How to calculate your severance in Panama, step by step
The liquidation (severance) is what a worker receives when the employment relationship ends, whether by resignation, unjustified dismissal, or mutual agreement. It's made up of several parts under the Labor Code. Here are the essentials, step by step.
1. Seniority premium (Art. 224)
In any indefinite-term contract, the worker receives one week's salary per year worked (with the proportional part for incomplete years), regardless of the reason for termination. More in the seniority premium guide.
2. Unjustified-dismissal indemnity (Art. 225)
If the dismissal is unjustified, an indemnity also applies. The scale is not uniform: it depends on tenure and the start date of the relationship. It's best to use a calculation tool or consult a professional.
The Ministry of Labor's calculator (MITRADEL)
The Ministerio de Trabajo y Desarrollo Laboral (MITRADEL) provides an official labor-benefits calculator to estimate the Art. 225 indemnity. It's the government's official reference. The nominaHQ calculator complements that reference by computing the seniority premium, the estimated indemnity, and — inside the system's payroll — the pro-rated vacation and décimo, all in one place.
3. Pro-rated benefits
The liquidation also includes the pro-rated vacation and décimo the worker has accrued and not yet been paid.
A full worked settlement
A worker earning $1,200/month with 4 years of service is dismissed without justification. Their weekly salary is 1,200 × 12 ÷ 52 = $276.92 and their daily salary is 1,200 ÷ 30 = $40.00.
| Item | Calculation | Amount |
|---|---|---|
| Seniority premium (Art. 224) | $276.92 × 4 | $1,107.69 |
| Indemnity (Art. 225) | $276.92 × 3.4 × 4 | $3,766.15 |
| Pro-rated vacation* | e.g. 10 days × $40.00 | $400.00 |
| Pro-rated décimo* | $1,200 × 2 ÷ 12 | $200.00 |
| Estimated total | $5,473.84 |
*Pro-rated vacation and décimo depend on what the worker has accrued and not yet been paid. Gross figures: décimo and vacation are subject to CSS and ISR; the seniority premium and indemnity are severance payments.
Here the premium plus indemnity come to $4,873.84; with the pro-rated benefits, the estimated total is $5,473.84. The premium, vacation and décimo calculators help with each part.
Estimate your liquidation
Use the liquidation calculator to estimate the seniority premium and indemnity.
Frequently asked questions
How is liquidation calculated in Panama?
Am I entitled to liquidation if I resign?
What calculator does the Ministry of Labor use for liquidation?
What does a full liquidation in Panama include?
Source: Panama Labor Code, Art. 54, 224 and 225. Reference only; confirm with your accountant or lawyer.
nominaHQ computes liquidations in your payroll.
Premium, vacation and décimo pro-rated, together.