#Panama 🇵🇦 #BDS_LaborAlert: Labor Implications of the Reform to the Organic Law of the Social Security Administration

After nearly four months of intense discussions, Bill 163, initially filed by the Executive Branch and significantly modified by the Legislative Branch, was finally enacted as Law 462 of March 18, 2025. This law amends, adds, and repeals provisions of Law 51 of 2005, which amended the Organic Law of the Social Security Administration, and establishes additional provisions.

Retirement Age

One of the most debated changes was the increase in the retirement age, which was ultimately removed, keeping it at 62 years for men and 57 years for women. However, Article 139 of the law itself states that in addition to Article 156-C of the Organic Law, an actuarial study must be conducted within six years from the enactment of this reform to assess the sustainability of the pension system, specifically regarding the retirement age and the contributions made by the Government to the old-age retirement fund.

In this same vein, significant changes are introduced to the disability, old age, and death pension system, creating the "Capitalization System with Solidarity Guarantee," which includes new contributors, those in the mixed system, and contributors who wish to transition from the previous solidarity system or defined benefit system to the new scheme. The law also changes the concept of Voluntary Savings, establishes a maternity allowance in case of adoption, extends the term of liability in employer substitutions, creates the Unified Solidarity Fund, and sets new Governance methods for the Social Security Administration, emphasizing the institution's and its representatives' obligation to ensure accountability and transparency in their actions.

Mandatory Registration

In labor matters, the law also introduces significant changes beyond the increase in employer contributions. First, the regulation defines various categories of workers, extending the obligation to contribute to the Social Security Administration to seasonal workers, salaried employees, and self-employed workers. This may be interpreted as an effort to increase the number of contributors and ensure fulfillment of employer-employee obligations.

To achieve these objectives, Article 8 of the Organic Law of the Social Security Administration redefines the institution's authority regarding the execution of workplace inspections and the requirement for information, aiming to confirm that employers, salaried employees, and self-employed professionals are in good standing condition with social security payment obligations in a timely manner.

To this end, the Social Security Administration maintains and strengthens its authority to review companies' accounting records, payrolls, third-party payment lists, and other relevant documents, as well as to analyze information contained in third-party administrative, accounting, and financial databases, whether public or private.

To ensure the registration of a greater number of contributors and promote fulfillment of social security obligations, the law even provides that by 2027, the Ministry of Labor and Workforce Development and the Social Security Administration will collaborate, linking the registration of new employment contracts with the direct registration of new contributors. While this measure appears to be an alternative to achieving the entity's objectives, it remains to be seen how this change will be implemented, given the labor implications arising from each type of contract.

The regulation stipulates that registration will be mandatory for all national or foreign workers providing services within the national territory, as well as for salaried employees and self-employed workers. For the latter, mandatory contributions are limited to the Disability, Old Age, and Death (IVM) risk, with an option to voluntarily register in the Illness and Maternity system. These are not covered under occupational risk insurance.

For self-employed workers, contributions must be made personally at a rate of 9.36% of their contributable income for IVM, while an 8.5% may be voluntarily declared to access illness and maternity entitlements.

Regular workers and salaried employees will maintain their contributions under the regular system, which includes IVM, the illness and maternity risk, and the occupational risk insurance coverage.

Increase in Employer Social Security Contributions

The employer-paid portion of the social security contribution will increase by three percentage points. As of April 1, 2025, employers will contribute 13.25% of reported salaries, increasing gradually until March 1, 2029, when the contribution will reach 15.25% of reported salaries. The special contribution for the thirteenth-month payment remains unchanged.

Regarding any penalties imposed by the Social Security Administration, it is worth noting that significant changes have been made, primarily involving an increase in the fines amount.

Please stay informed through our media channels and social networks regarding all changes in labor and social security matters in the Republic of Panama and across the region.

Ana Carolina Ríos

Partner, BDS Panama

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