Every year, 10 percent of a company’s taxable profits are distributed to employees in the form of employee profit-sharing. According to Mexican law, every employee has a right to receive it. Exceptions are managing directors, board members, domestic workers and casual workers. The amount of profit-sharing per employee is calculated on the basis of the number of working days completed during the financial year and the salary received during the same period.
Companies to which this regulation does not apply according to Article 126 of the Federal Labor Act are the following:
- Companies during the first year after the start of a business
- Companies that develop new products during the first two years after the start of business
- Companies whose taxable income is less than 300,000 Mexican pesos per year
- Newly formed companies currently in the Exploration Period and operating in the extractive industry
- Non-profit private aid institutions dedicated to humanitarian causes
- The Mexican Institute for Social Security (IMSS) and decentralized public institutions for cultural, social or charitable purposes
The distribution of employee profits, also known as PTU (Participación de los Trabajadores en las Utilidades), is both a constitutional right of the company’s employees and an obligation on the part of employers to generate these profits. If one of the does not comply with this obligation, sanctions may be imposed by the employment authority. The distribution of profits must take place by 31 May of the current year at the latest.
In the event that the employer does not fulfil this obligation or does not fulfil it in time and the Ministry of Labour and Social Affairs pays an inspection visit, it may impose administrative proceedings and a fine. The amount of the fine is between 250 and 5,000 times the general Mexican minimum wage. It is therefore very important for employers to fully comply with this constitutional obligation, as a sanction may be imposed in addition to an inspection visit by the employment authority.
We will be happy to provide you with further information on the obligation of employee profit sharing in Mexico. So you can be sure that all legal regulations are complied with. If you have any questions or would like more information on this subject, please do not hesitate to contact our legal expert.
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