Real life cases: 5 practical scenarios on employee profit sharing, 2022

Note published on May 4 in El Economista, Capital Humano [Human Capital] Section by Gerardo Hernández.
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Specialists in labor and tax matters gave answers to concerns about the payment of PTU (employee profit sharing) for this year, such as what may happen with performance bonuses or the left-over amount after applying the new caps established in the LFT [Federal Labor Law].

Companies have a deadline of May 30 to pay employee profit sharing to the workers. This year will be the first time that companies apply the legal caps established by the reform on subcontracting: three months of salary, or the average of the amount received in the past three years, whichever is most favorable for the worker. This new criterion has triggered a series of scenarios.

Specialists in labor and tax matters have identified at least five possible scenarios in regard to the questions surrounding the caps on Employee Participation in Company Profits (PTU). Concerns range from what happens with performance bonuses to what to do in case that the company has surplus resources after applying the caps, that is, if after individualizing the profits, 10% of taxable income has not been distributed.

In this sense, Ricardo Martínez Rojas, partner at the D&M Abogados Firm, said that, in his opinion, the companies’ Mixed Commissions will play a key role in ensuring compliance with this workers’ right and reach clear agreements.

“The internal work conducted in the company is important, the Mixed Commission must be created to establish the PTU for each worker; we believe that, within the company and together with union representatives, they must clearly establish what is the salary to be used for each worker and how much PTU the worker is entitled to. We believe that with this reform, it is more important than ever to have a well-established Commission that reaches clear agreements”, the specialist emphasized during the Practical cases in profit sharing matters webinar presented by D&M Abogados.

In summary, Companies must distribute 10% of their profits among the workers; these profits are determined with the yearly return on Income Tax (ISR) before the Tax Administration Service (SAT). The percentage to be distributed remained the same, but the reform on subcontracting added two caps to the Federal Labor Law  (LFT) to be used to determine the amount that each worker will receive (individualized)

These are the scenarios that specialists visualize in regard to the payment of profit sharing:

» 1. What salary should be taken into account to determine PTU?

“It seems very simple when we say: three months for the worker, it is very easy, we look for the last salary of 2021 in the payroll and that is what we pay. But there are two schemes in which exceptions take place”, Ricardo Martínez Rojas pointed out.

The LFT has two criteria in this sense, first of all, it states that the salary to be used for the payment of the PTU will be the daily wage.

However, in the case of non-unionized employees (only general directors, administrators and managers do not participate in profit sharing), when their remuneration is higher than that of the unionized worker or the base worker with the highest salary, the highest salary of unionized or base workers, plus a 20% increase, is used as the maximum salary for non-unionized personnel in the calculation of employee profit sharing This is where the question arises: What salary to use when individualizing the PTU?

“Here comes a second interpretation that has caused us a lot of difficulty, because the new limits state that the worker will have the right to three months of his salary, but it does not make any exceptions, it was just an addition The dilemma then arises on what salary should be used for the non-unionized worker”, the specialist points out.

From  the point of view of Ricardo Martínez, despite the fact that nonunionized workers also have the right to have their PTU calculated based on their daily wage salary (even though this is higher than the maximum income of a unionized worker), there are also elements for applying the other criterion: the highest salary of unionized workers, with an increase of 20% as the maximum remuneration of non-unionized workers.

» 2. If after applying the caps I distributed 8.5% of profits, what happens to the remainder?

This is something that may happen in some companies; although the purse to be distributed may be of 10%, a lower amount is distributed once the PTU amounts are individualized. From the fiscal perspective – which could differ from the labor perspective – the surplus does not qualify as PTU, stated Jaime Rojas, directing partner at the SKATT Firm.

“In our opinion, quite simply, if the maximum amount to be paid for the concept of PTU is 8.5%, the company is under no obligation to pay the remaining 1.5% to its workers and, therefore, it should not constitute a liability or a debt toward said workers. The most important thing is to prove that that 1.5% is not a debt”, explained the specialist.

In these cases, added Viviana Belaunzarán, a partner at the same Firm, companies had the opportunity upon the submission of their annual return, of limiting the maximum amount to be distributed to a lower percentage – if this was obtained after applying the caps – to avoid having a surplus.

