Profit Sharing or Employee Participation in Profit Sharing Payments (PTU in Spanish) is a constitutional right that all employees have in participating in their employer or company’s profits for the productive activity or services that they offer, in accordance to their taxable income. The Federal Bureau for the Defense of Labor (PROFEDET- Procuraduria Federal de la Defensa del Trabajo) states that profit sharing is an appreciation to employees for their participation in the production of profit at their workplace.
Are all companies obliged to pay Profits?
No, not all companies are obliged to profit sharing; there are guidelines for companies that permit them to exempt from profit sharing depending on their status.
The cases in which companies are not obliged to share a percentage of their profits with their employees are the following:
- Newly created businesses during their first year of operation and in the case of manufacturing a new product they are exempt during the first two years.
- Newly created mining industries during their exploration period, i.e. when there is no benefit.
- Decentralized public institutions with cultural, assistance or charity purposes, as well as the Mexican Social Security Institute.
Who is entitled to receive profit sharing?
All employees who work in subordination of a natural person or legal entity and receive a salary as retribution. They have to have worked more than 60 days in the year (either working in a project-temporary- or full time.)
- Full time employees: those who work for a company permanently for an undefined time, regardless of the number of days worked.
- Project based employees or determined time (temporary): those who work only for a period of time or are project based, e.g. those who work substituting someone during their maternity leave or are only hired for a specific project. To be entitled to profit sharing, temporary workers should have worked for minimum of 60 days during the year, continuous or discontinuously. Nevertheless, if the employee works for 60 days but during two different fiscal periods, he is not entitled to profit sharing.
- Full time former employees: those that were fired or resigned voluntarily are also entitled to their correspondent profit sharing corresponding to the days they worked and salary received only for the period they worked.
- Project based or temporary former employees: those that ended their work relationship with the company in the agreed time or project. They are only entitled to profit sharing if they worked for more than 60 continuous or discontinuous days over the same fiscal period.
- Employee in a position of trust: they are entitled to the company’s profit sharing, though if their salary if greater than a union worker or full time employee; this salary will be considered with a 20% increase as a maximum base wage and thus will be part of profit sharing.
- Working mothers during pre and postnatal periods: they are entitled to profit sharing, as well as those who suffered a work risk during their temporary period of incapacity. Note: workers hired on a fee basis or that do not have a subordinate work relationship (are not employees) are not entitled to this payment, as well as company directors and general managers, partners and shareholders.
What is the deadline to collect profit sharing?
Profit sharing should be paid to employees within sixty days following the date of the annual tax declaration. That is to say, that for legal entities, if their tax payment date is March 31st, the employee should receive their corresponding pay no longer than May 30th. In the case of employers or natural persons the payment should be done no longer than June 29th.
- Active employees: they have one year to collect their profit share, starting on the following day the payment was generated, in other words as from May 31st or June 30th, as applicable.
- Former employees entitled to profit sharing: they have one year to collect their corresponding pay, which in the same way starts on the following day to the payment deadline: May 31st or June 30th, as applicable.
- Unclaimed amounts during a period will be summed to the distributable profits in the following fiscal year; if there were no profits this following year, profit sharing would be done with the sum of all unclaimed amounts.
What happens if there was no profit sharing to employees but there was profit that year?
Remember that it is an obligation for employers to calculate profit sharing and pay it to your employees. You must hand in a copy of the document to a committee comprised of your company’s employees after 10 days of presenting your annual declaration. This has to remain in the company’s office for a maximum period of 30 days.
The employees must not disclose the contents in the document to third parties. So you must not worry that your company’s numbers will be spread irresponsibly.
With this, employees can request the Secretariat of Finance and Public Credit (Secretaría de Hacienda y Crêdito Público SHCP) for suitable feedback and the institution must answer in writing.
If it is determined that profit was generated, you will have to pay your employees, and if it is not done within the set time frame, you will have to cover the corresponding fine.
The penalty for non-compliance corresponds to a fine of 250 to 5 thousand times Mexico City’s general minimum wage, as stipulated in Mexico’s Federal Labor Law, article 994, section II.
Note: Remember that profit sharing is an inalienable right. – Profits should be paid directly to the employee, unless he is unable to personally collect the share and so must appoint a power of attorney or another person responsible. – The amount cannot be handed over to third parties.
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You can find this and other articles and seminars at www.teranrojas.com. This article is property of TR & Associates and its reproduction requires Terán Rojas & Associates’ written consent, as they have the rights to this piece of work. Copyright 2019. This article is a general explanation of the current fiscal issues at the time of publication. “This article may be contrary to the fiscal authorities’ interpretation.” For a given particular case we recommend to gather written information of the fiscal liabilities applicable to the case.