Professional Employer Organization (PEO) in Panama

Paying and managing remote Panamanian hires can be difficult for companies unfamiliar with local laws and those that run on a limited budget. That's why outsourcing human resources (HR) tasks to a professional employer organization (PEO) in Panama makes sense.

PEOs are outsourcing companies that perform various HR duties for their clients, including payroll handling, benefits administration, and employee management. They are an excellent choice of a partner for small and medium-sized companies looking to grow without spending too much time, effort, and money in the process.

Read on to learn more about PEOs and the advantages of using them to pay and manage remote Panamanian employees. You'll also discover how to choose the best global PEO service provider in Panama.

What Is an International Professional Employer Organization (PEO)?

Global or international PEOs are companies that provide outsourced, integrated HR services to reduce employer risks and ensure compliance for the client. Small and mid-sized companies often hire PEOs for business-critical tasks such as risk management, payroll processing and administration, vacation tracking, benefits administration, and taxes. PEOs take over these duties and many other employee-related liabilities and responsibilities, so their clients can focus more on driving success through their operations.

Here are some other characteristics of PEOs you should know:

International PEOs vs. Global Employment Organizations (GEOs)

When researching PEOs, you may encounter global employment organizations (GEOs). At first glance, PEOs and GEOs appear similar since they relieve payroll and HR burdens for companies. However, they work differently.

GEOs provide many advantages, including full employee insurance coverage and risk bearing. But GEOs don't mitigate compliance risks like permanent establishment risk. They may also:

  • Depend on outsourcing: Many GEOs, especially lower-cost ones, outsource all or some of their services to Panamanian companies with limited HR experience. This can decrease employee satisfaction and expose you to compliance risks.
  • Hire account managers instead of HR managers: Budget-friendly GEOs may hire Panamanian account managers instead of HR managers to decrease costs. Account managers may have less experience and knowledge about Panamanian HR practices and labor regulations.
  • Over-rely on automation: Some GEOs use automated centralized systems for administering and managing payroll. As a result, you can't modify payroll processes for individual employees.

What Are the Benefits of Using a PEO Provider?

PEOs offer many benefits to companies of all sizes, especially those with limited time and resources for creating subsidiaries in Panama. Some of them include:

Huge Range of HR Services

PEO providers handle a significant range of HR services, including:

  • Payroll for employees and contractors
  • Preparation for government audits
  • Risk management
  • Core HR functions, such as onboarding, reporting, policy setting, paid time off (PTO) and termination handling, and documentation filing
  • Compliance, including state and federal taxes, regulations, unemployment insurance, and workers' compensation
  • Employee management, including paystubs, taxes, benefits information, policies, and deposit documents

Unlike GEOs, which handle all your HR tasks, PEOs let you pick services. For example, if you need payroll and time attendance, your PEO will only assume those functions.

Competitive Benefits Administration

PEOs can also give your employees comprehensive benefits that align with their needs and local regulations, including:

  • Subsidized health and dental plans
  • Gym memberships
  • Meal vouchers
  • Educational courses
  • Global access to co-working spaces
  • Onboarding and ongoing support
  • Payroll in any currency, including crypto

HR Compliance

Panamanian labor and tax laws can be hard to understand, even if your in-house HR staff is fluent in Spanish. They're also prone to change, so you may find it hard to keep up with and meet all regulations. Upon non-compliance, you are likely to face sky-high fines and reputational damage.

Top-class PEOs will prevent such situations altogether and keep your company compliant with regulatory updates. Moreover, they can team up with your in-house HR team to update it on changes and support the right moves towards compliance.

Lower HR Costs

The cost savings of working with a PEO are significant because you don't have to finance the following:

  • Panamanian subsidiary or branch registration
  • Hiring and training of Panamanian HR managers and payroll administrators
  • Panamanian lawyers to draft compliant employee contracts and advise on claims and legal issues
  • Payroll software that complies with Panamanian laws

PEO services are also inexpensive. According to Google, most packages start as low as 2% of your wages for basic salaried workers' plans and can go up to 11% of your wages for more comprehensive plans. Either way, you can expect to pay around $500 to $1,500 per employee yearly, which is cost-effective, especially for small teams.

Time Savings

First-class PEOs employ experienced Panamanian HR experts who can help you comply with relevant labor and tax laws without investing too much time and effort in the process. They also use state-of-the-art HR software to accelerate risk management, payroll, and other HR functions. These platforms streamline your workflow by answering significant questions about it, including:

  • What are the frequency and severity drivers in my program or portfolio?
  • What is the ultimate cost of claims?
  • Are HR workflows working smoothly? Why or why not?
  • What are the loss ratios for the previous year?

These tools also let you:

  • Track previous years' history to identify poor-performing segments
  • Utilize claims and payroll data to monitor performance
  • Compare your performance against peers according to state and national bureaus

Using a PEO in Panama

As you can see, Panamanian international or global PEOs can help you onboard, pay, and manage local employees according to relevant labor and tax laws. Here's a breakdown of how it works.

