CifraHQ uses the PanamaPack 2026 engine to compute all statutory deductions. The engine runs server-side when you click Calculate on a Payroll period — no manual entry of rates or brackets is required.
Before any deduction is calculated, the engine determines the cotizable salary for the period — the portion of earnings subject to CSS and ISR.
| Included | Excluded |
|---|---|
| Base salary | Representation allowance (≤ 25% of salary) |
| Overtime | Transportation allowance (fixed monthly amount) |
| Commissions | Food allowance |
| Production bonuses | Expense reimbursements |
The cotizable salary is the sum of all concept lines flagged CSS Applicable or Taxable respectively. See Payroll Concepts for the cotizability classification of system and custom concepts.
Panama's social security system (Ley 51 de 2005, as amended) mandates contributions from both the employee and the employer.
CSS Employee = Cotizable Salary × 9.75%
CSS Employer = Cotizable Salary × 12.25%
Seguro Educativo is a separate fund administered alongside CSS:
SE Employee = Cotizable Salary × 1.25%
SE Employer = Cotizable Salary × 1.50%
For each employee:
Gross Salary
+ CSS Employer (12.25%)
+ SE Employer (1.50%)
+ Occupational Risk (0.294% – 3.92%, by risk class)
= Total Employer Cost
The risk class is configured per company and determines the employer's Seguro de Riesgos Profesionales rate.
| Risk Class | Rate |
|---|---|
| Class I (office, administrative) | 0.294% |
| Class II (light commercial) | 0.672% |
| Class III (light industrial) | 1.680% |
| Class IV (medium industrial) | 2.520% |
| Class V (heavy/hazardous) | 3.920% |
The rate applies to the same cotizable salary base as CSS.
Panama's income tax on employment income is computed using the annualization method (Art. 699, Código Fiscal). CifraHQ applies this method automatically on every Payroll run.
Annual Projected Income = Period Cotizable Salary × (12 / Period Months)
For a monthly Payroll, the period income equals one month, so the multiplier is 12. For bi-weekly, the multiplier is 24/2 = depends on actual period fraction.
Panama allows a B/. 800 annual personal exemption on employment income:
Taxable Annual Income = Annual Projected Income − B/. 800
| Annual Taxable Income | Rate | Tax on tranche |
|---|---|---|
| B/. 0 – 11,000 | 0% | B/. 0 |
| B/. 11,001 – 50,000 | 15% | Up to B/. 5,850 |
| Above B/. 50,000 | 25% | On the excess above B/. 50,000 |
Example: Employee with annual taxable income of B/. 30,000:
B/. 0 – 11,000 → 0% → B/. 0
B/. 11,001 – 30,000 → 15% → B/. 19,000 × 15% = B/. 2,850
Annual ISR = B/. 2,850
Period ISR Withholding = Annual ISR ÷ Periods per Year
For a monthly Payroll: period ISR = annual ISR ÷ 12.
If the employee's annual projected income (after exemption) is B/. 11,000 or less, no ISR is withheld. The Payroll line for ISR will show B/. 0.00.
The décimo tercer mes is exempt from ISR under Panama law. No ISR is calculated on décimo partida payments — only CSS at the special 7.25% rate applies.
The décimo tercer mes uses a blended CSS rate that combines CSS and SE:
CSS Décimo (Employee) = Décimo Gross × 7.25%
CSS Décimo (Employer) = Décimo Gross × 7.25%
SE Décimo (Employee) = Décimo Gross × 1.25%
SE Décimo (Employer) = Décimo Gross × 1.25%
The 7.25% rate is set by Decreto Ejecutivo and is not the same as the regular 9.75% CSS rate. See Décimo Tercer Mes for full calculation details.
When an employee is hired or terminated mid-period, the base salary is prorated by calendar days:
Prorated Salary = (Base Salary / Total Days in Period) × Days Worked
Days Worked = the number of calendar days from the employee's start or through their termination date within the period.
All monetary amounts are rounded to 2 decimal places using standard arithmetic rounding (MidpointRounding.AwayFromZero). Intermediate calculations carry full decimal precision; rounding is applied only to the final line amount on each concept.
The engine processes each employee in this sequence:
Related: Payroll Concepts · Periods & Runs · Décimo Tercer Mes · Terminations
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