Profit sharing, the labor discussion for 2021

The government, employers and workers will seek to define a new system after 40 years with no changes.

Note published in El Economista, Empresas [Companies] Section by María del Pilar Martínez.
Read the note in its original source

Employee Participation in Company Profits (PTU) will become the most transcendent discussion in labor matters in 2021, not only because it could modify the bill on subcontracting (outsourcing-insourcing), but because after four decades an employer obligation will be adjusted to market conditions.

This because, the federal government, the employer sector (specifically the Business Coordinating Council) and workers signed an Agreement on December 9 to open a discussion and define a “fair profit-sharing system” .

Consulted separately, specialists believe that “since last year, when the call was made for the formation of the Sixth Commission with tripartite representation to discuss the percentage that should be granted to workers as profits, a profound discussion should have taken place, not leaving a percentage of 10%, which was the one already in place”, stated Óscar de la Vega, partner at the D&M Abogados Firm.

The process for setting the new percentage for the payment of PTU started in August, 2019 and was completed in September, 2020. By law, a review is conducted every 10 years and a Call is made for the workers’ and the employers’ sectors to choose their representation in the review and the government is the one who must make the call to review this type of benefits that are granted to the workers.

“It is not so easy to start a new discussion on the cap on profits, the PTU Sixth Commission has been dissolved since September 9. It is being resurrected outside of the legal framework”, said Pablo Franco, president of the Union of Jurists of Mexico.

He explained that if the intention of all of the sectors is to make amendments, then a new Council of Representatives for the Seventh National Commission for Participation in Company Profits should be called, “but there we have a question of legality, because it already is a right acquired by workers and it would be revoked, which is in violation of labor human rights”, said Franco.

PTU led to the creation of insourcing in companies

For his part, De la Vega explained that insourcing companies (a different corporate name in relation to the company that hires personnel) was born as a strategy to be competitive in the labor market, as “the 10% of profits that must be given by companies is still extremely high for the Mexican economy and has been in place for over 35 years.”

He added that the objective of labor subcontracting, under this mode, is making companies’ activities more efficient, since the American trade partner has an income tax of 20%, while in Mexico we continue to be at 35% plus 5% in dividends, adding the PTU in a pyramidal manner.

In past days, the employers’ sector presented a proposal for modifying the PTU that consists of establishing the maximum amount of profit sharing in accordance with the salary range, capping it at 60 days for those earning between one and 5 minimum wages and those who have 42 minimum wages as their salary will only receive 1.5 days, as part of the benefit.

In the opinion of lawyer Pablo Franco, this proposal requires constitutional amendments, which would lengthen the discussion.

How does it currently work?

  • The distribution of profits is a constitutional right of the workers to receive a part of the profits obtained by a company.
  • Profits are set in accordance with the percentage determined by the National Commission for Employee Participation in
  • Company Profits (which, to this date, ascends to 10% of net profits).
  • The distributable profit will be divided in two equal parts. The first part will be distributed equally among all workers, taking the number of days worked into account. The second part is distributed in proportion to the wages earned for the work provided during the year.
  • Only the daily quota salary should be taken into account.