How Does a Professional Employer Organization in Panama Work?

Once you partner with a PEO in Panama, you and the PEO will share employer responsibilities. Most of the time, your PEO will be responsible for:

  • Processing and administering payroll
  • Withholding and paying payroll taxes
  • Providing HR guidance and consulting
  • Drafting and executing compliance employee agreements
  • Assisting with compliance
  • Administering employee benefits
  • Maintaining workers' compensation coverage
  • Assisting with workforce management technology, training, and development

Note that you don't have to outsource all of these functions unless you want to. As previously mentioned, PEOs can be responsible for all or some of your HR tasks.

Meanwhile, you're responsible for:

  • Sourcing FAANG-caliber employees
  • Deciding which employees to terminate or hire
  • Regular business operations such as selling products and services to customers
  • Supplying labor to worksites

What Do You Pay for When Partnering With a Peo?

Each PEO's price structure is different. Depending on the company you choose, you may have to pay for services and:

Administrative Costs

PEOs typically charge administrative fees for their services. They usually use the following pricing structures:

  1. A fixed monthly fee per worker
  2. A percentage of your overall payroll

Additional Fees

Unfortunately, some PEOs exploit their co-employer status to earn additional revenue without telling you. For instance, PEOs may define and calculate taxable wages and payroll taxes fees differently to inflate your invoice. They may also hide additional costs in the fine print, such as:

  • Termination fees: Reliable PEOs should let you exit the agreement with 30 days' notice, but some require a costly penalty for leaving.
  • Charging for routine services: PEOs may also charge for everyday HR services like enrolling new employees, changing a new hire's start date, and running off-cycle payrolls. If your PEO is doing this, choose another partner because these services should be in the starting packages.
  • Administration fee for taxes: PEOs may also charge for administrating taxes. For instance, they may add a 0.06% tax administration fee for every employee.

How To Choose the Best PEO Service Company

If partnering with a PEO sounds like the right choice for your company, follow these tips to get started.

Determine Your HR Needs

First, assess how much HR help you need. Although it's tempting to outsource all your HR functions to a PEO, you may not need to.

As a general rule of thumb, if you only need a few independent contractors for part-time work, you can work without PEO's help. Panamanian labor laws only apply to employees, not independent contractors. Under Panama's Labor Code, employees are subordinate or economically dependent on their employers. In other words, they're workers in employer-employee relationships with regular payments and mandatory workdays and hours.

Accordingly, you should partner with a PEO in Panama if you want to hire full-time employees from the country. The right PEO will streamline payroll and benefits administration and ensure compliance with Panamanian labor and tax laws.

Perform Your Due Diligence

When you determine your needs, you can search for PEOs with confidence. However, perform a thorough research of every company you put on your list, whether found online or through recommendations.

You can ask the following questions to learn more about your chosen PEOs and narrow down your choices:

  • What is your background? Ask the PEO to list its qualifications and work history. Ensure it has the right certifications and complies with relevant government standards. You should also check its client retention rate and experience. If a PEO has less than ten years of experience in the industry, consider your other options.
  • What services and packages do you provide? Does your PEO deliver all the services you need?
  • What is your area of expertise? Your PEO should be able to explain its areas of expertise. See if they match up with your needs.
  • Have you won any awards for PEO services? The best PEO should have at least one accolade, business award, media story, or citation.
  • Do you have Panamanian team members who can help my workers in Panama? Ideally, your PEO should have Spanish-speaking team members in Panamanian time zones who can help your hires in real-time.
  • Are there any hidden fees? Most global PEOs are upfront about pricing, but some charge hidden fees like a value-added tax (VAT) and markup on foreign exchange.
  • Will my employees be engaged via in-house HR managers or sub-contracted partners? Some PEOs outsource work to third-party partners. If your PEO does that, ensure it has a reliable method for vetting sub-contracted partners. Your PEO should also take responsibility for its partners' mistakes.
  • Will you draft, manage, and execute compliant employee contracts? Your global PEO partner should help you handle the entire contracting process and advise you on best practices.
  • How will you work with my candidates during the onboarding process? Your PEO should have a standardized process for employee onboarding. It should make your hires feel like valued members of the team.

Get Recruitment and PEO Services in a Single Platform

PEOs give you a budget-friendly and reliable way to pay and manage remote employees in Panama. However, most can't help you source employees, which is the most challenging part of the employee cycle. It's especially tough in competitive niches like blockchain and DeFi development.

Fortunately, Revelo is here to help. As Latin America's leading tech talent marketplace, we provide premier PEO and recruitment services. Specifically, we offer access to over 300,000 highly educated and experienced IT professionals, including blockchain developers, game devs, site reliability engineers (SREs), and PHP developers.

All you need to do to start hiring in Panama with Revelo is tell us your requirements, and we'll handle the rest. Our team of experts will list the best pre-vetted candidates and assist you with onboarding, payroll, benefits, and other tasks once you make your pick.

Reach out today for more information about Revelo and our PEO services in Panama and beyond.

Further Resources: Alternative Technology Staffing

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