Only 38.7% of workers in Mexico receive the payment of profit sharing

Note published on March 22 in Factor Capital Humano, Leyes y Gobierno [Laws and Government] section by Gerardo Hernández
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Profit sharing has become a utopia for most workers. Only 38.7% of the labor force in our country participates in the annual profits earned by companies, as per data from the 2020 Population and Housing Census.

Employee Participation in Company Profits (PTU) is a right protected by the Constitution and regulated by the Federal Labor Law (LFT); however, according to information presented by the National Institute of Statistics and Geography (Inegi), it is the labor benefit with the smallest reach among the salaried population of the country.

According to the census, PTU has a reach of almost 10 percentage points below housing loans – the next to last benefit with the smallest reach – which 47.5% of the workforce has access to and 22.9 percentage points below the year-end bonus, the benefit that is most widely received among the salaried population.

Federal authorities, employers and workers’ representatives agreed to cap the amount of PTU to three months of salary in order to go forward with the reform that will close the tap on labor subcontracting, only allowing third-party provision of specialized services. It is expected that the percentage of participation in company profits will also increase with this measure.

Currently, according to Inegi, workers receive an average of 22 days’ salary as PTU, which is equivalent to 7,301 pesos. The proposed cap, which will be included in a project of amendments to Article 127 of the LFT, to be discussed together with the reform on subcontracting, would raise the average to 57 days paid, an equivalent to 18,557 pesos.

Profit sharing is a topic that the business sector requested to be thoroughly reviewed, acknowledging that the growth in the use of outsourcing was linked to controlling the payment of PTU in order to avoid “distortions”, such as sharing profits that are not linked to people’s work. Some examples are the profits generated by the sale of assets, exchange rate fluctuations, interests on loans granted, royalties, tax incentives, among others.

In this sense, business leaders argued that prohibiting labor subcontracting without capping profit sharing would make organizations less competitive and would create greater distortions in the market.

The low PTU coverage is not linked in its entirety to outsourcing schemes, the Federal Labor Law excludes directors, administrators and general managers from profit sharing and, additionally, some companies, for example, newly created organizations, are exempt from sharing their profits among the workforce.

The agreement for the existence of a cap on PTU at three months of the worker’s salary or the average of the profit sharing received in the last three years, whichever amount is highest, was reached after several tripartite roundtables

The same right, different realities.

While 61.7% of workers do not receive profit sharing and 22 days, in average, are paid for this concept, there are sectors, such as steel works, in which the PTU can reach the amount of up to eight months of the worker’s salary, or mining, with payments of up to 300,000 pesos, due to the fluctuation of the price of metal.

Thus, incorporating a payment based on the average of profit sharing received in the last three years is a way of protecting the rights of workers belonging to those industries that distribute more than three months of salary, stated Rodolfo González Guzmán, secretary general of the Regional Confederation of Mexican Workers (CROM).

“Whichever is most favorable to the worker, that is what the bill states”, the union leader pointed out.

For González Guzmán, the reform on subcontracting and the cap on PTU are an effort to even the playing ground among all workers, taking into consideration that there is a part of the workforce that has no participation in companies’ profits.

“It was an apparently unfair situation”, but it had its nuances, “because some of the workers who receive profit sharing of above one year of salary, such as miners, have lower salaries than more specialized workers”, he said.

For his part, Alfonso Bouzas, coordinator of the Citizen Observatory of the Labor Reform, believes that the agreement reached within the framework of the discussion of the reform on subcontracting represents progress. “Profit sharing was not granted before; it is now intended to be granted.”

The approach on PTU matters will be a generalized benefit, particularly in the case of workers with the smallest earnings, the specialist pointed out.

Practical solution

Óscar de la Vega, partner at the D&M Abogados Firm, qualified the agreement as a practical measure, as eliminating labor subcontracting without capping the PTU would have increased corporate taxes for high profitability companies.

“The 10% on PTU without any cap was, in fact, lapidary for some organizations, because if it was added to 30% of income tax, plus 5% of dividends, it placed companies at a total disadvantage. It is a practical and correct measure, as far as it goes”, stated the labor lawyer.

In the financial sector, for example, the disappearance of outsourcing without capping profit sharing would have meant sharing up to 24 months of profits, said the specialist. “Therefore, it is a practical, positive measure.”

However, the percentage of profits that is distributed among workers, equal to that of the eighties, continues to be disproportionate to the reality of today’s economy, in the opinion of Óscar de la Vega.

For now, he concluded, the agreement is a solution that helps the business sector, but the underlying problem is the percentage. “It is a partial solution to the problem.”