“The format of the 2021 annual return for 2021 itself already incorporated this reform. In one section they asked whether we had the obligation of paying the PTU, and we had to answer “yes”. It went on to ask if we determined the PTU based on the paid salary: if we answered in the affirmative, we had the possibility of stating, in the annual return, as in Jaime’s example, the amount corresponding to the 8.5%, thus limiting it. In we answered “no”, the format considered that we had the obligation of paying 10%”, the specialist explained.

A possible alternative, she added, is to submit a complementary return, adjusting the general purse to be distributed to the amount obtained after applying the new caps. “It is completely valid, companies are sometimes afraid to file complementary returns because of the limits in their filing or because they can reactivate verification powers, but I believe that the benefit is significant if we are applying these caps.”

Unions monitoring the process

Óscar de la Vega, partner at the D&M Abogados Firm, stated that the caps for the calculation of profit sharing are not being applied in some companies, as a result of collective bargaining negotiations, and 10% is being distributed as usual, as in previous years. But companies with active unions may present a new scenario:

» 3. I have an active union and, after applying the caps, I have a surplus, what can happen?

In these cases, unions may spot inconsistency if the amount in the annual return is of 10%, but a lower amount was distributed. “The union may ask where the rest has gone”,  Óscar de la Vega stated.

In this sense, the specialist was of the opinion that adjustments made in complementary returns can help to provide greater certainty, although this does not preclude the possibility that the distribution of the surplus is agreed upon in collective bargaining negotiations.

Unions, he added, may challenge the amount that the company is distributing before the Ministry of Finance, after having analyzed the cover of the annual Income Tax return filed by the company itself. If the agency determines that there is a balance in favor, the employer must pay it. But one of the risks is that if the employer files an “amparo” procedure and a court rules in his favor, the surplus covered by the employer must be deducted from the active workers at the time in which the ruling in favor of the “amparo” is effective.

“Imagine the worker who did not receive anything, but in 2025, when the employer wins the “amparo” procedure, has to compensate the payment. “This type of problems is a reality in our actual practice”, said Óscar de la Vega.

On bonuses and other frequently asked questions

» 4. Can the PTU be replaced by commissions or performance bonuses?

Given the concern in regard to complementary PTU payments, Eduardo Arrocha, a consultant for D&M Abogados, explained that “commissions integrate the salary. Participation in profit sharing is of a constitutional nature and the salary is another matter, I cannot exchange profits for salary.”

Performance bonuses, however, can be used to compensate the payment of profit sharing. For example, the amount of this benefit can be variable, depending on whether the payment of the PTU was lower because of the caps or if there was a surplus. “I believe that certain systems could be established in which, if an employee generates an amount that is higher than the amount that corresponds to him for PTU, the difference in PTU can be paid as a performance bonus”, explained Eduardo Arrocha.

» 5. I had a service supplier, but I transferred the workers to the operating company, what happens in this case?

As a result of the implementation of the reform on subcontracting, some companies transferred the workers form their service suppliers to their operating companies and, therefore, the question arises on: what will happen with each company’s PTU?

In a strict sense, Viviana Belaunzarán explained that both the service suppliers and the companies that received the workers must pay PTU this year and, therefore, a double payment of profit sharing may be generated. “Each company has its own results, must make its calculation and apply these limits.”

Another frequent question, in which there are conflicting interpretations, is on the average of the last three years for workers that have not worked at the company for that long, the specialist pointed out.

Even though the Department of Labor and Social Welfare (STPS), by means of a guide, established that seniority should not be taken into account in these cases and companies should take the “average amount for the last three years corresponding to the category” to which the worker belongs. Viviana Belaunzarán emphasized that this is not regulated in the Federal Labor Law and is a criterion issued by the STPS to soften the differentiated treatment that workers with a seniority of less than three years could be subjected to.

The STPS estimates that the new rules established in the reform to the Federal Labor Law for profit sharing will cause workers to receive an average PTU of 57 days of salary (around 18,557 pesos), representing 2.59 times more than the amount they received last year.