The cap on the payment of profit sharing made by companies to their workers, introduced in the LFT [Federal Labor Law] has generated a series of questions among employers. For example, is it required to distribute a higher PTU [Employee Profit Sharing]? What happens with workers who have not been with the company for more than one year?
With the reform on subcontracting, the rules for employee profit sharing also changed; a cap, equivalent to three months of salary or to the average of the amount received by the workers in the last three years was established in the Federal Labor Law (LFT). This is the first year that companies will comply with this obligation under the new provision.
This cap on Employee Profit Sharing (PTU) has generated some confusion among companies, with frequent questions such as: What to do if the profits to be distributed are higher? or: What happens with workers who have not been with the company for more than one year? This last concern relates to the migration of employees from outsourcing companies to operating organizations.
By means of the Guide on compliance with the payment of employee profit sharing matters, the Department of Labor and Social Welfare clarified some of the questions that have arisen on the subject. In this context, the D&M abogados Firm recommended taking the following elements into account in this year:
» 1. How much must I distribute?
The Sixth National Commission on Employee Participation in Company Profits determined that 10% of the taxable income of companies’ profits should be maintained as the percentage to be distributed among all of their workers. That is, the dimension of the purse to be distributed remains the same.
» 2. How to individualize the payment?
Whether or not they have unions, companies must create a mixed commission comprised by representatives of the employer and representatives of the workers in order to determine how payments will be individualized.
» 3. Two equal parts
This rule remains and 10% of the profits will be divided into two equal parts. The first is distributed equally, taking the days worked into account; in regard to the second part, the received daily wage will be taken into account.
» 4. Directors, managers and administrators do not participate
Employee profit sharing is not limited to unionized or basic personnel, non-unionized personnel may also participate, with the exception of the general directors, managers or administrators of a company.
» 5. The salary of non-unionized personnel
The daily wage to be considered for the individualization of the PTU of non-unionized workers may not exceed the salary of the highest unionized or base worker’s salary by more than 20% .
» 6. Now we have the cap
After individualizing the PTU, if the 10% to be distributed is higher than the amount of 3 months of the worker’s salary, the cap will be applied, and the resulting amount is what the person will receive.
» 7. The most favorable limit
Nevertheless, companies who have experienced in the last years employee profit sharing that exceeds the cap of three months of salary will have to consider the average of the last three years and pay that amount if the result is more favorable for the employee.
Can a higher PTU be distributed?
The D&M abogados Firm pointed out that even though caps on the PTU were established as a result of the reform on subcontracting, companies may distribute 10% of their profits without applying the limits, provided that this is agreed by mutual consent with the workers through collective bargaining negotiations.
“The interesting thing here is to think that if there are workers with caps who cannot receive any more, then others could receive this difference based on the percentages to be determined with the factors for the numbers of days worked. Because, in reality, the amount to be distributed must be the same as the one reached through the final calculation based on the Federal Labor Law”, pointed out Irvin Díaz, a specialist in Tax Law and professor at the Escuela Bancaria y Comercial [Banking and Commercial School](EBC).
The key change, explained the specialist, is found in the cap. “It will be complex for companies that had workers in outsourcing for many years and then had these workers transferred into the actual company, because they necessarily have to oversee that the company who had the workers for nine months pays them the corresponding PTU and they, for their part, must pay the workers’ PTU for the remaining months.”
In this sense, the topic of seniority is also found within recurring questions posed by the employers, who ask: What will happen with workers that were migrated from one company to another and do not have the same seniority as the rest of their peers nor a year of service?
Faced with this scenario, the specialists at D&M Abogados pointed out that “the seniority of the worker does not make a difference in the application of this limit of the average of the profits of the last three years, that is, if a worker joined the company in the last year, but the company has distributed profit sharing that exceeds three months of salary during the last three years, this is the limit that will apply to the newly hired worker.”
The PTU is not for everyone
The Department of Labor reiterated in the guide that the reform on subcontracting had as its objective that the rights of all working people be respected. In this sense, the authority estimates that with the new PTU rules, workers will receive in average an amount equivalent to 57 days of wages, which represents 2.9 times more than what was paid up to last year.
However, Marcela Calderón, Social Security and Tax Services in Remuneration partner at KPMG México, believes that a possible scenario is that not all companies will pay profit sharing, since this obligation is subject to the existence of profits.
“A situation that must also be taken into consideration is that we are coming from a pandemic, and we are in a pandemic with sectors that were extremely hard hit in which there is not necessarily any profit for this year. That is important because expectations can be generated that may not be in line with the process that we are going through. There we see a scenario, with these companies that have tax losses, and this being thus filed, and where people have the expectation of receiving three months of salary as PTU”, the specialist explained.
In this scenario, added the specialist, the expectation of receiving profit sharing from a company with tax losses represents a risk because the employment relationship can be undermined. “The PTU is an important issue because there are great expectations in regard to it this year. I have been asked whether everyone will now receive three months of salary, but that depends on the company’s results.”
In accordance with the Federal Labor Law, companies are exempted from paying PTU in the following cases:
- Newly created companies, during their first year of operation.
- Newly created companies with the purpose of manufacturing a new product, during the first two years of operation. The determination in regard to the novelty of the product will adjust to the provisions of the laws for the promotion of new industries.
- Newly created extractive industry companies during the exploration period.
- Private assistance institutions, acknowledged by law, that perform actions for humanitarian assistance purposes with private property assets, with non-profit purposes and without individually designating 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.
If companies that do have taxable income and do not fall within the scenarios provided for in the LFT fail to comply with this obligation, they may be subject to a penalization of between 24,055 and 481,100 pesos.