They reactivate discussion about the amount of profit sharing, how much is fair?

Note published in Capital Factor Humano, Leyes y Gobierno [Laws and Government] Section by Gerardo Hernández.
Read the note in its original source

This week, the authorities and business and union representatives will begin a series of discussions to analyze the percentage for profit sharing, as a prelude to the reform for regulating subcontracting.

The Department of Labor and Social Welfare (STPS) will begin a dialogue with business chambers and unions, starting on January 20, to analyze the current percentage paid by employers for the concept of Employee Participation in Company Profits (PTU).

The discussion on profit sharing is one of the agreements signed by the government with the private sector and workers’ representatives at the end of last year, when the discussion on the reform for regulating subcontracting driven by the Executive Power was postponed.

“The agreement is that we have a dialogue between the parties, that the term for conducting the dialogue is extended in order to reach an agreement on this topic both in the workers’ sector and in the employers’ sector, because there is a relation between subcontracting and profit sharing”, President Andrés Manuel López Obrador said at the time.

The business sector asked the government to incorporate the analysis on the current percentage of PTU into the framework of the discussion on the reform to subcontracting.

PTU is a right established in Article 123 of the Constitution. Currently, companies must grant a profit-sharing amount equivalent to 10% of the profits obtained in the year. The value of this benefit has remained unchanged for 30 years and that same amount was ratified last September by the tripartite commission created for its review.

To date, the Business Coordinating Council (CCE), has proposed that profit sharing be capped at 30 days of salary per year, the government proposes that the limit be 60 days of salary per year.

Carlos Salazar Lomelín, president of the CCE, stated that the intention is that this labor benefit be truly beneficial to lower-income workers, in addition to be delimited to “its proper dimension”.

“An invitation was sent today both to the private sector and to the workers’ sector summoning us to a series of discussion tables, that will begin on Wednesday and will last five days, for the discussion on PTU (profit sharing.).

On several occasions, the authorities have stated that illegal subcontracting has been a tool that some employers have used to avoid labor responsibilities such as profit sharing.

Why profit sharing?

From the perspective of Óscar de la Vega, partner of the De la Vega & Martínez Rojas Abogados Firm, setting a cap on PTU would create the conditions for the employers’ sector to accept the government’s reform on subcontracting.

The specialist states that the reform to the Federal Labor Law (LFT), driven by the President, is largely due to insourcing, that is, service providers created by the companies themselves for the supply of human capital. “It was the way in which a balance was kept in regard to this topic on costs. In Mexico, Income Tax for companies is of 30%, plus a 10% PTU and 5% in dividends.”

This mode, acknowledges the lawyer, was used by some companies to “maintain control over PTU”, because the current value of profit sharing, added to the corporate tax, has caused employers to lose competitiveness.

“Technically speaking, this percentage must be adjusted to the needs of the country; the economic solution of 30 years ago is different from the current one. The orthodox solution was the adjustment of the percentage last year. The sixth commission kept the same percentage without truly conducting an in-depth analysis on whether the amount corresponded to the same conditions”, he said.

For Alfonso Bouzas, coordinator of the Citizen Observatory of the Labor Reform, the PTU is a “bargaining chip” in face of the outsourcing reform and must not be subject to negotiation.

“It is a shameless confession by employers to say that they resort to subcontracting with the objective of reducing profit sharing. They are confessing to their fraudulence, let us start with that. There is no reason for the agreement that is reached in regard to profit sharing to be linked to subcontracting. In regard to this mode, it should proceed in cases in which it is justified, but not in those cases in which it is not justified and is solely an employment fraud”, in his opinion.

In this sense, the specialist underlines that the economic situation is critical; nevertheless, the attitude of avoiding the payment of contributions is not unheard of in the employers’ sector and the topic of PTU responds to this, considers Alfonso Bouzas.