Everything you need to know about profit sharing, 2021

Note published on May 16 in El Economista, Empresas [Companies] Section by Gerardo Hernández.
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The cap for the payment of the PTU approved in April will apply in 2022; that is, when companies share the profits of 2021 with their work force.

May 30 is the deadline for companies to distribute profits among their employees. Meanwhile, natural persons with business activity have until June 29 to comply with this obligation.

Employee participation in company profits (PTU) is a right of the workforce established in Article 123 of the Constitution and regulated in the Federal Labor Law. Currently, employers must distribute 10% of their annual profits among their human capital.

With the reform on subcontracting, a new criterion for the calculation of the PTU was included. Even though the percentage of profits to be distributed remains the same, the amount that is given to each worker may not exceed three months of salary or, otherwise, it will have to be equivalent to the average of the distribution of profits received in the past three years, whichever is more favorable to the employee. This rule, however, cannot be applied this year.

“After its publication, there is a 90-day period for companies to regularize themselves, that is, a term of three months. Let us say that, if it is published today, the reform would apply before August. This means that in this acknowledgment and in this transfer of workers acknowledged as their own, from the time of this acknowledgment, workers will be eligible to participate in this right for the next profit sharing”, explained Luisa María Alcalde Luján, Secretary of Labor and Social Welfare in a press conference held at Palacio Nacional [the seat of the Executive Power].

The PTU is a right with tax and labor components. The profits that companies share with their workforce depend on what they report through their annual return to the Tax Administration Service (SAT).

The amount received by workers for the concept of profit sharing each year corresponds to the profits generated on the previous fiscal year. That is, in 2021 companies distribute profits obtained in 2020.

One of the objectives of the reform on subcontracting was to guarantee the participation of workers in company profits. Among the consensus reached by the government, the private sector and the workers’ representatives to advance the bill, a cap on the PTU was included in order to avoid distortions at the moment of prohibiting outsourcing based on the supply of personnel and, thus, insourcing schemes.

In this sense, Sara Morgan, attorney for the Defense of Labor of Mexico City considers that the participation in profit sharing of workers that have been subcontracted up to now will be reflected next year.

With no extension, but reduced

Last year, the pandemic was not a valid argument for companies not to pay the PTU, because the profits to be distributed corresponded to the activities of 2019. This year, the panorama is different; although the health emergency is still no reason to evade this obligation, the lower economic activity seen in 2020 will have an impact on this benefit.

“As established by the Federal Labor Law, workers have the right to receive a part of the profits that a company or an employer obtains for the productive activity or services offered in the market. This year, entities must make the payment on May 30, at the latest, while natural persons with business activities have June 29 as a deadline”, explains the Federal Labor Defense Attorney’s Office (Profedet).

Without an extension, it is likely that workers in industries affected by the economic impact of the health emergency will receive a lower amount in comparison with other years.

“It is natural because the pandemic had an economic impact. There were very few companies that had overproduction and did not report losses. A reduction is expected, it could not be expected otherwise, because it is a logical effect because last year’s fiscal year was, in fact, affected by the pandemic”, explains Sara Morgan.

How is the 2021 PTU paid?

Óscar de la Vega, partner at the D&M Abogados Firm, explains that the 10% of profits that must be distributed by companies will be individualized, taking the two traditional factors into account: days worked and salary earned.

For the next year, he adds, the same formula will continue to apply, but with a new criterion. If, after considering the days worked and the salary, the amount of the PTU is higher than three months of salary, it will be capped at three months.

“This cap of three months and this new formula must be applied for the 2021 fiscal year, which will be paid in 2022”, emphasizes the specialist.

Profits that will be shared by companies with their workers, says Óscar de la Vega, are determined with the annual Income Tax (ISR) return, the amount to be distributed depends on it.

In a context of reduced PTU, Sara Morgan does not rule out that there are questions among workers regarding the amount they receive. However, she asks that they approach the network of the Labor Defense Attorney’s Office to receive advice and verify that the payment is correct.

Exceptions and penalties

The Federal Labor Law provides for some exceptions in the payment of PTU. For example, directors, administrators and general managers do not participate in profit sharing.

On the other hand, there are six criteria that exempt companies from this payment, this is when:

  • A company is newly created and is in its first year of operation.
  • The company is newly created and is manufacturing a new product, during the first two years of operation.
  • Newly created extractive industry companies, during the exploration period.
  • Private assistance institutions, recognized by law that, with private property carry out acts for humanitarian assistance purposes, non-profit purposes and without individually designating the beneficiaries.
  • The Mexican Social Security Institute and decentralized public institutions with cultural, assistance or charitable purposes.
  • Companies that have a capital that is lower than the one set by the Department of Labor and Social Welfare by industry branches, prior consultation with the Department of Economy.

“Companies that are merged, transferred or change their name or their corporate name have the obligation of distributing profits to their workers, as they are not newly created companies”, explain the federal authorities.

Workers that do not receive profits can report their employer at the following email address: inspeccionfederal@stps.gob.mx, or call the Profedet to receive advice, at the following telephone numbers: (800) 717-2942 and (800) 911-7877 and (55) 5998-2000, extensions 44782 and 44783. The penalty for not paying the PTU ranges from 22,405 to 448,100 pesos.