I will give my impressions and experiences on:
Pros and cons of hiring a contractor vs. hiring a day wage worker
Paying social security for employees in Panama
In my previous post on employees in Panama, I talked about:How to choose a good employee, What to expect, and Real cost, as opposed to the perceived cost of a worker
If you speak to enough expats, you are bound to find at least one who has a nightmare saga to report about an employee. An employee who reported the employer to the Labor Ministry (“Ministerio de Trabajo”).
The Labor Ministry is sort of like the Gestapo in Hitler’s Germany.
You really don’t want to be called in to see the Labor minister to face charges of illegal hiring practices.It is always painful, frustrating, and often expensive.And it is one of the more corrupt branches of Panamanian Government (This is saying a lot!)
Most often an employer is called before the Labor Minister, because a worker is incapable, or unwilling, to perform the required task, and simply wants to get a big “severence pay check” prior to quitting, or being fired. This can even happen when an employee has as little as a few days of employment with the foreign employer.
This whole situation can be avoided, if the expat employer had performed the necessary research to find an employee capable of performing the task. Mostly by asking other expats whether the “employee worked successfully in the past?’
To sum up so far, to successfully hire an employee in Panama, one must take one’s time. Do not rush things. If you are in a hurry to get a project started, and you hire the wrong person, or persons, it will end up costing you dearly, in both time, and in money, and frustration. If you get too frustrated on your first attempt, who knows, you might not try again too soon. Particularly if you are a retiree. You just don’t know how much stamina you have left for work relationships that don’t go smoothly. Far better to take your time, do your research, and hire well the first time.
Contractor vs Employee
Often it might be a better approach to hire a Panamanian contractor for a task, particularly a construction project, rather than trying to save money and hire a laborer, so that you can be your own contractor. Be honest with yourself; If you really don’t have any construction experience, Panama might not be the place to attempt your first project, especially if you only plan on building your own home. You would surely learn a lot in such an endeavor. But if you don’t plan to continue to build, then all the knowledge, and experience acquired will not have been of much value (Unless you have always wanted to contract your own house construction project, in which case the satisfaction of a project well- executed would have been its own reward.
If you hire a building contractor, again, be sure to get lots of recommendations from expats. This is your best guarantee of getting what you are hoping for. If the project is not too big, you might find that a contractor need only be a single individual, or a guy and his helper. You might not be charged much more than the usual wage for a day laborer. But, you would have the assurance that the contractor, and not you is responsible for paying his own social security taxes, and those of his helper. This is definitely worth something. You will gain some piece of mind, and you will, hopefully, have hired someone who has performed the task at hand numerous times in the past, be it masonry, painting, plumbing, etc…A word of caution. Be sure to get a copy of the contractor’s (up-to-date) license and related paperwork. Be sure to check with the local authorities in the labor department to be sure that they accept as valid the paperwork in question.
If you hire a laborer as your own, personal, or professional employee, be aware that you will be required to fill out social security paperwork every two weeks and deliver it to the local Social Security office in person. (Although, you may now file it online!).
If you are from the US, or any other modern nation, you will likely be taken on “a trip down memory lane” at the social security office.It will either remind you of how things were done in the US 50 years ago at a similar social security office, or it will remind you of your worst recollections of endless lines, and incompetence at the US Postal Department in years past.
You will try to recall when the last time was that you saw endless forms filled out, longhand, and then stuffed randomly into unlabeled file boxes to be forgotten forever.
If you are enticed by the idea of hiring a domestic servant, or cook, or gardener for $10-$15 per day, but you are also reluctant to go through all the hassle of wrestling with the Panamanian social security system, you will definitely have to get creative. One thought is that you may be able to train the employee to take their own paperwork to social security, stand in the line, and file their own Social Security payments. You pay your part, but you do not have to lose your sanity, little by little, dealing with the incompetence and glacial torpor of the Social Security process.
In the case of having your employee do their own filing, it is a brilliant concept, but not so simple in the execution. The success of this one goes right back to principal #1 of part one of this article:Hiring the right employee.
In our own case, we had a wonderful woman working for us as a domestic helper. She was smart, nice, talented, she could cook really well. The whole family loved her. But, little by little, over the years, she began to show up for work less and less. Since she was doing her own social security paperwork, it should come as no surprise that this woman was not a reliable person to have the responsibility for doing this important job. Though it was with tear filled eyes, we eventually ended up letting her go.
I think that if you hire the right person, you should be able to train this person to do their own bi-weekly social security filing. This is a target that I believe is entirely achievable, within the Panamanian social security system, and it is one that should not drive you crazy. Although, now that you can file online, this is not such an issue.
Another possibility, especially in the case of heavy manual labor, such as gardening, logging, hauling, construction, etc…is that of helping your trusted worker to acquire their own contractor’s license. There are a number of specialty licenses available, including “gardener” “general contractor” “handyman”, among others. If your laborer has other clients, it is entirely feasible that your relationship with this person be that of contractor and client, rather than that of employee and employer.
Costs of such licenses are not too high. Also, if you truly value this person, and not just this person’s services, then you may want this person to pursue their highest potential. If they are licensed contractors, you will always be encouraged to pay the best wages to your valued employee, or you will lose your employee to the competition. Hopefully, as Panama continues to develop, wages will keep pace with the cost of living, and your laborer will continue to be more valuable, year after year.
Not Paying What Employee Is Worth
We have witnessed the experience of expats who tried to maintain an artificially low wage for their own trusted, long-term employee(s). Invariably, that employee will eventually leave, even if the employee never openly voices dissatisfaction with the wages received.
Panamanians are well known for being conflict avoiders. If an employee doesn’t think he’s getting a square deal, the first time you hear about it will probably be the day he asks for his final wages.
It’s likely that you will not get a second chance to negotiate, especially if your ex-employee has already been hired by another employer who shows greater appreciation of your now ex-employee.