 20, 2005 contains salary exceptions, including the Christmas bonus and rewards, among others.

On the other hand, Article 142 of the Labor Code sets forth that any payments made to the employee by the employer for production premiums, bonuses and rewards (or those known as Christmas bonus), will be considered salary exclusively for purposes of the calculation of vacation time, maternity leave, and premium for years of service to which the employee may be entitled.

The foregoing provision also establishes that rewards will not be considered as a custom or practice, nor as an employment condition, which is why in case that any company is incapable – for any reason – of paying the Christmas bonus to its employees for any given year, this would not pose a problem as these benefits are not mandatory.

Christmas bonuses or rewards are frequently used by employers, especially in December, as a way to show their appreciation to their employees or as an incentive for the work conducted all year long for the benefit of the company.

Lastly, the difference between Christmas bonus or reward and the Thirteenth Month bonus should be noted. The latter is a vested right for employees, meaning that it must be mandatorily paid to all employees every four months, that is: on April 15, August 15, and December 15; while the Christmas bonus is not mandatory and may only be paid once yearly.

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