Employee Profit Share (Participación de los Trabajadores en las Utilidades) (“PTU“) in Mexico is a legal requirement for locally-based companies to share a portion of their profits with their employees. Therefore, it is something that investors must consider when planning a market entry.
Suppose you are interested in starting a business in Mexico or are already doing business here. In that case, you will need to understand how employee profit-sharing works in the country to avoid penalties and inconveniences due to non-compliance.
According to the law, PTU payments are not part of an employee’s salary.
If a loss fiscal year is followed by a profit one, employees don’t have the right to be compensated after non-payment of PTU during the loss period. The PTU is not accumulative, and it is limited to a sole fiscal year.
Which companies have to share profits in Mexico?
Every company with employees that registers annual profits above MXN $300,000 (approximately USD $15,000) must share a portion of its profits with its employees.
Profit-sharing is based on the yearly tax returns filed to the Mexican Tax Administration Service (“SAT”).
However, some businesses do not have to pay PTU when they begin operations in Mexico. Specialized accountants and attorneys can help you obtain such benefits.
Which businesses are exempt from profit-sharing in Mexico?
Mexico’s Federal Labor Law has a specific exemption for businesses in the first year of operations. As a result, these companies are exempt from paying PTU, and, in some exceptional cases, this benefit can last up to the first two years of operation.
Some businesses with extended PTU exception benefits include:
- Mining companies in their exploration period.
- Duly registered Non-Profit Organizations (NGOs) in Mexico.
- There are specific benefit programs for other businesses that may consist of PTU exemptions, these programs change from time to time, so I advise you to contact me to check if your business can apply.
- Mining companies
- Non-Profit Organizations (NGOs)
- Temporal specific programs
Which employees are entitled to a share of profits?
- Permanent employees
- Temporary employees
- Former employees
The general rule is that all employees are entitled to profit shares, including:
- Permanent workers
- Temporary workers whose period of labor exceeds 60 days in the fiscal year
- Former employees who worked for at least 60 days during the fiscal year
There can be some exceptions to the general rule depending on the employment contract type. Usually, the following job positions are excluded from profit shares:
- C-level workers.
- Directors and senior executives.
- Temporary workers who have worked less than 60 days in the fiscal year.
- Third parties contracted under a services contract (outside lawyers, accountants, consultants).
- Outsourced personnel. (There have been many changes to the outsourcing regulations, please get in touch with me if you have a specific enquire).
How is profit sharing calculated?
The rule is that a company shall distribute 10% of the profits generated during the fiscal year to its employees.
When calculating PTU, a company must first split those profits into two equal parts. The first part of profits will be divided evenly between all employees, based on how many days of the fiscal year they have worked.
The second part is distributed based on the employee’s salary, excluding benefits and bonuses.
When is PTU due to pay?
PTU must be paid to employees no later than 60 days after the company is due to pay its yearly taxes.
Corporations shall pay their yearly taxes no later than March 31. Therefore, the company shall pay the PTU to its employees between April 1 and May 31 of that same year.
If employees work for a sole-owned business (not a corporation but an individual), the PTU shall be paid between May 1 and June 30 because the individual taxes are due by April 31.
Every case needs special care and professional advice to calculate the exact amount to pay, specific dates, and if any exemptions are applicable. Also, it is crucial to design an excellent corporate strategy to avoid risks and contingencies down the road.
Don’t hesitate to contact me if you have questions or specific enquires you would like to discuss. Please email me at online@roelatam.com