The difference between hiring professional services and an employment relationship may seem subtle, but it has profound legal implications in Panama. It is essential for companies and professionals to understand these differences to avoid legal conflicts or labor contingencies.
In a professional services contract, the worker acts independently, without subordination, and bills for their services, usually as a natural or legal person. In contrast, in an employment relationship, there are elements such as subordination, schedule, direct orders, and fixed salary payment.
Incorrect classification can result in sanctions from labor and social security authorities, as well as claims for labor benefits such as vacations, thirteenth month pay, severance pay, and more. In other words, the risk of a labor claim increases if the true nature of the relationship is subordinate employment.
Companies must clearly document the type of contract used, establish clear terms in the contracts, and ensure that the execution of the service does not create conditions that could be interpreted as a disguised employment relationship.
At FAB, we advise both companies and independent professionals on properly structuring their contracts, offering legal security and preventing future labor conflicts that could affect their operation and reputation.